Most workers pay into the Social Security system based on their income. Upon retirement, this earnings history is used to calculate the monthly amount they (and their spouse and eligible children) will receive when they start benefits.
However, a small subset of workers spend a portion of their career in jobs that don’t pay into Social Security and receive a pension from that employer. These often include state and local employees such as teachers, police officers, and firefighters. It also includes those who worked in a foreign country where they did not contribute to the Social Security system.
Since 1977, a special calculation has been used to determine monthly benefits for this subset of workers. These special calculations were known as the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). They required a cumbersome calculation that essentially reduced the Social Security benefit for many workers. These provisions were designed to create fairness for workers paying into the Social Security system.
On January 6, 2025, President Biden signed the Social Security Fairness Act into law. This new law fully repeals both the WEP and the GPO. This will increase Social Security benefits for millions of workers who receive pensions from state, local, or foreign governments. In fact, the law is retroactive to January 1, 2024, which will give the recipients an additional one-time benefit.
If you have been subject to WEP or GPO in the past, this is a great time to update your financial plan. Small changes, if managed correctly, can have a significant impact on your financial success.
