Many retired public sector workers will finally get the Social Security benefit they earned
So, how is your New Year starting out? For nearly 3.5 million retirees who earned a pension from working in the public sector, it’s starting out great. That’s because after 23 years of haranguing in Congress, both houses finally passed the Social Security Fairness Act of 2023. In an unusual level of bipartisan agreement, the sitting Congress repealed both WEP and GPO. Whoo-hoo, many will cheer!
The House passed this legislation, H.R. 82, with a vote of 327-25-1 on November 12, 2024. That sent the bill to the Senate. The Senate then passed the bill 76 to 20 on December 23rd. Recognizing public sector workers were unfairly treated under the Social Security law is an interesting situation for Congress to bond over. Yet, they have.
And just two weeks before leaving office, President Joe Biden signed the bill into law on January 5, 2025.
What the heck is WEP?
Social Security has some two thousand rules embedded in the law according to some. I can’t confirm that number. But I can tell you there are a lot of rules. Two of the most controversial are WEP and GPO.
WEP stands for Windfall Elimination Provision. It was introduced in the 1983 Social Security Amendments. That’s when Congress last looked for ways to shore up the Trust fund. It was also going “bankrupt” back then, too. (Reminder, Social Security is not going bankrupt!)
This rule impacts public sector workers who qualify for a state or local pension and also earned Social Security benefits. They have had “hybrid” careers.
The Social Security law stated they would receive their full public pension benefit first. But their earned Social Security retirement or disability benefit must be reduced. This happens when an individual has fewer than 30 years of “substantial” FICA wages.
The net effect is many workers with a “hybrid” career saw their Social Security Benefits significantly reduced. The estimate from their Social Security statement could be reduced by up to 50% of their pension. But not to exceed a specified dollar amount.
If they worked fewer than 20 years for an employer who pays into FICA, their benefit can be cut by $590 in 2024.
Repealing WEP is a bonus to many public sector workers
Let’s look at a hybrid worker’s cut to retirement income in an example. But first, it’s important to understand how the benefit calculation works. Your benefit at your Full Retirement Age (FRA) is called your Primary Insurance Amount (PIA). The structure of the formula gives an advantage to lower wage earners. They get a larger percentage of their earnings in the first layer of the calculation.
When someone works in many of the public sector jobs, FICA is not paid. If they also spend time in a “covered” job where FICA is paid, they earn Social Security credits. But their wage history looks like they are a lower-income worker. Therefore, their regular calculated PIA includes a lot of zeroes or non-substantial earnings. And they could receive a higher replacement rate. It’s all rather complex.
When a state pension is available, the PIA calculation is different. The formula reduces the first layer of the calculation. And can cut a significant chunk out of their retirement income.
Here’s an example:
Sally Snowflake is a public school teacher in a state that does not contribute to Social Security FICA. She also worked in the private sector for 23 years. However, in ten of those years, she did not make enough to meet the “substantial earnings” threshold.
She retired at her FRA. At that point she turned on her teacher’s pension of $2,500 per month, and claimed Social Security. And was quite surprised to see that her Social Security was so much less than reported on her statement.
- Her PIA on her statement = $1,350
- Her WEP-reduced PIA = $875
- That’s a reduction of $475 per month she was counting on
Furthermore, if Sally’s spouse or ex-spouse qualifies for spousal benefits, their payments will be calculated on her WEP-PIA. So only half of $875 instead of half of $1,350.
If WEP reduces a worker’s benefit, what does GPO do?
Social Security benefits are calculated to include workers and their spouses. Spouses were ignored in the initial law back in 1935. But Congress soon realized this was a big mistake. In the 1939 Amendments, they reset the math to credit at-home moms and dependent spouses with a benefit. Good grief.
The general law is that a dependent spouse is eligible for 50% of their spouse’s benefit. Dependent spouses are ones who do not earn their own 40 credits for Social Security. But what if a spouse only looks like a dependent spouse?
What if they actually worked for a state or local government? Or if they were a teacher in many states? Their employer doesn’t pay into FICA, so they don’t qualify for their own Social Security. Instead, they get a public pension.
Back in 1977, Congress decided that was a problem. A new rule, the Government Pension Offset—GPO—dramatically reduced spousal benefits. This includes current spousal and ex-spousal benefits as well as spousal and ex-spousal top-ups. Even worse, GPO reduced survivor benefits.
The worst part of GPO is that it can completely wipe out any Social Security benefits. Including for surviving spouses who may find their benefits are deeply cut or even eliminated.
The GPO repeal will dramatically help lower-earning spouses
GPO was especially unfair to women. Most teachers are women. And a large percentage of public workers—those running your local town affairs—are women. They often have careers across the public sector. And, therefore, they’ve earned nothing in Social Security’s eyes.
Here’s an example of a woman who worked in the public sector for her entire career. We’ll call her Cathy. Her husband is Jeff.
- Cathy earned a full pension working for her town for 32 years.
- She’ll get $3,000 per month.
- She did not earn 40 Social Security credits, but Jeff has a good Social Security record. She would be considered a dependent spouse eligible for spousal benefits.
- Jeff’s PIA was $2,600 per month.
- That means Cathy is eligible for 50% of his $2,600, or $1,300 per month, if she claimed at her own FRA.
- But because she was receiving a public pension, GPO applied.
The GPO rule is that the dependent spouse’s Social Security benefit will be reduced by two-thirds of the pension. In Cathy’s case, 2/3 x $3,000 = a reduction of $2,000. So, instead of getting $1,300 in Social Security, she gets $0. Ouch!
Will the GPO repeal help lower-earning ex-spouses?
Yes. This is especially important for many ex-wives. And particularly good news again for women.
Keep in mind there many eligibility rules to qualify for benefits on your ex-spouse. For this example, assume Mary meets them all. Mary was a schoolteacher in a state that provides a pension in lieu of Social Security. She also worked during the summers in local retail jobs, so she qualifies on her own for Social Security. But her benefit is small. She should have been eligible for a spousal top up based on her ex-husband’s work record. Except for that pesky GPO.
Here’s her current situation:
- Mary’s public school pension is $2,400 per month.
- Her Social Security benefit is $1,100 per month.
- Assume her ex’s PIA is $3,800 per month.
- That means Mary should be eligible for a top-up of $800 after adjusting for her own benefit. (50% of his $3,800 = $1,900, less her own Social Security benefit of $1,100.)
Because of the GPO rule, her $800 will be completely wiped out. Two-thirds of Mary’s pension is $1,600. That’s much higher than her $800 ex-spousal top up.
There’s more bad news for Mary
Furthermore, because Mary is a public schoolteacher with a pension, WEP will also apply to her $1,100 earned worker benefit. She will not get $1,100. Her benefit amount will depend on the specifics of her summer work. We’ll assume her wages qualify as “substantial earnings.” That way, she’ll only see her benefit cut back by $590.
It’s likely that Mary will end up with only $510 from Social Security. Can you imagine if this were you?
Good news for widows and widowers who have a public pension
If you are receiving a public pension, and became a widow(er), the long arm of GPO also applies. In these cases, the surviving spouse benefit is also reduced by two-thirds of the surviving spouse’s public pension. GPO also hits surviving ex-spouses who qualify.
Going back to the example with Cathy and Jeff, let’s assume Jeff dies first. Actuarily, wives do outlive their husbands, so again, WEP and GPO have been particularly detrimental for women’s economic security.
Ordinarily, Cathy would have “stepped into his shoes” to receive his benefit as her own. Her own reduced Social Security benefit would end, but she would be entitled to the larger benefit. But with GPO, she’s also going to get a huge reduction in her survivor benefits.
The GPO impact reduces her survivor benefit by $2,000 per month. She’s only going to collect $600 as a surviving spouse. And her household income takes a dramatic, and often unexpected drop.
GPO also hits qualifying ex-spouses who outlive their higher-earning exes. The law allows many ex-spouses to claim the higher benefit when their ex dies. But GPO reduces or wipes out any surviving ex-spouse benefit.
WEP and GPO have dramatically cut retirement income for many
As you can see, the huge reductions in benefits have dramatically impacted millions of public sector workers who also worked in the private sector. We’re talking about firefighters, police, state and local workers who keep your town and state governments working, and teachers in many states.
These workers cannot always make ends meet with the job in the public sector. Or they must retire at a particular time, often when they are in their 50s. They trade in dangerous and physical jobs in the public sector for something less demanding in the private sector.
Let’s not forget those who worked for 28 years in the private sector, then lose their job at 48 in a corporate downsizing. They move to the public sector for another 20 years.
No one is performing a complex analysis of future retirement income when they start their first job. Most folks just do their jobs. They’ll earn a pension from jobs in the public sector. And they’ll earn chits toward Social Security from the private sector. Fair and square.
Then at retirement, they find out how severely their income will be cut.
In particular, the firefighters union has been fighting for the WEP and GPO repeal for 50 years. That is dedication. They felt the real pinch of how unfair the WEP and GPO rules are. And so did their spouses.
But is the WEP and GPO repeal fair?
Academics and other experts may argue the WEP and GPO repeal is not fair. Technically, the formula for calculating benefits can’t distinguish between lower-wage workers and those who will get a pension. But to the millions who have worked two jobs—one in the public sector and one in the private sector—they have earned both benefits. And deserve to be paid from both pools.
For comparison, look at the many millions who receive a private pension along with full, uncut Social Security benefits. Can you imagine those getting a university pension or an corporate pension would have accepted a dramatic cut quietly? I think not.
The workers getting both private pensions and Social Security have a very comfortable retirement. They earned both benefits. Same as hybrid workers.
The issue isn’t if the workers fairly earned Social Security benefits. It’s that Congress should have found a more creative way to address the uncovered earnings. Fifty year ago.
Oh well. Time’s up. There’s a new law in town and it repeals WEP and GPO in one fell swoop.
And that’s not all!
The Social Security Fairness Act is retroactive! Shockingly, this law was proposed in January 2023. Even though the WEP and GPO repeal didn’t get through the bill-making process until January 2025, it starts retroactively. Back to January 2024.
Those workers, spouses, ex-spouses, and widows(ers) who have been hit by WEP and GPO will see a lot of changes in 2025. Their monthly payments will be recalculated to eliminate WEP, GPO, or both.
They will also receive an additional payment equal to the shortfall from 2024. Most retirees will get a full 12-month retroactive adjustment. But newer retirees may only get a few months of adjustment from 2024. The months for which benefits were paid.
We have not heard if this retroactive payment will be paid in a lump-sum, or apportioned over some period of time. We don’t know when those payments will start.
For some folks, it will create a higher tax liability. Or some will be pushed into a higher tax bracket. I’m sure there are many considerations on lots of fronts happening behind the scenes.
What steps should you take if your benefits were cut by WEP or GPO?
As of this writing, there is nothing you need to do. Turning this ship is a huge undertaking. The Social Security Administration is extremely short-staffed. And their equipment is not the most current.
I expect months will be needed to recalculate benefits for current retirees. They also have to address anyone applying for benefits in 2025. Those folks will not want to see any cuts now that the new law is in place. But they may have to be patient.
Things just don’t work that fast in the federal government.
One note if you were the lower-earning spouses or ex-spouse. You may not have filed for Social Security benefits because GPO wiped out your benefits. If this is your situation, you will want to submit an application for spousal benefits. You can do that online on the SSA.gov website. That way, you are at least in the pipeline for your new-found benefits.
If you are an ex-spouse, you typically cannot file for ex-spousal benefits online. You will want to set up a call with the SSA to file your application for benefits. Use the contact section on the SSA website to find the best way to schedule a phone appointment.
Tracking progress on the WEP and GPO changes is available
The SSA was on top of this law change and immediately set up a dedicated page on their website. They will post the latest information as it becomes available here: https://www.ssa.gov/benefits/retirement/social-security-fairness-act.html
One way to track personal progress is to make sure you can access your mySocialSecurity account. If you don’t have one yet, set up your account right away. If you already have an account, confirm you can access it with the new login.gov process.
You’ll typically find any updates about your monthly benefit increases will show up online before you get a letter in the mailbox. But remember to save all the mail you do receive from Social Security.
