Despite contributing to the system, some individuals do not receive their full Social Security benefits. This situation, which some claim signifies inequality, has prompted the introduction of a bill aimed at rectifying this issue. Many who receive an uncovered pension often see reductions in their Social Security payments due to rules such as the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO).
These regulations have been in place for decades and adjust the benefits of those who also receive a pension from jobs that did not contribute to the Social Security fund. Originally designed to avoid what was perceived as “double taxation,” these provisions have become a source of contention.
The belief was that individuals receiving government pensions should not be eligible for Social Security benefits on equal terms with those who do not have such pensions. However, the Social Security Fairness Act seeks to reverse these outdated rules.
What are the WEP and the GPO
The Windfall Elimination Provision (WEP) specifically impacts individuals who have uncovered pensions, such as certain teachers whose schools do not pay into Social Security. While these individuals may hold additional jobs that qualify them for Social Security benefits, the WEP reduces those benefits based on their pensions.
Conversely, the Government Pension Offset (GPO) affects the spouses and survivors of those who have uncovered pensions. Similar to the WEP, the GPO reduces the Social Security benefits that these dependents could receive based on the pension of the deceased worker. The goal of the GPO is to prevent recipients of government pensions from obtaining additional Social Security benefits that they are not entitled to due to lack of contributions to the system.
What alternatives exist to the WEP and GPO to ensure fair distribution of Social Security benefits?
The benefits would be calculated using a totalization model, similar to the one for workers with foreign earnings. First, it determines a theoretical Primary Insurance Amount (PIA) based on all earnings, including both covered and non-covered earnings. Then, it adjusts the PIA based on the time spent in Social Security-covered jobs.
A new law suggests using a “covered earnings ratio” (CER) formula. This formula calculates benefits based on a worker’s earnings that are covered by the system, compared to their total earnings (both covered and non-covered) throughout their career. It serves as an alternative to the Windfall Elimination Provision (WEP).
Reforming the existing WEP and Government Pension Offset (GPO) formulas to more accurately account for the non-covered pension income retirees receive, rather than fully repealing the provisions. This could leverage the earnings data Social Security now has available.
We should find better ways to help low-income beneficiaries hurt by WEP/GPO. A blanket elimination of the provisions would mainly benefit higher earners.
How will the Social Security Fairness Act affect you
The Social Security Fairness Act proposes to eliminate the WEP and GPO, allowing all contributors to the Social Security system to receive their full benefits, regardless of any additional pension they may hold. While this bill has garnered bipartisan support in the House of Representatives, it has yet to be considered by the Senate.
The proposed changes emphasize the need for a more equitable balance in pension benefits, which, despite being valuable for retirement, can dramatically decrease monthly income for individuals affected by these laws.
The original aim of the WEP and GPO provisions was closely connected to reducing costs within the Social Security program. As noted by Sharona Hoffman, a law professor, these measures were intended to address equity issues in income replacement. Social Security benefits are structured to provide a larger portion of income for low-wage workers.
For instance, individuals reaching full retirement age in 2023 will find that Social Security replaces a significantly higher percentage of income for those with lower earnings compared to higher-income workers.
The upcoming Social Security payment dates in January 2025
Payments for Social Security retirement benefits will begin on Friday, January 3, targeting individuals who have been beneficiaries since prior to 1997. This date will also include those receiving Supplemental Security Income (SSI) in conjunction with retirement or survivor benefits.
Following this, checks will be issued on a staggered schedule throughout January: retirement payments for individuals born between the 1st and 10th will be distributed on Wednesday, January 8, while those born from the 11th to 20th will receive their benefits on Wednesday, January 15.
Payments for recipients with birthdays between the 21st and 31st will occur on Wednesday, January 22. Additionally, due to the first of February falling on a weekend, the February SSI payment will be made slightly earlier, with distribution set for Friday, January 31.