On December 21, 2024, Congress passed the Social Security Fairness Act, a bill that repeals the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO), two provisions of the Social Security Act that operate to reduce or eliminate Social Security benefits for public sector employees who are also entitled to retirement benefits from non-Social Security covered employment. The bill is expected to be signed by President Biden and would result in increases to Social Security benefits for over two million beneficiaries. The repeal is effective for monthly benefits payable after December 2023. Public pension systems and state and local employers should understand how this important change affects their members and retirees.

Background

Millions of state and local government employees do not participate in Social Security, either because Social Security coverage has not been extended to their position under a federal-state agreement called a “218 agreement” or because they participate in a public retirement plan that qualifies as a “Social Security replacement plan.” For these employees, their earnings from public employment are not subject to Social Security taxes (FICA) and are also not counted toward earning Social Security benefits. However, in many circumstances, these individuals have worked in other employment covered by Social Security that may earn them Social Security benefits at retirement. In addition, they may be entitled to spouse or survivor benefits through a spouse’s Social Security earnings record. In these situations, the WEP and GPO could potentially apply to reduce the benefits they would otherwise receive from Social Security.

Windfall Elimination Provision

Enacted in 1983, the WEP is a reduction to a worker’s Social Security retirement benefit because of a retirement benefit earned by the worker in non-Social Security covered employment. The WEP operates to reduce the amount of income that is replaced under the Social Security benefit formula. In 2024, the standard formula replaces 90 percent of the first $1,174 of a worker’s average indexed monthly earnings. The WEP formula reduces that replacement percentage to as low as 40 percent, but not lower than one-half of the worker’s non-covered monthly retirement benefit. The reduction is phased-out for workers with 21 to 29 years of substantial Social Security earnings, and it does not apply to workers with 30 or more years of substantial Social Security earnings. The WEP can have a significant impact on the Social Security retirement benefit earned by a public employee who is receiving a public pension that was earned in non-covered employment.

Government Pension Offset

Enacted in 1977, the GPO is a reduction to a spouse’s Social Security spouse or survivor benefit because of a retirement benefit earned by the spouse in non-Social Security covered employment. The GPO is intended to replicate the “dual entitlement rule” under Social Security, which reduces a person’s spouse or survivor benefit by the person’s own Social Security retirement benefit (based on the person’s own earnings record). This results in offsetting the spouse/survivor benefit so that it will only be paid if – and to the extent it exceeds – the person’s own retirement benefit. In effect, the person receives the higher of the two Social Security benefit amounts, but not both.

The GPO works similarly to the dual entitlement rule for spouses and survivors who receive a retirement benefit based on non-Social Security covered employment. Under the GPO, the Social Security spouse or survivor benefit is reduced by an amount equal to two-thirds of the spouse’s non-covered monthly retirement benefit, but not below zero. The GPO does not apply to individuals whose last 60 months of government employment was covered by a public retirement system and Social Security. The GPO can significantly reduce the Social Security spouse and survivor benefits that would otherwise be due to a retiree in the public sector who has no Social Security benefits of his or her own.

Effective Date of Changes

The Social Security Fairness Act repeals the WEP and GPO provisions effective with respect to monthly benefits payable for months after December 2023. The Act directs the Commissioner of Social Security to adjust the benefits payable to impacted beneficiaries to the extent necessary. Once the legislation is signed by the President, we expect that the Social Security Administration will issue guidance regarding the timeframe and process for necessary adjustments to current beneficiaries.

While the repeal of the WEP and GPO has no direct impact on retirement plan administration, public retirement systems and state and local employers will need to review their retirement guides and other communications to revise (or remove) any discussions of WEP and GPO to take this change into account. We also anticipate that the Social Security Administration will either discontinue or revise Form SSA-1945, Statement Concerning Your Employment in a Job Not Covered by Social Security, which employers are currently required to provide to their employees in non-covered employment. The primary purpose of this statement is to explain the potential impact of the WEP and GPO on a public employee’s future Social Security benefits, which will have no application upon enactment.

For more information about Social Security benefits for public employees, please contact Audra Ferguson, Rob Gauss, Lisa Harrison, Lindsay Knowles, Shalina Schaefer, Tara Sciscoe, or the Ice Miller Workplace Solutions attorney with whom you regularly work.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.