New laws on social security benefits point to the need for broader reform

When President Joe Biden signed the Social Security Fairness Act on Jan. 5, it was a victory for those who had spent years tirelessly pushing for new changes that would provide more generous benefits to public workers with pensions.

But for the political community, the adopted change, which has overwhelming bipartisan support in both the House and Senate, is a major disappointment.

“There is literally no social security expert who thinks the Social Security Fairness Act is a good idea,” said Andrew Biggs, a senior fellow at the American Enterprise Institute.

The new law eliminates two provisions that adjusted Social Security benefits for people who also receive pension income from public sector work where no payroll tax was paid to Social Security.

The now-defunct Windfall Elimination Provision (WEP) reduced Social Security benefits for approximately 2 million people who also received retirement or disability benefits from work where they did not contribute to Social Security. The WEP came into force in 1983.

The Government Pension Offset (GPO) has cut Social Security benefits for nearly 750,000 spouses, widows and widowers who receive their own pensions from working in the public sector. The GPO was founded in 1977.

More from Personal Finance:
Maximize your 401(k) plan in 2025 with higher limits and catch-up contributions
Here are the changes retirees will see in 2025 when it comes to Social Security and Medicare
Biden withdrew plans to forgive student loans. Debt relief is still available

The provisions should help ensure that all Social Security recipients receive a comparable payout from the program. Because Social Security is progressive and designed as an anti-poverty program, low-income workers receive a higher rate of income replacement when they receive benefits. The WEP and GPO were intended to adjust benefits for public workers so that they are not treated as low-income workers.

After the bill was signed, organizations that advocated for the change praised the new law for finally giving affected workers the full Social Security benefits they deserved. For the National Committee to Preserve Social Security and Health Insurance, the new law is the culmination of a decades-long battle to change or repeal the rules.

“It’s a way to cut benefits for a class of people who provide a public service to our communities,” said Maria Freese, senior legislative representative at the National Committee to Preserve Social Security and Medicare.

“They’ve been singled out and their Social Security gives them less benefits than someone who chose not to go into public service,” Freese said.

With the new law phased in, Social Security recipients could see monthly benefit increases of between $360 and $1,190 on average, the Congressional Budget Office estimates. Affected benefit recipients will also receive flat-rate payments for the additional benefits they would have received over the course of 2024.

The law makes the program “fairer” because people are no longer penalized for income earned outside the system, said John Hatton, human resources vice president for policy and programs at the National Active and Retired Federal Employees Association (NARFE).

In particular, income from capital gains or inheritances had no influence on the amount of social security benefits. The same should apply to income earned outside the program, Hatton said.

Still, many policy experts claim the changes should never have been implemented.

“What we saw was a huge special interest push for a very poorly designed and poorly targeted policy that produces windfalls for a number of recipients,” said Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget.

According to CBO, this change will cost nearly $200 billion over 10 years, at a time when Social Security trust funds are already running low. The program’s combined trust funds are expected to last until 2035, when 83% of benefits will be payable, Social Security trustees predicted last year. The elimination of WEP and GPO brings the end date six months closer.

Experts both for and against the Social Security Fairness Act agree that Congress needs to address the program’s funding gap sooner rather than later.

The WEP and GPO rules and how their intricacies impact individual beneficiaries are complex.

“There is an injustice here that the regulations tried to correct, perhaps not perfectly,” said Alicia Munnell, senior adviser at the Center for Retirement Research at Boston College.

Despite experts’ tireless efforts to explain the provisions to lawmakers, “we all failed,” Munnell said. What’s left now is “bad policy,” she said.

Simply put, without the WEP, state and local workers who work short-term jobs in jobs that contribute to Social Security will look like low-wage earners and, as a result, receive the low-wage supplemental benefits, she said.

With the elimination of the GPO, a non-working spouse Social Security benefit will now go to a full-time employee with their own retirement benefit, noted Charles Blahous, senior research strategist at the Mercatus Center at George Mason University.

“There is no justification for this,” said Blahous, who called the legislation “frivolous” and “disappointing.”

Although WEP and GPO are imperfect, they are necessary to prevent the payment of unexpected additional benefits to a small number of people who have not paid Social Security taxes for years, he said.

“It’s a very concerning indicator for the future of Social Security,” Blahous said.

The Social Security Fairness Act passed the Senate with a bipartisan majority of 76 votes. Amendments introduced during the final legislative hours in December — including efforts to add payment options for the amendment or change the provisions rather than replace them — failed. The Senate took up the bill after the House passed it in November with a bipartisan majority of 327 votes.

Now that the repeal of WEP and GPO becomes law, one way to make the changes more equitable is to include the 25% of state and local workers who currently do not contribute to Social Security in the program, Munnell said.

While Congress could reconsider the changes it just made with the Social Security Fairness Act, experts think that’s unlikely.

The bigger issue for lawmakers now is when and how to restore the program’s solvency.

“We are still at a point where it is politically very difficult for members of Congress to advocate for substantive, responsible changes to the program that address its long-term budget problems,” said Emerson Sprick, deputy director for economic policy at the Bipartisan Policy Center.

Future actions require presidential leadership and a commitment to addressing the problem, Sprick said.

However, President-elect Donald Trump has initially promised not to touch Social Security. Trump has also said he wants to eliminate taxes on Social Security benefits. Trump’s presidential transition team did not immediately respond to a request for comment.

Because this change would be expensive, at over $100 billion per year, and does not carry the same fairness argument, Biggs said it would be less likely to be implemented.

Trump hasn’t promised any benefit cuts, but that creates a math problem for Republicans, who are typically a low-tax party, he said.

Ultimately, restoring Social Security to solvency may require benefit cuts, tax increases, or a combination of both.

“We know we need to address Social Security and Medicare as both face insolvency within about a decade,” MacGuineas said. “No party, no leader seems to have the political will or integrity to talk about how to achieve this.”