Written by Mark Miller
(Reuters) – Social Security is an earned benefit. You qualify by paying payroll tax during your working years, and the amount you receive is forwarded to your wage date — with one notable exception.
Since the 1980s, some public sector workers have seen their Social Security benefit amounts decline sharply because of a little-understood rule called the Windfall Elimination Provision (WEP).
The logic of the women's empowerment program – and its cousin, the government pension budget – was a mystery to all but policy analysts and actuaries. These rules can cut earned benefit amounts by more than half; It has sparked anger from affected workers over the years and repeated lobbying efforts for reform or repeal.
Last weekend, Congress responded by eliminating the WEP and GPO with a law called 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 would accelerate the depletion of Social Security's trust funds. Some claim that this will increase the federal deficit. The reality is that won't happen, because Social Security has its own funding source separate from the general government budget.
Most Americans work in jobs covered by Social Security — the main exception are state and municipal workers who participate in separately funded retirement plans. Thus, the WEP and GPO only affected about 2.5 million Social Security beneficiaries as of late 2023, according to the Congressional Research Service. This represents only 4% of the total beneficiaries. Repeal would hasten the insolvency of Social Security trust funds by about six months, according to the Congressional Budget Office — but that's an issue Congress will have to address separately, anyway.
Why WEP?
Why are these public sector workers treated differently than everyone else? The answer starts with the way Social Security benefits are distributed to wage workers with varying incomes.
Social Security's benefit formula is progressive. Workers with a lower average income receive a higher benefit amount relative to their earnings than better-paid people. In this system, workers affected by the Women's Empowerment Program appear as if they earned less over their careers than they actually did—and so their unadjusted benefits would be greater than if they had worked their entire careers in jobs covered by Social Security. WEP aims to eliminate the high return these workers receive from Social Security income when they are not truly low-income.
“We have decided as a society that we should help low-income people retire,” said Richard Johnson, director of the Retirement Policy Program at the Urban Institute. “For Social Security, these people appear to have very low incomes, so the formula gives them an unusually generous benefit to account for that.”
Some of the language used to defend WEP and GPO doesn't really make sense. For example, some proponents claim that providing full Social Security benefits to these workers would constitute “double dipping,” despite the fact that they derive benefits from two completely separate systems with different funding sources.
Even the word “windfall” in the WEP term implies that these workers would have received additional benefits in an unfair way. But none of this makes sense to people affected by WEP or GPO – to them, it's a simple matter. If you get the benefit, you should get it.
WEP and GPO have now been eliminated. Eliminating them would make retirement a little easier for public sector workers like firefighters, police officers and teachers, most of whom have modest incomes and pensions — not to mention their spouses and widows. The law calls for restored benefits to be paid starting with retroactive payments to 2024, though no details are yet available on how that will be handled, or when 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 addresses the problem of solvency and other flaws in the system. For example, if Congress were truly concerned with addressing “fairness” — as the name of the WEP/GPO repeal bill suggests — it should sworn off any effort to raise Social Security’s full retirement age to 70 to address looming shortfalls in the program, as many have proposed. Republicans. This would be unfair to millions of workers who cannot wait that long due to the physical nature of their jobs, health problems or their inability to save money for early retirement.
Another way to improve equity: Congress must end the Social Security Administration's chronic budget underfunding, which has led to a massive and shameful backlog of people awaiting decisions on Social Security disability insurance claims — delays that could further harm their health and shorten their lives. Live them. age.
Outside of Social Security, a fairer retirement security system would expand access to 401(k)s to all Americans, rewriting the tax-deferral features of 401(k)s and IRAs so that they don't help in the first place. High-income families.
After all – fair is fair.
The opinions expressed here are those of the author, a Reuters columnist.
