On January 5th, President Biden signed into law the Social Security Fairness Act. With this bill offically becoming law, there were two provisions that have been eliminated.
- Windfall Elimination Provision
- Government Pension Offset
According to the Congressional Research Service1, the repeal of these provisions will only affect about 4% of all Social Security beneficiaries. So in the grand scheme of things, this isn't a major overhaul to Social Security and most people won't see a change to their benefit. But since there will be some of you who may see a change in your benefit, let's briefly talk about the provisions that were eliminated.
Windfall Elimination Provision
This was a modified benefit formula that reduced Social Security benefits for people who were entitled to receive a pension from an employer that was NOT covered by Social Security and also worked other jobs that did pay into Social Security long enough to qualify for benefits. For example, let's say that you worked for a government entity where no social security taxes were withheld long enough to qualify for a pension. And once you left there, you started working for another employer long enough to qualify for social security benefits. Back in 1983, when Congress first established the Windfall Elimination Provision, they saw this as unfair and double-dipping. So, they implemented this provision that effectively lowered the Social Security benefit for a person who "double-dipped" in this way. With Congress repealing the Windfall Elimination Provision, a person who has a pension from an employer who does not pay into Social Security would no longer have to worry about their Social Security benefit being reduced.
Government Pension Offset
This provision applied to Social Security spousal and widow benefits. Basically, if an individual worked for a federal, state, or local government employer who was not covered by Social Security and received a pension from that employer, their spousal or widow benefit would be reduced by two-thirds of their pension benefit. For example, if an individual is receiving a monthly pension of $1,000 from a non-covered government employer, their spousal or widow's benefit would be reduced by $667. So if they were also eligible to collect a monthly widow's benefit of $1,000, they would only receive $333. If that widow's benefit was only $500, then they would receive nothing. The elimination of the Goverment Pension Offset provision now ensures that a spouse or widow who is in this scenario can now receive their benefit without any reduction.
That explains, in a nutshell, what changed due to the passage of the Social Security Fairness Act. If you are impacted by these changes, a financial review is certainly in order. While I believe that the changes are mostly positive to those affected, it is important to review the numbers and adjust any planning strategies appropriately. Don't hesitate to contact me if you are impacted by these changes. If you are uncertain as to whether this act affects you, contact me and we can discuss your situation.
1. https://crsreports.congress.gov/product/pdf/IN/IN12451?utm_campaign=Social%20Security%20Newsletter&utm_medium=email&_hsenc=p2ANqtz-8668Yl5zv4ZjvPs9tjgamR_4MXs2xquxpXCplG0FmDjM9WAOszqMO09vL3Ry8JArr7YaCrRePFIKJiMNG3Hplk9QQOAWYwRb34hr03nHECPgG3U_k&_hsmi=341848118&utm_content=341848118&utm_source=hs_email#page=3