The Social Security Fairness Act, signed into law by President Biden before he left office in January, has made headlines which may prompt questions from your clients.
While most of your clients will not be affected by the new provisions, you need to know what to tell them.
For the clients who are affected, read below for the details.
The new law repeals the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) for individuals who worked in jobs not covered by Social Security. The bill had bipartisan support in Congress and was hailed as a “correction” to “unfair” provisions that deprived certain teachers and government workers of Social Security benefits.
First, let’s be clear that the Social Security Fairness Act affects only about 3% of the population. The vast majority of your clients will not be affected by it (except for solvency considerations).
If a client whom you know is not affected by it (i.e., neither they nor their spouse ever worked in a noncovered job) but who asks about it, you can simply say it corrected some technicalities for people who worked in jobs that didn’t have Social Security taxes taken out. If they ask how a person could get around paying Social Security taxes, explain that some teachers, firefighters, police officers, and other state and local government workers had their own retirement systems and paid into those systems instead of Social Security.
This meant they wouldn’t get any Social Security benefits based on that employment. If they had other jobs that did pay into Social Security, the benefits they would get based on those earnings would be reduced. Congress felt that wasn’t fair.
Also, if a married, divorced, or widowed person was receiving a pension from a job that didn’t pay into Social Security and if they qualified for a spousal or survivor benefit based on a spouse’s work record, that benefit would be reduced by two-thirds of their pension amount. This often reduced the benefit to zero. Congress thought that wasn’t fair either. So, they did away with both provisions, even though the reasoning at the time the provisions were originally established was to make Social Security more “fair.”
These explanations should suffice for most people and ideally would lead to a more personalized conversation about their own situation. But if they want more…
Background
As you know, Social Security’s primary insurance amount (PIA) formula is divided into three “bend points.” The three multipliers (.90, .32 and .15) are designed to give greater weight to the first tier of earnings in an effort to have Social Security replace a greater share of lower earners’ earnings in retirement.
In 1983 it came to Congress’ attention that if a person also worked in a job not covered by Social Security, those earnings were escaping the formula. Based on their Social Security-covered earnings alone, they looked like a low earner. That first tier of earnings was multiplied by .90 even though their actual first tier of earnings occurred in the noncovered job. The fact that the regular formula was applied to them was deemed a “windfall.”
In 1983 when Congress was looking for ways to shore up the system, it instituted the Windfall Elimination Provision which changed the multiplier for the first bend point from .90 to .40. This had the effect of reducing the PIA by 50% of the bend point.
Bend points are determined each year for each age cohort turning 62. For example, the first bend point for a person who turns 62 in 2025 is $1,226. Without the WEP, that first bend point would count for $1,103.40 ($1,226 x .90) in the formula. Taking away that “windfall” for someone who worked less than 20 years in a covered job and expects to receive a pension from a noncovered job, it counts for $490.40 ($1,226 x .40), or $613 less.
This adjustment was done at the time of claiming, when the applicant answered “yes” to the question, “Do you expect to receive a pension from a job that didn’t pay into Social Security?” It often came as a surprise because their Social Security statement was showing the higher amount. (The statement does include a WEP disclaimer but it is often overlooked or people simply don’t know what it means). This windfall reduction may seem unfair but remember, this person is getting a monthly pension from their noncovered job, often in the many thousands of dollars. At the time the WEP was enacted it really did seem “fair” to reduce Social Security benefits for people who worked in noncovered jobs, otherwise they were getting the same bump that the lowest earners get when they were actually medium or high earners.
The Government Pension Offset predates the WEP. Congress created the GPO in 1977 to help ensure that spousal and survivor benefits of those with covered or noncovered lifetime earnings would be roughly equal.
Under Social Security’s dual-entitlement rule, spouses with their own covered earnings have their spousal benefits offset dollar-for-dollar by their own earned benefit. The GPO has a similar intention; the offset originally was dollar-for-dollar for noncovered pensions, but Congress reduced it to two-thirds in 1983.
The rationale for the GPO still exists: without that reduction, spouses and widows who worked in noncovered jobs and who receive pensions from those jobs receive more total benefits than their counterparts who do not receive such pensions. But in debating H.R. 82, Congress deemed the GPO reduction “unfair” partially because the people affected by it mostly work in lower-paying jobs (teachers, police officers).
Fiscal impact
The Social Security Fairness Act is expected to cost about $196 billion over the next 10 years. Before the law was passed, the combined Social Security trust funds were projected to exhaust in 2035. Eliminating the WEP and GPO accelerates the depletion date by about six months.
Public reactions
Unions for teachers, firefighters, police officers, and other state and local government workers naturally cheered the new law, as it grants or increases Social Security benefits for their members.
But there were many critics who see the new law as distinctly “unfair.”
- “It won’t bankrupt Social Security, but it is a poorly crafted piece of legislation.”
–Jeffrey Liebman, Harvard Kennedy School Professor and Economist who Worked on Social Security Policy for Presidents Clinton and Obama
- “It is an example of a well-organized special interest group claiming to be victims of unfair treatment in order to be treated more generously by public policy than 98% of other U.S. workers.”
–Sylvester J. Schieber, Former Chairman, Social Security Advisory Board
- “The misnamed Social Security Fairness Act was grossly irresponsible legislation, even before considering its effect of weakening Social Security’s finances.…An exodus of responsible legislators from Congress enabled the passage of this law, and a re-emergence of responsible legislators will be needed to clean up the mess.”
–Charles Blahous, J. Fish and Lillian F. Smith, Chair and Senior Research Strategist, Mercatus Center, George Mason University
In any case, the time for debate is over. It’s time now to reach out to clients and prospects with your Savvy Social Security Planning services.
Existing WEP/GPO clients
Start by identifying existing clients who are or would have been subject to either the WEP or GPO. Reach out to them to review their situation in light of this game-changing legislation. Run a new Social Security claiming analysis. If it’s been awhile since the last one, ask them to provide you with a new Social Security statement and update their PIA using software such as Horsesmouth’s Savvy Social Security Planning package.
Compare new and old scenarios to see if there may be a change in strategy. For example, it might have made sense for a high-earning husband to claim early if his wife would not be entitled to a survivor benefit. With the removal of the GPO, it now makes sense for the high earner to maximize his benefit by claiming at 70 because his full benefit will transfer over to his wife—unreduced for the GPO—after he dies and this benefit will continue through her life expectancy.
Spouses who previously would have received zero spousal benefits due to the GPO reduction will be delighted to see that they may now qualify for as much as 50% of their spouse’s benefit. This could give them nearly $2,000 a month in some cases. The software will show each spouse the optimal time to claim in light of this bump in benefits.
New marketing opportunities
Even though the new law has its critics and impacts a small number of people, it has garnered a great deal of attention in the media. You may be getting questions like “What is this new Social Security Fairness Act and how does it affect me?”
What you’ll want to do is customize your answer depending on their situation, essentially dividing people into covered and noncovered workers—that is, those affected by the law and those who aren’t.
So the first question you’ll ask back is “Did you ever work in a job where Social Security taxes were not withheld from your paycheck?” If they aren’t sure, have them go to their Social Security account and download their latest statement. If it looks like a complete earnings record (i.e., few zeroes or low-earning years), then they were likely never subject to the WEP or GPO and the new law does not affect them.
For these people your Savvy Social Security Planning services will be the same as always: Educate them, either one-on-one or at a group presentation, offer to provide a Social Security claiming analysis, and put them on your mailing list for a drip marketing campaign.
The people who present great opportunities for you now are those who ARE affected by the new law—the ones who worked in noncovered jobs and would have had their Social Security benefits reduced for the WEP or their spousal/survivor benefits reduced for the GPO.
Many of these people haven’t paid much attention to Social Security and now want to know more about it—especially what they might need to do.
Let’s first address the WEP people. See our newly revised WEP/GPO client presentation. For those already receiving benefits there is nothing they need to do to get their additional benefit. SSA will be processing these payments over the next few months; they will make retroactive payments back to January 2024 and figure the higher amounts going forward.
SSA will be updating its Social Security Fairness Act page as new information becomes available.
For WEP people who haven’t claimed yet, you can just reassure them that when their benefit is calculated at the time of claiming, it will be correct and will not have any reduction for their noncovered employment.
This will be a great opportunity for you to help them with their overall retirement income plan, now that Social Security will be playing a larger role. This is good news, of course, but they’ll need some help managing this newfound resource, including deciding when to claim. Start educating people via the presentations and client reprint articles, and offer to do a claiming analysis for everyone age 55 and older.
The GPO people will need more education and advice because Social Security has never been a major—if any—part of their retirement thinking. Many people who had full careers in noncovered jobs simply assumed they would not be entitled to Social Security, either on their own or a spouse’s work record.
Now that the GPO has been repealed, full spousal and survivor benefits are available to them and they will need help understanding their benefits and knowing when and how to claim. Your target markets are individuals age 55+ who worked in a noncovered job and are:
- Currently married to a person eligible for Social Security retirement or disability benefits
- Divorced from a person eligible for Social Security benefits (check that the marriage lasted at least 10 years and they are currently unmarried)
- Formerly married to a Social Security-eligible person who has died, whether or not benefits have been claimed.
Both of Horsesmouth’s Couples and Women’s presentations explain the rules and strategies for spousal and survivor benefits. Consider inviting groups of teachers and other noncovered workers to an in-person or virtual workshop where you teach them about the Social Security benefits now available to them.
The Savvy Social Security Planning Software has been updated for the new law. It no longer asks if a spouse worked in a noncovered job and will figure retirement, spousal, and survivor benefits without regard for the WEP or GPO.
Offer to do a claiming analysis. Many formerly GPO people will have little or no Social Security-covered earnings, so their PIA will be zero. Just enter $0 for their PIA along with the regular PIA for the spouse who always worked in covered jobs. The software will show claiming scenarios and will calculate benefit amounts based on claiming ages. Spouses will be very happy to see that they can now receive spousal and survivor benefits based on their spouse’s work record.