On January 5, 2025, the Social Security Fairness Act was signed into law, marking a significant change in how Social Security benefits are calculated for individuals who receive a pension from employment not covered by Social Security. This includes many public sector workers such as teachers, firefighters, and police officers. The new law repeals two long-standing provisions: the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO), which have historically reduced or eliminated Social Security benefits for affected workers and their families. This legislative change is expected to have meaningful implications for millions of individuals across the country.
Overview of the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO)
The WEP affected individuals who received a pension from work where they did not pay Social Security taxes. It reduced the individual’s own Social Security benefit by applying a modified benefit formula.
The GPO applied to individuals who received a pension from non-covered employment and were also eligible for spousal or survivor Social Security benefits. GPO reduced those benefits by two-thirds of the pension amount, frequently eliminating them entirely.
What This Means for You
If you currently receive or expect to receive a pension from employment not covered by Social Security (such as teaching, firefighting, law enforcement, or other public sector roles), the repeal of the WEP and GPO could increase your retirement income.
This change may:
- Increase your monthly Social Security benefits going forward.
- Restore spousal or survivor benefits that were previously reduced or eliminated due to the GPO.
- Qualify you for a lump-sum payment to make up for underpaid benefits dating back to January 2024, the effective start date of the repeal.
- Enhance total household retirement income by allowing for better coordination between Social Security and pension benefits.
According to the Social Security Administration, more than 2.8 million Americans are expected to be impacted by this change.
Do You Need to Take Action?
If you are already receiving Social Security benefits affected by the WEP or GPO:
- No action is required. The Social Security Administration is automatically issuing lump-sum payments for underpaid benefits dating back to January 2024 and adjusting monthly benefit payments going forward.
If you have never applied for Social Security benefits due to the WEP or GPO:
- You may need to file an application. The date you apply may affect when your benefits begin and how much you receive. Each situation is different, and all standard Social Security rules still apply. This includes potential reductions for claiming before full retirement age, the retirement earnings test, and other eligibility requirements.
- How to apply:
- Online: Visit ssa.gov to apply for retirement or spousal benefits.
- By phone: Call SSA at 1-800-772-1213.
- In person: Visit your local SSA office
Applications for survivor benefits are not available online and must be submitted by phone or in person.
Planning Opportunities
The repeal of the WEP and GPO presents several planning considerations:
- Review your retirement income strategy to account for any lump-sum payments and increased Social Security benefits
- Evaluate the tax impact of retroactive benefits, which may increase your taxable income for 2025
- Assess Medicare premium implications, particularly if additional income triggers higher Part B or Part D premiums
If you have questions about how the Social Security Fairness Act may affect your financial plan, please contact your Aldrich Wealth Advisor. We are here to help you navigate these changes and make informed decisions about your future.
Source: https://www.ssa.gov/benefits/retirement/social-security-fairness-act.html
Disclosure: This content is for informational purposes only and not investment advice.
