For most Americans, Social Security serves as a cornerstone of retirement planning. Yet, for some people – especially those who have split their careers between public service and private-sector jobs – certain longstanding rules have led to reduced benefits. The Social Security Fairness Act, signed into law on January 5, 2025, repealed both the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO), allowing people who were previously impacted by these provisions to receive Social Security benefits without reductions.
This change represents a significant benefit for affected individuals, and while it does lead to an increase in spending, it does not materially impact Social Security’s funding timeline.
Why the WEP and GPO Were Created
The Social Security system was initially developed during the Great Depression as a “social insurance” program to protect against poverty in old age. It was designed as a redistribution program, shifting money from current workers to support retirees. Additionally, benefits are calculated in such a way that lower-income households have proportionally more of their income replaced by Social Security benefits than higher-income households do.
The Windfall Elimination Provision (WEP) was introduced in 1983 to adjust Social Security benefits for workers who receive a pension from employment where they did not contribute to the Social Security system. The reasoning behind the WEP was to prevent workers with limited Social Security-covered earnings from receiving a disproportionately higher benefit than intended under the formula.
Similarly, the Government Pension Offset (GPO) affected spousal and survivor benefits for individuals who receive government pensions from non-Social Security-covered jobs. Under GPO, these benefits were reduced based on the size of the pension, a policy designed to align overall retirement benefits more closely with private-sector workers who pay into Social Security throughout their careers.
These provisions were meant to create fairness, as well as to modestly reduce costs. However, they led to unintended reductions for many retirees, including teachers, firefighters, and other public servants, who may have contributed to both Social Security and non-covered pension systems throughout their careers.
Implementation of the Act
The Social Security Fairness Act applies retroactively to all benefits paid after December 2023. With the repeal of the WEP and GPO, over 3 million Americans will see an increase in their Social Security benefits. According to the Congressional Budget Office (CBO):
- Retirees previously affected by the WEP may see their benefits increase by an average of $360 per month.
- Spouses and surviving beneficiaries impacted by the GPO may see a boost of $700–$1,200 per month on average.
In addition, because the law applies retroactively, the Social Security Administration (SSA) must also account for payments that have already been made to beneficiaries. This could include people who did not receive any payments, but would have under the new rules.[1] Currently, retroactive payments are expected to be made as a lump sum to each beneficiary, though details are still emerging.
Due to the scale of this change, the SSA anticipates that it could take a year or more before all affected beneficiaries have seen their benefits adjusted.
The Elephant In the Room
Prior to the passage of the Social Security Fairness Act, the Social Security Trust Fund was projected to be exhausted around 2035. The CBO estimates that these changes will increase direct spending on Social Security benefits by roughly $196 billion dollars over the next 10 years, accelerating the exhaustion date by a mere 6 months.[2]
Notably, this “exhaustion date” does not mean that Social Security benefits will cease if we reach it. Rather, benefits would continue to be paid, albeit reduced by roughly 23%. This is worth emphasizing: even if Congress does nothing over the next 10 years, Social Security benefits will not go away.
Many Paths Forward
The Social Security Act was signed in August 1935, nearly 90 years ago, and the Social Security system has experienced a number of changes over time to expand and modify benefits, as well as to ensure it can continue to provide those benefits.
While Congress has avoided dealing with Social Security’s funding issues for decades now, it’s difficult to envision a future Congress allowing benefit reductions to happen during its own term. Some changes that would shore up the system’s finances include raising the cap on income subject to Social Security taxes, moderately increasing the Social Security tax rate, or raising the full retirement age for younger cohorts of workers. There are a range of adjustments any Congress could choose to enact that would put the system on a more sustainable path.
Ultimately, the Social Security Fairness Act provides a benefit for households that were affected by the WEP and GPO, providing a welcome increase in monthly cash flow without materially impacting Social Security’s finances. Although headlines can be alarmist about the future of Social Security, we believe that changes will be enacted to preserve benefits for generations to come.
Resources:
[1] https://www.ssa.gov/benefits/retirement/social-security-fairness-act.html
