By Eric Reich
Rarely do we hear that the government just made something better, less complicated, and bipartisan. However, that is exactly what happened on Sunday, thanks to a bipartisan (76 Senators and 327 House members) effort, ending in President Biden signing the Social Security Fairness Act (SSFA) into law. The SSFA gets rid of long-standing, confusing, and ultimately punitive rules related to Social Security (SS) benefits.
Before the SSFA, two groups of Social Security beneficiaries saw their benefits reduced or limited. These were known as the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). This represents a major change for Social Security and helps to increase benefits for a lot of retirees and disabled workers.
The Windfall Elimination Provision was enacted to reduce Social Security benefits for people who were covered by government pensions and didn’t pay into SS, but also worked jobs where they did pay into SS. Social Security is designed to favor those who made lower lifetime earnings. The WEP essentially lowers the benefits of those government workers by ignoring the income earned from those non-covered jobs, thereby reducing the overall benefits. The intent assumed that workers with a pension needed less SS income in retirement. Essentially, it acted as a penalty on government workers. There was a cap on the penalty amount, which was inflation-adjusted, but it was still a potentially significant reduction in benefits.
The Government Pension Offset (GPO) is similar to the WEP. However, instead of your benefits, it impacts the spousal or survivor benefits that someone might receive through Social Security based on your work record. The GPO reduces your Social Security spousal or survivor benefits by two-thirds of the amount of your government pension. Needless to say, this can have a seriously negative effect on a spouse’s ability to live comfortably in retirement. The GPO was enacted because the government did not want to double-count someone’s benefits. As in, a person should not be able to get both a pension and full Social Security benefits from their spouse or ex-spouse if they were not paying into Social Security during their government job. My argument is that the GPO penalized your spouse who fully paid into Social Security by not allowing their spouse to receive their spousal benefits just like everyone else could. Yes, you might have been covered under a government pension, but your spouse might not have been. If not, why restrict their family’s benefits?
Nearly three million workers, including some teachers, police officers, firefighters and other public employees, were affected by the WEP and the GPO. The Social Security Fairness Act affects benefits payable on Jan. 1, 2024, and later. Those affected will actually receive a lump sum payment for the benefits they should have received in 2024 if they hadn’t been affected by the WEP or GPO. As for how your 2025 benefits will be adjusted, we are still waiting on the details since this change is so new. Stay tuned!
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. To view form CRS visit https://bit.ly/KF-Disclosures.
Eric is President and founder of Reich Asset Management, LLC. He relies on his 25 years of experience to help clients have an enjoyable retirement. He is aCertified Financial Planner™ and Certified Investment Management AnalystSM (CIMA®) and has earned his Chartered Life Underwriter® (CLU®) and Chartered Financial Consultant® (ChFC®) designations.
