New law makes Social Security benefits available to some former public employees
In the final days of the Biden administration Congress passed and President Biden signed the Social Security Fairness Act into law. The law is now in effect and has been made retroactive to January 1st of 2024.
This law impacts employees of the Federal government or some state governments and municipalities who accrued pension benefits under a government pension. Some Federal government employees who accrued pension benefits under the Civil Services Retirement System (CSRS), or the transitionary Civil Service Retirement System offset program, as well as state and large numbers of municipal employees in states such as Illinois and Ohio and some in Michigan and Indiana.
Public employees participating in certain government pension programs were subject to a rule called the Windfall Elimination Provision, or WEP. While accruing public pension benefits, these workers did not contribute to Social Security, and from a logical perspective were exempted from payroll taxes in exchange for having part of their compensation directed toward funding the public pension programs of their public sector employers. This would result in a testing process, called the Government Pension Offset (GPO) under WEP, used to determine whether they would receive reduced benefits or have their benefits eliminated under Social Security. Or said simply, if receiving a sizeable municipal pension as retirees they would not receive Social Security benefits.
The WEP and GPO rules (sorry about the government speak) did create an issue for workers who did not spend their entire career in a public sector pension system. It's not hard to imagine that perhaps someone may start their career in the private sector, contribute to Social Security for 10-15 years, then go work for the government and stay until retirement. Under this scenario, despite having paid payroll taxes long enough to qualify for Social Security benefits (40 quarters), these retirees would not receive benefits.
The Social Security Fairness Act adjusted these rules and made certain employees and retirees eligible for the Social Security benefits they would have earned while subject to payroll taxes.
According to government data released during the signing of this new law, about 2 million public sector retirees and 750,000 spouses of deceased retirees will be impacted.
So, if you think you may be impacted by this new law, and in my experience most impacted retirees and some pre-retirees are well aware when they are, you have the opportunity to reclaim the benefits earned by the payroll taxes you paid outside of the government pension system, but it won't be exactly easy or automatic.
If you believe you are impacted, and once again this is for public employees and retirees subject to the WEP and GPO rules who also worked under the payroll tax system, or their surviving spouses, you can apply for reconsidered Social Security benefits under the new law. The Social Security Administration has set up an application process, and while the benefits increase is retroactive to the beginning of 2024, benefits begin accruing upon application date with a lump sum payment for the reconsideration period.
The volume of applications related to this new law is expected to be considerable. I strongly suggest calling Social Security at 1-800-772-1213 as soon as possible and when prompted by the voice response system as to why you are calling, state clearly "Fairness Act" to get connected to specially trained representatives to get the ball rolling.
Special thanks to Stacey Fargo at Oak Partners for elevating this topic in the office and suggesting this column topic. Stacey is a real pro, works so hard for her clients and is a joy to work with.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax or legal advice. Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.
