President Joe Biden has signed into law the Social Security Fairness Act, which will affect millions of Americans. Although the legislation offers considerable gain to almost 3 million public-sector workers, it also contains some sad news to retirees speedily sinking social security in the troubled waters of the impending financial burden on the program.
What Does the Social Security fairness act change?
The Social Security Fairness Act abolishes two controversial pieces of legislation, the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO).
The Windfall Elimination Provision (WEP) reduced Social Security benefits for individuals who worked in both Social Security-covered jobs and government jobs that did not withhold Social Security taxes. It affected primarily public-sector workers, including teachers, firefighters, and police officers, who also held private-sector jobs. It was aimed at preventing so-called “windfall” benefits for those with little Social Security contributions, according to SSA.
The Government Pension Offset (GPO) disadvantaged spouses and survivors who also received pensions from the federal, state, or local governments with their Social Security benefits. This was meant to ensure that government employees who did not pay into Social Security were treated like their private-sector colleagues.
Proponents of the new legislation argue that WEP and GPO unfairly punished public-sector workers and their families and reduced benefits for these people whose careers were spent serving their communities. Their opponents, however, hold that the provisions protected against double-dipping–the practice of receiving full benefits from both Social Security and government pensions–and thus ensured fairness across all sectors.
The downside: Accelerating Social Security’s financial crisis
The Social Security Fairness Act increases the benefits granted to the public sector workers, thereby aggravating the financial state of the Social Security program.
Prior to this legislation, the Old-Age and Survivors Insurance Trust Fund, which finances retirement, spousal, and survivor benefits, was projected to exhaust reserves by 2033. At that point, beneficiaries would have faced a reduction of 21% in payments, as ongoing payroll taxes could fund only 79% of scheduled benefits, unless Congress intervened.
This new law moves that date of depletion forward. Because the law provides additional benefits for 3 million public-sector workers, it hastens depletion of the OASI Trust Fund. According to the Congressional Budget Office (CBO), the fat has already been moved forward by six additional months before the trust fund will become insolvent. Meanwhile, the prior 21% cut required for benefits will result in a greater 26% cut unless Congress can find additional funding before the fund becomes insolvent.
While this average monthly amount increase of $360 is, indeed, good news to the affected workers, it brings its challenges to the Social Security program at a larger scale. Critics argue that this new benefit expansion leaves Congress with barely enough time to “fix” the program’s funding gap, which is expected to cost even more money under the new law.
What does this mean for retirees?
The signing of the Social Security Fairness Act underscores the urgency of reforming the program’s funding mechanisms. It highlights the delicate balance between addressing perceived inequities in benefits and ensuring the long-term solvency of Social Security.
If the OASI Trust Fund becomes insolvent, retirees, spouses, and survivors could face significant benefit reductions. However, insolvency does not mean the program will go bankrupt. Payroll taxes will still fund a portion of benefits, but without Congressional action, the cuts could be devastating for many.
The Fairness Act’s changes have now added pressure on Congress to act quickly. While legislative solutions to Social Security’s financial challenges are likely, the pathway is complicated by political divisions and the scale of the funding gap.
The bottom line
The Social Security Fairness Act goes both ways: on one hand, it helps public-sector workers who have, so to say, been penalized by the WEP and the GPO; on the other hand, it worsens the financial strain on Social Security, leaving less time for lawmakers to address the program’s insolvency.
This will be a difficult battle for Congress in securing the future of Social Security, but the stakes have never been higher. While beneficiaries may cherish some hope for resolution, the need for action has become more acute, and the future challenges may be greater than ever.
