The Social Security Fairness Act, signed into law on January 5, marks a significant shift in policy following persistent lobbying efforts by groups representing firefighters, police officers, teachers, and other public sector workers. This new legislation eliminates two controversial provisions that have long adjusted Social Security benefits for individuals receiving pension income from work in sectors where payroll taxes to Social Security were not paid. The move aims to bring fairness to the program but also raises concerns about its long-term financial sustainability.
The Government Pension Offset (GPO) and the Windfall Elimination Provision (WEP) are the two provisions now repealed by the new law. The GPO previously reduced Social Security benefits for nearly 750,000 spouses, widows, and widowers who earned their own pensions from public sector employment. Similarly, the WEP adjusted benefits for those who received pension income from such work. These provisions were initially designed to ensure all beneficiaries received a comparable payout from the system, with the GPO enacted in 1977 and the WEP following in 1983.
The repeal of these provisions is expected to make the Social Security program more equitable by ensuring that beneficiaries are not penalized for income earned outside of the system. Affected individuals will also receive lump-sum payments in 2024 for the additional benefits they would have accrued under the new regulation. However, this change comes with a hefty price tag, with the Congressional Budget Office estimating a cost of nearly $200 billion over the next decade.
"There is an injustice here that the provisions tried to correct, maybe not perfectly," remarked Alicia Munnell, senior advisor at the Center for Retirement Research at Boston College. She further criticized the policy as "bad" and admitted, "we all failed," in addressing these injustices effectively.
With this legislative change, Social Security beneficiaries may experience increased monthly benefits ranging from an average of $360 to $1,190, according to estimates by the Congressional Budget Office. By removing these offsets, a nonworking spouse's Social Security benefit can now be fully accessible to a full-time worker with their own pension benefit.
Nevertheless, the financial implications of this law are considerable. Social Security's trustees projected last year that the program's combined trust funds would remain solvent until 2035. However, eliminating the WEP and GPO is expected to bring this depletion date six months closer. This adjustment has sparked criticism among some experts who question the fiscal prudence of this decision.
Charles Blahous, senior research strategist at George Mason University's Mercatus Center, labeled the policy as "unserious" and "disappointing," arguing that "there's zero justification for doing that."
The debate over fairness versus financial risk continues, as many argue that public sector employees were unfairly singled out by the previous provisions.
"They got singled out, and their Social Security earns them less in benefits than a person who decided not to go into public service," noted Freese.
In light of these changes, many advocates claim that this law makes the system more just.
John Hatton, staff vice president for policy and programs at the National Active and Retired Federal Employees Association (NARFE), said, "The law makes the program 'more fair' now that people will no longer be penalized for income earned outside of the system."
Despite these advancements in fairness, there remains an urgent need to address broader structural issues within Social Security and Medicare. MacGuineas highlights the pressing timeline for reform:
"We know that we need to be addressing Social Security and Medicare because of the insolvency that they both face within roughly a decade."