How the Social Security Fairness Act Could Positively Impact Your Retirement
On episode 230
I discussed a new bill that was just signed into law by President Biden. This bill increases the Social Security payments for millions of public school teachers and former public employees.
The law is named the Social Security Fairness Act,
It repeals a pair of Social Security provisions that limited the SS benefits that many public school teachers and public employees would receive.
I touched on how the bill works, what it could mean for you, gave some examples of who it may impact, and then shared what is needed to be done to make sure that you receive the additional benefit that you may be eligible for.
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Back to how the Social Security Fairness act can positively affect you
In the past I’ve talked about some of the problems retired teachers and public employees have ran into when it comes to collecting their social security benefits. My mom was a teacher and taught for over 30 years in the state of Connecticut. I’m dedicating this episode and blog to her as she recently passed away after a 3 1/2 year battle with bile duct cancer.
This recent bill that will go into effect is going to impact the Social Security benefit that she would’ve received. But, I'm happy to see that this bill is going into effect and will help millions of teachers across the country just like her.
So what exactly is this?
Well, it's called the Social Security Fairness Act, and as I said before, it impacts roughly 2.8 million people in the United States and teachers in 14 states.
There are teachers in 14 states that are currently exempt from paying into Social Security, it's not anything that the teachers decided, rather something that the states decided long ago for them.
Many of these states have their own retirement plan and decided years ago to save money… Rather than having to pay money both into Social Security and into the teacher's pension system.
They exempted themselves and their employees from paying into Social Security. So that means both the state being the employer, and the employee, the teacher, were not paying into Social Security.
This definitely created some savings, but what it's done negatively is impacted the benefits that these teachers are eligible to receive based off their own benefit. There's also a number of public employees that work for different towns and states that may also be impacted. It impacts them because these towns, municipalities, or states have also decided to exempt their employees from Social Security, therefore reducing the benefit that they're eligible for.
Luckily this bill repeals 2 Social Security provisions I will go over now:
1 The Windfall elimination
This applied to the Social Security benefit that you're eligible to receive Based off your own earnings record. So if you're a teacher in Connecticut and you had previous work history, let's say my mom for example. You worked in another job before teaching, and let's say it shows on your Social Security statement that you're eligible for $1000 Social Security benefit. Well, based off the number of years that you worked in a job not paying into Social Security there's a formula that determines how much of your Social Security benefit you're actually eligible for. The maximum reduction last year was for $587.
For many teachers or many state employees that are exempt from Social Security, even though you worked in another job or you paid into Social Security, you're getting a reduced Social Security benefit. This is just one person that this will impact. This WEP reduction will go away.
2 The government pension Offset
This is a provision that applies to either spouses of people who are eligible for a spousal Social Security benefit or a survivor benefit.
The way that this worked is if you take 2/3 of your pension that you receive from a job that you didn't pay into Social Security wages for…Going back to my previous example a teacher in the state of Connecticut or a teacher in a number of other states… Let's say you take 2/3 of that pension and you're eligible for a Social Security survivor benefit or spousal benefit, you only receive the amount of that benefit that's higher than 2/3 of your pension.
Obviously this knocked out a lot of spousal benefits for teachers or public sector employees who were exempt from paying into Social Security and also received a pension that they did not pay Social Security wages on.
When does it go into effect?
Well, it's going into effect retroactive from January 1, 2024. So that means that if you were collecting Social Security last year and you were impacted by either of these provisions, you're supposed to get a retroactive payment going back to the beginning of last year. This will be a nice bonus for a lot of people.
It hasn’t entirely been worked out as to whether this is going to be a lump sum or paid over time. We will keep you updated as more information is released.
So, how much could this benefit you?
Well I talked earlier about the maximum Windfall elimination provision reduction, which last year was $587. So that's probably the maximum it could impact you if you were someone who is a teacher that is receiving a Social Security benefit on your own record.
As a spouse, let's say you have no work record, meaning you didn't work in another job that you paid into Social Security before going into a job as a public school teacher or a state employee where you were exempt from paying into Social Security. Then it could be potentially thousands of dollars in benefits that you might be eligible for.
Let me give you some examples of how that works:
So let's first talk about a spousal benefit. Let's say we have a couple, Jim and Judy. Jim worked in a job where he paid into Social Security wages and he's currently receiving $3000 a month from Social Security. Judy worked as a teacher, let's say for 30 years, and she never paid into Social Security. So if she were to go on Social Security and look up her own earnings record, it shows $0. Judy is currently also retired and she's collecting a teacher's retirement pension of $3000 a month.
In this example, Judy would normally be eligible for a spousal benefit, but if we take her spousal benefit, which would be 2/3 of that $3000, which would be $2000, she's only going to receive the amount of the spousal benefit which would be the higher of 2/3 of her pension.
So in this example, the normal spousal benefit, the way it works is because Judy doesn't have any work history, she'd be eligible for up to half of Jim's full retirement security benefit. Let’s say that is half of Jim's current benefit. So $1500. Well, because that $1500 isn't higher than 2/3 of her pension (2/3 of $3000 is $2000) she doesn't receive any benefit.
But, with the repeal of this windfall elimination provision and the government pension offset due to the Social Security Fairness Act, she should be eligible for that full $1500 a month. So that can be a major windfall for Jim and Judy, because now she's eligible for Social Security spousal benefit that she previously wasn't eligible for.
What about a single person?
Let's say we have Jane, and her pension is $3000 a month that she's collecting from a job that she worked at where she was exempt from Social Security wages. Let’s assume she's also a teacher, but she also taught at a private school before she worked in the public sector and was paying into Social Security. She did that for a number of years, and she sees on her Social Security statement that she should be eligible for $1000 a month. Well, let's just say that she doesn't have more than 30 years of work history because that's the amount that you have to have to not have the maximum windfall elimination provision reduction.
Well, she's getting her Social Security benefit reduced by $587.00 a month. So she's not getting $1000, she's getting about $413.00 a month.
For her, once this goes into effect, she's going to get the full $1000 a month because she's not going to have that windfall elimination provision reduction at all. And this windfall elimination provision, as I said, it could be the maximum for you. Maybe it's less. You'll have to check with Social Security to see how much of an increase you might get if you're being impacted by the windfall elimination.
The final example I'll use is how a Social Security survivor benefit will work.
So normally as a Social Security survivor, you're eligible to take over the higher of your own benefit or your spouse's benefit when your spouse passes away. So we'll just use an example of Sarah, she is receiving a pension from working as a teacher that she didn't pay Social Security wages into and that pension is currently $4500 a month. Her husband John died two years ago at the age of 70. And he was receiving $2900 a month from Social Security. So because Sarah's now eligible for Social Security survivor benefit, but she's also receiving a pension that was exempt from Social Security wages, we have to first take 2/3 of her pension to determine how much of A survivor benefit she'd be eligible for. So 2/3 of $4500. Is $2970.
So because his benefit is 2900 a month Sarah receives ZERO Social Security survivor benefit, because that $2900 is not higher than 2/3 of her pension. But with the repeal of the government pension offset, which is one of the two provisions that are being repealed by the Social Security Fairness Act. Sarah should be eligible to receive the full survivor benefit of $2900, which is a massive windfall for Sarah because of the fact that she's now eligible for the full spousal benefit.
So this is how powerful this is for a lot of teachers or a lot of people that worked for public sector jobs that were exempt from paying into Social Security wages and are either eligible for a spousal benefit, or survivor benefit, or if they're eligible for their own benefit but are being impacted by a windfall elimination provision.
I am very excited to see that this has finally gone through and is now law because it was something that had been talked about for years.
These bills have been proposed in Congress for a number of years, but they never made it all the way. And I'm happy to see that it made it all the way through and is now going into effect retroactive for 2024 and beyond. This is going to help a lot of people.
So what if you're impacted by this?
What do you need to?
Well, according to Social Security, there's a statement on their website and I'll share a link to In this podcast episode. (Click here)
According to Social Security, if you have previously filed you should just verify that you have the current mailing address on file and that your direct deposit information has not changed. You can do this by either going online and logging into your account at SSA Gov, you can call Social Security at 1(800) 772-1213, or you could visit a local Social Security office.
So what I'm assuming is that Social Security is just going to send you the money if you've already applied. Let's say you haven't ever filed for social security. Maybe you didn't file because you didn't think you were eligible for a spousal benefit. Then you want to make sure that you file an application. And you can either go online to do this or you can schedule an appointment in person. Make sure that you do that if you haven't ever filed or make sure their information is correct so that you don't miss out on this money.
I'm not sure how quickly Social Security will get the money out. Hopefully it will come rather quickly, but you know it's something that's coming in the near future.
So again, this is great news for public school teachers or public sector employees who are directly impacted by this. This is something that Congress put into play 40 years ago, and it was really to prevent federal employees from double dipping by being eligible for a federal pension and then switching over into the private sector and getting Social Security. But it had some really negative impacts to teachers, especially with Social Security survivor benefits.
Again I'm so glad to see that this is being overturned. Make sure to spread the word about this if you have a friend or family member who you think will be impacted by this so they're aware they're may be eligible to receive the money that they qualify for.
As always, have a great day, a better week, and I look forward to talking with you on the next Podcast, YouTube video, blog post, or wherever we have the pleasure of connecting!
Written by Ryan Morrissey
Founder & CEO of Morrissey Wealth Management
Host of the Retire with Ryan Podcast
Father, Husband, Author, Golf lover.