By Mark Miller
(Reuters) - Social Security is an earned benefit. You become eligible by paying the payroll tax during your working years, and the amount you get is geared to your wage history - with a glaring exception.
Since the 1980s, some public sector workers have seen their earned Social Security benefit amounts cut sharply due to a little-understood rule called the Windfall Elimination Provision (WEP).
The logic of the WEP - and its cousin, the Government Pension Offset (GPO) - was inscrutable to all but policy analysts and actuaries. These rules can chop earned benefit amounts by more than half; they have provoked fury over the years from affected workers and repeated lobbying efforts at reform or repeal.
Last weekend, Congress responded by repealing the WEP and the GPO with a law dubbed the Social Security Fairness Act. Opponents of the repeal argue that the two rules address alleged overpayments to people who split their careers between jobs covered by Social Security and other work covered by a public sector defined benefit plan.
Opponents also argue that repeal will accelerate depletion of Social Security’s trust funds. Some claim it would increase the federal deficit. The truth is that it will not, because Social Security has its own dedicated funding stream separate from the general government budget.
Most Americans are in jobs covered by Social Security - the main exception is state and municipal workers who participate in separately funded pension plans. Consequently, the WEP and GPO impacted only about 2.5 million Social Security beneficiaries as of late 2023, according to the Congressional Research Service. That is just 4% of the total beneficiary pool. The repeal will hasten the insolvency of the Social Security trust funds by about six months, according to the Congressional Budget Office - but that is a problem Congress will need to address separately, anyway.
WHY THE WEP?
Why would these public sector workers be treated differently from everyone else? The answer begins with the way that Social Security benefits are distributed across wage earners with varying incomes.
Social Security’s benefit formula is progressive; workers with low average lifetime earnings get a higher benefit amount compared with their earnings than people who are better-paid. In this system, workers affected by the WEP look as though they earned less over the span of their careers than they actually did - so their unadjusted benefit would be larger than it would be had they worked their entire careers in jobs covered by Social Security. The WEP aims to eliminate the high benefit return these workers get on their Social Security income when they are not really low-income.
“We’ve decided as a society that we should help low-income people in retirement,” said Richard Johnson, director of the program on retirement policy at the Urban Institute. “To Social Security, these people look like they have very low incomes, so the formula gives them an unusually generous benefit for them to account for that.”
Some of the language used to defend WEP and GPO really makes no sense. For example, some supporters argue that providing a full Social Security benefit to these workers would constitute “double-dipping,” despite the fact that they are drawing benefits from two entirely separate systems with different funding sources.
Even the word “windfall” in the term WEP implies that these workers would otherwise be receiving extra benefits in a way that is not fair. But none of it makes sense to the people impacted by WEP or GPO - for them, it is a simple matter. If you earned the benefit, you should receive it.
WEP and GPO now have been repealed. Their elimination will make retirement a little easier for public sector workers such as firefighters, police officers and teachers, most of whom earn modest incomes and pensions - not to mention their spouses and widows. The law calls for the restored benefits to be paid starting with retroactive payments for 2024, although no details are available yet on how that will be handled, or when the retroactive payments will be made.
I would have preferred to see this taken care of as part of a broader package of Social Security reforms that address the solvency problem and other flaws in the system. For example, if Congress is really interested in addressing “fairness” - as implied by the name of the WEP/GPO repeal bill - it should swear off any effort to raise Social Security’s full retirement age to 70 to address the program’s looming shortfall, as proposed by many Republicans. That would be unfair to millions of workers who cannot wait that long due to the physical nature of their jobs, health problems or inability to save money for an earlier retirement.
Another way to improve fairness: Congress should end its chronic under-funding of the Social Security Administration's budget, which has created a shameful, enormous backlog of people awaiting decisions on Social Security Disability Insurance claims - delays that can further damage their health and shorten their lifespans.
Outside the Social Security system, a more fair retirement security system would expand 401(k) access to all Americans, and rework the tax-deferral features of 401(k) and IRA accounts so that they do not primarily help upper-income households.
After all - fair is fair.
The opinions expressed here are those of the author, a columnist for Reuters.