For most people, Social Security benefits are calculated using a single formula, which takes into account the individual’s history of earning income on which they paid Social Security tax. But historically, a subset of workers that spent at least part of their careers in positions that did not pay Social Security tax – including many state and local government workers like teachers and police officers – have had their Social Security benefits reduced, sometimes down to $0. This reduction stems from two provisions known as the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO), which were designed to address how benefits are calculated for these workers.
At a high level, the WEP and GPO reduce the Social Security benefits of retirees who receive pension payments from a non-Social-Security-covered employer. These reductions apply to retirees eligible for Social Security benefits either under their own name (in the case of the WEP) or under their spouse’s name (in the case of the GPO). In both cases, the provisions were intended to address perceived fairness issues in the Social Security calculation for those who had worked in non-covered jobs since the income from those jobs is excluded when calculating Social Security benefits. This exclusion often makes these workers appear to have lower average incomes, which would entitle them to disproportionately higher benefits. The WEP and GPO adjustments were meant to ‘correct’ the discrepancy.
However, the WEP and GPO proved unpopular and difficult to manage in practice. The penalty calculations were complex and difficult to estimate, and the provisions were poorly communicated to those affected. For instance, annual Social Security statements showed ‘full’ benefit amounts without accounting for the WEP or GPO adjustments, leaving many individuals unaware of their reduced benefits until they received their first (reduced) Social Security check. This lack of clarity made retirement planning significantly more challenging.
In response, Congress passed the Social Security Fairness Act at the end of 2024, repealing the WEP and GPO in full. This means individuals whose Social Security benefits were reduced by either provision can expect to have their full benefits restored. And because the Act is retroactive to January of 2024, these individuals can also expect to receive payments to cover benefit reductions going back to that date as well!
For advisors, the main planning takeaway is that clients previously affected by the WEP or GPO can expect to receive more Social Security income going forward – in some cases significantly more – presenting opportunities that may positively affect their retirement planning. As a result, it’s important for advisors to first identify which clients are currently subject to WEP or GPO and ensure that those who may need to file for benefits do so as soon as possible. For example, clients whose spousal benefits were reduced to $0 by the GPO may have never filed for benefits, making it key to file now that the GPO has been eliminated.
The key point is that while the WEP and GPO only affected a certain subset of retirees and spouses, these provisions made planning more complex for those impacted. Now that the WEP and GPO have been repealed, retirement planning will be significantly easier going forward. With the caveat that, with the sustainability of Social Security already in question, there could be more changes in the coming years that might offset the effects of the Social Security Fairness Act in unpredictable ways. Which makes it all the more important for advisors to help their clients build plans with the flexibility and resiliency to withstand all the changes yet to come!
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