The Social Security Fairness Act: Addressing Equity or Hastening Insolvency?
In a recent webinar on the 2024 election, we discussed the stark reality of Social Security’s 2033 projected insolvency. To prevent bankruptcy, the federal government has three primary options: increase collections, decrease payouts, or delay benefits.
Unfortunately, the Social Security Fairness Act, signed into law on January 5, 2025, takes a different path by increasing payouts, thereby accelerating the program’s bankruptcy.
The Act eliminates two provisions, the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO).
- The Windfall Elimination Provision was implemented in 1983. This is a formula used to adjust Social Security benefits for those receiving ‘non-covered pensions,’ and qualify for Social Security benefits on other, lifetime Social Security-covered earnings. A ‘non-covered pension’ is a pension paid by an employer that does not withhold Social Security taxes from the employee’s wage, typically a state or local government.
- Government Pension Offset was introduced in 1977. It adjusts Social Security spousal or widow(er) benefits for such individuals receiving ‘non-covered pensions.’ The aim of the GPO was to ensure that spousal and widow(er) benefits of those with covered or non-covered lifetime earnings would be roughly equal.
Both of these provisions have been eliminated as of January 5, 2025. Supporters of the Social Security Fairness Act celebrate this as a victory for fairness. Opponents argue that Congress has created a “windfall” for individuals who contributed less to the system, and the resultant benefit increase are anything but ‘fair.’ Affected beneficiaries will see average monthly increases of $360 to $1,190, with retroactive lump-sum payments for 2024.
Now What Happens?
As with most laws, once passed, the practical matter of implementation must be addressed. At this point, sadly, all we can report is that the Social Security Administration (SSA) is evaluating how to implement the Act. At this time, the only guidance issued by the SSA is:
- If your benefits are partially or completely offset: update your mailing address and direct deposit information via www.ssa/gov/myaccount.
- If you are receiving a public pension and are now interested in filing for benefits, file online at www.ssa.gov/apply or schedule an appointment.
At the risk of sounding like a broken record, our Social Security system is going bankrupt. The Social Security and Medicare Boards of Trustees 2024 Annual Report stated that the system will be insolvent in 2033. By increasing payouts without either increasing collections or delaying benefits, the bankruptcy date has been accelerated.
This simply means that though Congress continues to kick the bankruptcy can down the road, they can’t kick it as far as they once had. We have nine years and then very difficult, and yet obvious, consequences will be borne by all beneficiaries–if fairness is actually their guiding principle. Unfortunately for all of us, this means the unpleasant reality that our payroll taxes will increase, our benefits will decrease, or our benefits will be delayed.
