The House of Representatives passed the Social Security Fairness Act, a bill aimed at repealing the Windfall Elimination Provision (WEP) — a rule that reduces Social Security benefits for workers receiving significant pensions from jobs not covered by the Social Security system. The Senate is expected to vote on this legislation before the end of the year.
Accompanying this provision is the Government Pension Offset (GPO), which similarly adjusts benefits for spouses and survivors. Both the WEP and GPO have been in place since 1983 and have long been a source of frustration for state and local employees who feel unfairly penalized by these rules. While these provisions attempt to address a genuine equity issue, they are far from perfect.
The crux of the problem lies in the fact that Social Security does not cover 25% to 30% of state and local workers. When these workers retire, their pensions — earned from jobs not covered by Social Security — cause them to appear as “low earners” to the system.
Social Security’s progressive benefit structure was designed to benefit those with a lifetime of low pay — not those who earned well in jobs not covered by the system. As a result, a state or local worker who spent their career in uncovered employment but gains some minimum coverage either through side jobs or after retirement looks like a low-wage worker under the current system.
The WEP reduces the Social Security benefit formula’s first factor from 90% to 40%. The other two factors remain unchanged. While this aims to address inequities, it is not a perfect solution. The benefit reduction is proportionally larger for those with lower AIMEs (Average Indexed Monthly Earnings), regardless of whether they were a high- or low-earner in their uncovered employment. Many believe the WEP needs a redesign.
Kevin Brady, a Texas Republican, has proposed legislation that would apply regular Social Security factors to all earnings — both covered and uncovered — to calculate a benefit. This new approach would then multiply the resulting benefit by the share of AIME that came from covered earnings. This change would reduce cuts for lower-paid workers and increase them for higher-paid ones.
Reforming the WEP design would be a positive step forward. However, it makes no sense to let state and local workers, who gain minimal coverage under Social Security, profit from the program’s progressive benefit formula.
The offsets in place are fair. Eliminating these offsets could accelerate the depletion of the trust funds by six months and require more significant, across-the-board cuts once the assets run out. Therefore, reforming the WEP, not repealing it, is the better solution.
Ultimately, the long-term fix is to extend Social Security coverage to all state and local workers. This approach would not only provide better protection for workers but also eliminate the existing equity problem.
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Eliot Pierce is a dedicated writer for ChiefsFocus.com, covering local crime and finance news. With a keen eye for detail and a passion for storytelling, Eliot aims to provide his readers with clear and insightful analysis, helping them navigate the complexities of their financial lives while staying informed about important local events. His commitment to delivering accurate and engaging content makes him a valuable resource for the community.