On the first Sunday in January 2025, President Joe Biden brought some warmth to a very cold time of year by signing the bipartisan Social Security Fairness Act into law. This legislation impacts more than 2.5 million Americans, which makes it important for financial advisors to understand. The short version of what happened is that this law repeals both the Windfall Elimination Provision from 1983 and the Government Pension Offset from 1977 (but with an adjustment in 1983).

The Windfall Elimination Provision (WEP) relates to people who receive a non-covered pension from an employer who did not withhold Social Security taxes for an employee but still qualifies for Social Security benefits through other employment. Teachers, firefighters, police, and other state and local government workers could earn non-covered pensions. The Social Security Administration reports that, in 2022, the WEP applied to 3.1% of benefit recipients. For 2025, the provision was estimated to reduce monthly Social Security benefits by $360 for 2.1 million Americans.

The WEP reduced monthly Social Security benefits for those with less than 30 “years of coverage” (i.e., credited years working for an employer withheld Social Security taxes). The monthly check is called the “primary insurance amount” (PIA). The PIA is calculated using three tiers and is designed to give higher income replacement for those with lower earnings. In 2024, this first tier involved paying monthly benefits of 90% on the first $1,174 earned. The WEP allowed the replacement percentage in this first tier to remain at 90% if someone had at least 30 years of coverage. However, those with non-covered pensions would see this first-tier replacement rate decline to between 45% and 85% for those with 21-29 years of coverage based on a declining schedule. Those with 20 years of coverage would only get a 40% replacement rate on this first tier. The other two tiers were unaffected, but this adjustment had a big impact (i.e., $360 per month, on average). There was a protection mechanism such that the difference between the normal PIA and the WEP PIA could not exceed 50% of the non-covered pension amount. This change was complex.

The Government Pension Offset (GPO) applied to surviving spouses and widows whose spouses had a non-covered pension. Before fully understanding the GPO, we must explore Social Security’s dual entitlement rule. When someone dies, their surviving spouse does not get their own Social Security check plus a full surviving spouse benefit based on their deceased spouse’s Social Security benefit. They get the higher of the two values. The new benefit is seen as merging the surviving spouse’s natural benefit with an upward adjustment for a spousal benefit if that helps them. The GPO compares this surviving spouse's Social Security (dual entitlement) benefit with the amount of the survivor’s benefit retained for any non-covered pensions. Post-1983, the GPO multiplies the surviving spouse’s non-covered pension benefit by two-thirds. No Social Security check is received if this value exceeds the Social Security survivor benefit. If the two-thirds value is less than the Social Security survivor benefit, then Social Security can be paid up to the threshold value of two-thirds of the non-covered pension.

As of 2022, the GPO reduction impacted 12.6% of surviving spouse and widow beneficiaries. It should also be noted that these affected people had an average non-covered pension of $2,690 per month, which is $865 higher than the average Social Security check ($1,825) for all workers in the same year.

What does the repeal of WEP and GPO mean for financial advisors? If you are unaware of your client’s tax return data, you should get a copy. If they have a government pension and receive Social Security benefits based either on their work history or of a deceased spouse, they may be about to increase their monthly income. The Social Security Fairness Act language allows for lump sum payments for 2024 benefits removed by the WEP and GPO as well. The Social Security Administration is still figuring out how to apply this new law and when payments will be adjusted, but you can be the one to bring this good news to your clients first.

Author: Eric Robbins is the Associate Director for Corporate Outreach and Research and Associate Teaching Professor in Finance at Penn State Erie, the Behrend College.  

Editor: Greg Filbeck, CFA, FRM, CAIA, CIPM, PRM, Samuel P. Black III, Professor of Finance & Risk Management, Penn State Erie, mgf11@psu.edu