In one of its last acts of the year, the Senate passed the Social Security Fairness Act, which eliminates the WEP and GPO for people who worked in noncovered jobs. The bill now goes to President Biden for his signature.
As you know, the Windfall Elimination Provision (WEP) applies to people who worked in a job that did not pay into Social Security and who expect to receive a pension from that job, while also working long enough in a Social Security-covered job (10 years) to receive a Social Security benefit based on that work. The WEP reduces the first bend point in the PIA formula from .90 to .40, essentially reducing their Social Security benefit by about $600. Alerting clients to the WEP has been a big part of Savvy Social Security planning, as the WEP reduction is not reflected on clients’ Social Security statement. Without this knowledge, clients would expect their benefit to be as much as $600 more than what they’ll end up receiving.
The corollary to the WEP is the Government Pension Offset (GPO) which reduces spousal or survivor benefits for anyone who worked a noncovered job. Under the GPO, spousal and survivor benefits are reduced by two-thirds of the noncovered pension amount, which often reduces it to zero. Alerting clients to the GPO has been another big part of Savvy Social Security planning. In a typical case, a teacher who doesn’t qualify for Social Security on her own work record because she always worked in non-covered jobs is surprised to discover that she cannot receive a spousal or survivor benefit based on her husband’s work record because the benefit will be reduced by two-thirds of her pension amount. It was this “unfair” treatment of spouses and especially widows that prompted Congress to act.
The Savvy Social Security Planning Software has been extremely valuable in WEP and GPO cases because it allows clients to plan for their retirement income with more accurate numbers, even if the news of greatly reduced Social Security benefits has been a bit hard to deliver. We will soon be reprogramming the software to remove the dreaded checkbox: “worked in a noncovered job.” But there is no need for you to wait. We recommend that as soon as the bill is signed you can go ahead and re-run your analyses for your WEP/GPO clients, by simply unchecking that box and replacing their WEP-adjusted PIA with their regular PIA (i.e., FRA benefit amount) from their Social Security statement. Your clients will be delighted to learn that they will end up receiving more Social Security benefits than they thought they would.
The Social Security Fairness Act is retroactive to January 2024. It is not known at this point when SSA will start paying out the extra amounts or when they will adjust overpayments for those who erroneously received extra benefits due to the GPO not being applied to spouses and widows when it should have been.
The extra payout of benefits is expected to cost $196 billion over the next decade and cause the trust fund to exhaust about six months sooner than currently projected. Now Congress will have to get to work on the much harder job of bringing the Social Security system back into actuarial balance.
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