It is official the WEP and GPO are no more, but before getting into how these changes impact mostly Teachers, Policeman and Firefighters lets first look at what they were.
History of the WEP & GPO
In 1977 Congress and the President approved a bill that would affect individuals who receive a pension from a job where they did not pay FICA taxes. The individuals most affected were School Teachers, Fire Fighters and Policemen. The purpose of the bill was to fix a flaw that allowed these individuals to receive benefits that no other Americans could get. It basically said that benefits for government employees should be figured in the same way as all other senior citizens. The 2 terms WEP and GPO are often mentioned in the same breath, but are uniquely different.
The WEP (Windfall Elimination Provision)
The WEP affects individuals who will receive a pension from a job where they did not pay FICA taxes, but had other jobs outside of the government, where they did pay FICA taxes and qualified for Social Security (40 quarters) on their own record. The key here is the formula which is used to determine one’s Social Security benefits at retirement. SSA takes the highest 35 years of earnings, at one’s 62nd birthday (born in 1963). For brevities sake if one maxed out their earnings every year their check at FRA (67) would be $4,020 per month. The key is the extremely PROGRESSIVE formula that is used;
$1,226 x 0.90 = $1,103.40 $6,165 x 0.32 = $1,972.80 $6,298 x 0.15 = $944.70 Total Check = $4,020.90
Observation: A low earning individual will receive a much greater reimbursement rate than a high earning individual. Take a high earned who paid maximum earnings subject to FICA their being credited an average benefit of 23% on 91% of their earnings!
All the WEP did was instead of crediting the 1st tranche @ .90 they would credit it @ .40 everything else remains the same. Thus, the maximum reduction would be $613/mo. Now if the firefighter had 30 years of significant earnings there is NO WEP adjustment and they get full check. The WEP reduction also goes down by 5% every year between 20 and 30. It’s been my experience that most of these individuals have between 10 and 15 years of significant earnings. Also of note, if their projected check is $800 per month their WEP adjustment would be 50% or $400. Thus a school teacher would get their FULL PENSION + WEP Adjusted Social Security check!
The GPO (Government Pension Offset)
The GPO affects Spousal Benefits that they might be eligible for! As you know spouses are eligible to receive as much as 50% of their spouses check at FRA. Thus, if a policeman had a high earning spouse who was a CPA and their check at FRA was $4,000 per month, they would be eligible to receive $2,000 per month once the CPA started claiming on their record and 100% of whatever they were receiving at their time of death.
Under the GPO we would have to reduce Spousal Benefits by 2/3 of whatever the PENSION is in that year. So we have a Policeman who receives a $6,000 per month pension ($6,000 x 2/3 = $4,000), so going back to the above example they were eligible for $2,000 per month spousal benefit when their spouse retired; $2,000 – $4,000 (GPO) = ZERO if their spouse predeceased them and their check at time of death was $5,000 per month – $4,000 (GPO) = $1,000 in spousal survivorship benefits.
GPO Bottom Line
Every School Teacher, Fire Fighter and Policeman are now eligible to receive 50% Spousal Benefits and 100% Survivorship Benefits in addition to their pensions that they receive from the Government Entity they worked for!
The Social Security Fairness Act is RETROACTIVE to January 1st, 2024 for both the WEP and GPO elimination. Details to come as to how to apply for those benefits!
Social Security Fairness Act
The estimated cost of this law is $20 Billion per year and is projected to hasten Social Security insolvency by roughly 6 months. What’s interesting in reviewing this law change and its impact and from who’s perspective is one looking. Government Employees feel they’ve been cheated of benefits over the past half century and on the other side of the aisle we have those individuals who don’t get government pension benefits and had to pay FICA taxes on almost all their income and are then subject to a very progressive formula that short changes them and their spouses.
Remember my 3 Truths in Life
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The Only Certainty is Uncertainty
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Life is Not Fair
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You have to Play the Hand Your Dealt
