For many years, some state and local government employees including many teachers, firefighters and police officers have been penalized in retirement if they were exempted from Social Security during their public service but also worked in private sectors jobs.
A provision intended to reduce the appearance of unfairness had the effect in practice of reducing or eliminating legitimately earned Social Security benefits for retirees with public pensions who also paid into the system during subsequent employment.
The bipartisan Social Security Fairness Act signed by former President Joe Biden on Jan. 5 repeals two complex and unpopular provisions: the Windfall Elimination Provision and the Government Pension Offset that reduced or zeroed out earned Social Security benefits for the roughly 3.1 million Americans who also received public pensions not subject to Social Security.
Affected retirees will see an increase starting with their April payment, as well as a retroactive cash payment for the forgone benefits since Jan. 1, 2024. Many people subject to the Fairness Act have already received their back pay. It has been a long time coming.
Few people even recall the origin of the public pension offsets, which trace back to previous efforts to shore up Social Security in 1983. To understand how these provisions operate, we first must look at how retirement benefits are calculated. As you may suspect, it’s complicated.
Eligibility for Social Security retirement income is based on a worker’s earnings history during employment in which they paid into the system. The process begins by reviewing the participant’s wages over up to 35 years of employment history. The Social Security Administration then calculates the average indexed monthly earnings that adjusts prior earnings for inflation. Then a formula is applied to the average indexed monthly earnings to compute the retiree’s actual monthly Social Security benefit.
This formula was created to make the benefit progressive. That is, to replace a higher share of average earnings for low-paid workers than for those with higher income. For example, in 2025, retirees starting Social Security at full retirement age receive 90% of the first $1,226 of their average indexed earnings.
Average earnings between $1,226 and $7,361 are reduced to 32% of average indexed monthly earnings and 15% of average wages over $7,361 per month up to the current statutory maximum benefit ($4,018 per month at full retirement age). The result of these adjustments is then decreased or increased based on early or delayed benefit filing. This progressiveness is designed to provide greater support to those who earned relatively less during their working lives.
During deliberations in 1983 to assure sustainability of the Social Security program, it was recognized that not all claimants with lower average monthly earnings were actually low-wage workers. Some were public servants exempt from Social Security during part of their careers and therefore had no qualified earnings during their public service time.
Those that also had private sector jobs typically had far fewer years of eligible Social Security wage history. These participants might have had relatively high annual pay but low average earnings over 35 years with so many zeros on their record. The 1983 reform commission recognized this could represent a “windfall” since these dual-employment workers could receive 90% of their average indexed monthly earning as if they had been low wage employees.
To offset this perceived disparity, the Windfall Elimination Provision was incorporated into the 1983 reform act. The provision reduced the monthly Social Security benefit from 90% to as low as 40% of the first wage bracket. At the same time, Congress revised an earlier version of the Government Pension Offset to provide a similar reduction in spousal benefits if the spouse had a government pension outside the Social Security system. In practice, the offsets were overly complex, poorly understood and generally viewed as unfair. After years of failed attempts, Congress finally passed the Fairness Act in late 2024.
For most beneficiaries, the changes will take effect automatically, and those affected should be notified by April 1. The administration does suggest logging into your Social Security account to verify that your address and direct deposit information are correct.
If you are retired and did not apply because of the Windfall Elimination Provision or the Governmental Pension Offset, you will need to submit an application to begin receiving benefits under the new law. If you believe you are entitled to a benefit raise but do not receive it before April 1, contact Social Security to inquire.
Also be prepared for potential delays if you are applying. The administration announced it will no longer accept phone applications without separate verification online or in person. An internal memo reported on by The Washington Post estimated that over 4 million seniors will be required to show up in person because they are unable to apply online.
This comes as Elon Musk’s Department of Government Efficiency has announced the closure of 47 local Social Security offices and the firing of 12% of the administration’s workforce, so be patient. If you are calling specifically about the new law, mention the “Fairness Act.”
The passage of the Social Security Fairness Act was welcome news for the 28% of public service employees outside the Social Security system who also earned credits in private sector jobs but whose benefits were previously reduced or excluded, including Chattanooga police officers and firefighters. Good news for first responders.
Christopher A. Hopkins, CFA, is co-founder of Apogee Wealth Partners in Chattanooga.
Christopher Hopkins