It is a strange irony that some teachers, police officers, and firefighters may receive a fraction of the Social Security benefits that equivalent private sector workers receive. After all, they work for the government.
Current federal law says that people whose jobs are not subject to Social Security taxes and who receive other retirement benefits, such as a state or local government pension, receive their Social Security benefits. It may also affect their spouses’ and widows’ benefits.
It’s been that way for nearly 40 years, which for some is almost an entire career. But a proposed bill called the Social Security Fairness Act (HR 82) would change these rules, allowing public employees to take the full amount of Social Security benefits they would otherwise be entitled to.
Even if your own benefits are not affected by this law, it’s worth understanding the impact it could have on Social Security’s finances. Here’s a look at what’s in the bill and where it stands today.
What is the state pension compensation?
There are two provisions in the current law that the proposed bill would remove. One is the public pension offset (GPO) and the other is the wind-down provision (WEP), which we’ll cover next.
The GPO was introduced in 1977 as a means of ensuring fairness. Before that, assuming a married couple were both employed by the government, it was possible for a spouse to “receive a Social Security spousal benefit and a pension at the same time based on their own non-covered career in state or local government employment.”
In fact, they could double down on past earnings on which they didn’t pay Social Security taxes in a way that other people couldn’t.
As a fix, the GPO reduces the spouse’s Social Security benefit by two-thirds of their state pension amount.
The proposed bill would eliminate the GPO entirely, allowing that type of spouse to triple the amount they receive from Social Security.
The Congressional Budget Office estimates that this change “in December 2023 would increase monthly benefits by an average of $670 for 410,000 spouses and by an average of $1,150 for 370,000 surviving spouses.”
What is the incidental damages clause?
WEP was introduced in 1983 also as a means of ensuring fairness. Most people don’t work their entire lives for the government and at some point probably earn enough to qualify for Social Security.
Because of the way Social Security benefits are calculated, someone who worked in low-wage retail jobs before becoming a well-paid police officer, for example, would receive benefits equal to a higher percentage of their retail earnings than someone who worked in Armenia. Retailing for decades and progressed in management. And, of course, they would also receive their police pension.
As we explain in What is a Windfall Elimination Provision?
“The social security system was designed to favor low-wage workers over high-wage workers. Thus, when small benefits occur because a person has worked primarily in a job where the pension has replaced Social Security, the WEP is used to eliminate the injustice caused by treating these higher earners as if they were lower earners. , which would otherwise receive additional additional incentives. Social security benefits”.
The WEP’s math is complicated, but it essentially made sure that the calculation of Social Security benefits in those situations also took into account the period of work that was not taxable for Social Security benefits.
The proposed Social Security Fairness Act would eliminate the WEP, providing retirees with what Congress in 1983 deemed a “windfall.” It could double their Social Security benefits.
The Congressional Budget Office’s best estimate is that the bill would “increase monthly benefits by an average of $330 in December 2023 for 2.0 million Social Security beneficiaries (about 3 percent of all Social Security beneficiaries).
Opponents of the Social Security Fairness Act
As with any potential law that would give some people more money and not others, there are divisions, even with more than 69% of the House of Representatives sponsoring the bill.
“The bill we’re discussing today is very popular, but there are also concerns about its broader impact on Social Security solvency,” Ways and Means Committee Chairman Richard Neal said before a committee hearing on the legislation in September. “We face a very difficult question: how to address the concerns of hard-working public servants while protecting social security for all and for generations to come.”
The Social Security Administration estimates that the retirement benefit trust fund would run out of money for Social Security a year sooner if the law were to pass, so some people argue that this bill should only be passed along with other Social Security reforms.
“WEP and GPO are poorly targeted and need to be reformed. But there are better ways to do it than canceling them in isolation,” writes K. Eugene Steuerl. “Instead of gutting the green or even worsening the foundation’s finances, policymakers should focus on how to bring the overall program back into balance.”
What will happen next?
The bill, which was first introduced in early 2021 by Rep. Rodney Davis (R-Ill.) and has significant bipartisan support, finally made it to the House Ways and Means Committee on Sept. 20.
That’s where a lot of bills die, so it’s a significant step, but it’s still a long way from the bill becoming law.
The next step will be for the House of Representatives to fully consider the bill and vote on it. If it passes the House and the Senate passes the same version, the president can sign it. At that point, as the bill is currently written, affected retirees could begin receiving larger benefits retroactive to early 2022.
To let your representative know how you feel about the legislation, contact them.
To learn more about the bill, check out the latest full text.