On January 5, 2024, then-President Biden signed the Social Security Fairness Act (SSFA) into law. The SSFA repeals two provisions that were enacted in 1983: the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO), which both lowered the amount of Social Security benefits for some public agency retirees. Here is what public agencies need to know about the SSFA and the elimination of the WEP and GPO.
Background
Public agency employers are not required to provide Social Security coverage to their employers; however beginning in 1951, public agencies were allowed to enter into voluntary agreements with the federal government to provide Social Security coverage to employees. These voluntary agreements are known as “section 218 Agreements.”
The Omnibus Budget Reconciliation Act of 1990 made Social Security coverage mandatory for all public agency employees who were not members of a government retirement system of their employing agency. CalPERS and PARS are two examples of government retirement systems.
Social Security Benefits
To understand what the repeal of the WEP and GPO means, employers and employees first have to understand how Social Security benefits are calculated. There are generally two ways a public agency employee may become eligible for Social Security benefits. The first way is that an employee may become eligible through their personal work record. They must have “credits” for 40 quarters of employment covered by Social Security (covered employment). (42 U.S.C. section 414(a).) This is generally reached after 10 years of covered employment.
The second way is that if a public agency employee is married to a spouse who is eligible for Social Security benefits, the public agency employee is eligible for a benefit in the amount of 50% of the spouse’s Social Security benefit based on the spouse’s work record (herein referred to as “spousal Social Security benefit). (42 U.S.C. section 414(b) & (c).) Public agency employees qualify for a benefit in the amount of 50% of their spouse’s Social Security benefit even if the public agency employee never had covered employment under the Social Security system themselves. In some situations, this benefit also applies to benefits earned by a public agency employee’s ex-spouse.
Individuals can either receive their own Social Security benefits based their work record or the spousal Social Security benefit, but not both. Individuals only receive the higher benefit amount. This remains the case even after the SSFA.
The Windfall Elimination Provision
The WEP was a special provision that reduced the Social Security benefit amount for some retirees who received both a pension from work not covered by Social Security and Social Security benefits. Prior to the SSFA, the WEP reduced a retiree’s Social Security benefit when all of the following three criteria were met:
The amount that constitutes “substantial earnings” amount is adjusted annually based on the cost-of-living index. For 2024, the amount of “substantial earnings” in covered employment was $31,275. This means that an employee who earned $31,275 or more in employment covered by Social Security in 2024 gained one year of substantial earnings for purposes of the WEP. (Please note that the WEP did not reduce the Social Security benefit amount for retirees who had 30 or more years of “substantial earnings” in covered employment.)
The Government Pension Offset
Prior to the enactment of the SSFA, the GPO reduced the Social Security benefit amount of a public agency retiree receiving both a government pension from work not covered by Social Security and spousal Social Security benefits. The public agency retiree’s spousal Social Security benefit was reduced by an amount equal to two-thirds of the retiree’s non-covered public pension (i.e., a 67% offset).
How the SSFA Impacts Public Agency Employees and Retirees
Public agency employees and retirees who qualify for benefits under both Social Security and a government pension system are or will be positively impacted by the SSFA because their Social Security benefits will no longer be reduced by the WEP or GPO.
The Social Security Administration (SSA) is evaluating how to implement the SSFA. The SSA has stopped reducing Social Security benefits based on the WEP and GPO moving forward. While the SSFA is retroactive back to January 2024, it may take some time (possibly a year) for the SSA to adjust Social Security benefits for retroactive periods.
If a public agency retiree or their surviving spouse previously filed for Social Security benefits, and their benefit was partially or completely offset by the WEP or GPO, the SSA advises that there is no need for those individuals to take any action except to verify their current mailing address and direct deposit information. If a public agency retiree or their surviving spouse has never filed for Social Security benefits, then the SSA advises that they should apply.
Public agency employers who do not participate in Social Security must continue providing Form SSA-1945 to new employees but should inform them that the WEP and GPO have been repealed. Form SSA-1945 is a statement informing new hires that their employment is not covered by Social Security, and the WEP and GPO could affect the amount of any Social Security benefits. While the WEP and the GPO no longer apply, the Form SSA-1945 still serves the purpose of informing new employees that their current employment with your agency is not covered by Social Security. The SSFA did not repeal the law that requires Form SSA-1945 (42 USCS section 1320b-13(d)). In the future, the SSA may create a revised Form SSA-1945 to eliminate the now inaccurate information about the WEP and GPO.