Social Security Fairness Act Is a Bad Idea – Center for Retirement Research

This rule will allow some employees to double dip and accelerate the exhaustion of the trust fund.

On November 12, the House passed the Social Security Protection Act to eliminate the Windfall Elimination Provision (WEP), which reduces Social Security benefits for workers who receive significant government pensions in jobs not covered by Social Security. A companion provision – the Government Pension Offset (GPO) – makes similar changes for spouses and survivors.

Since they were enacted in 1983, the WEP and GPO have angered state and local workers, who feel they are being unfairly denied benefits. In fact, these provisions are a legitimate – if incomplete – attempt to solve the equity problem that arises because 25-30 percent of federal and local workers are covered by Social Security.

Clearly, those of us who support some form of reform haven’t done a very good job of making the case. Let me try again. Essentially, state/local workers who spend their careers not covered by the Social Security program but receive less coverage in side jobs or after retirement are considered “low earners” in Social Security. As “low earners,” they benefit from a continuous benefit program, which was designed to help low-income earners throughout their lives – not those who make good livings in jobs not covered by Social Security.

To see how that works, look at the Social Security benefit formula. Three factors apply to average monthly indexed individual earnings (AIME). Thus, in 2024, an individual’s benefit would be 90 percent of the first $1,174 of AIME, 32 percent of AIME between $1,174 and $7,078, and 15 percent of AIME above $7,078 (see Table 1). Since a worker’s monthly earnings are averaged over a typical working life (35 years), a high-wage earner with a short stint in Social Security-covered employment looks exactly like a low-wage worker with a lifetime job. If the AIME of these two employees is each $1,174 or less, they both receive a 90 percent turnover rate.

Similarly, a spouse who had a full-time job in an exempt job – and worked in a covered job for a short period of time or not at all – may be eligible for spousal and survivor benefits.

The WEP is designed to eliminate this labor inequality by reducing the first factor in the benefit formula from 90 percent to 40 percent; the other two factors remain unchanged. It’s not a perfect solution – the reduction in benefits is equally large for workers with low AIMEs, regardless of whether they are high or low paid in their open occupation.

Most viewers agree that WEP could be designed better. Kevin Brady (R-TX) has repeatedly introduced legislation with a new formula. First, the general Social Security factors will be applied to all income – both covered and uncovered – to calculate the benefit. The resulting profit will be multiplied by AIME’s share from the consolidated profit. Such a change would bring about a small decrease for the low payers and a large reduction for the high earners.

Improving the design would be a welcome change. But it doesn’t make sense to allow state and local workers who receive less protection under Social Security to benefit from the program’s continued benefit formula. The offsets are correct. In addition, removing offsets would also accelerate the end of trust funds by six months and require significant cuts across the board when assets are depleted. So reform, not repeal, is the answer.

Ultimately, of course, the long-term fix is ​​to extend Social Security to all federal and local workers, which would provide better worker protection and eliminate the equity problem.