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If you receive a pension from the state of Illinois or a local municipality like Champaign or Urbana, you just might be in luck — and in line to receive some extra cash.

The Social Security Fairness Act, signed into law on Jan. 5, “repeals provisions that reduce Social Security benefits for individuals who receive other benefits, such as a pension from a state or local government,” according to the Congressional Research Service.

The changes retroactively apply to benefits payable after December 2023.

According to the Social Security Administration, the agency is still “evaluating how to implement the act.”

In the meantime, two local experts — SHARON ALLEN and DALY ANDERSSON of Sterling Wealth Management — answered staff writer Jana Wiersema‘s questions on the topic.

Who is affected by the elimination of the Government Pension Offset and Windfall Elimination Provision?

The repeal of the Windfall Elimination Provision and Government Pension Offset impacts individuals whose Social Security retirement benefits are reduced due to receiving pensions from jobs not covered by Social Security. Common examples include many (but not all) retirees in the public sector, such as some public schools and universities, local governments, police and firefighters, mail carriers, among many other examples.

The Windfall Elimination Provision, known as WEP, reduces Social Security retirement benefits by up to 55 percent for some individuals who receive a non-Social Security covered pension. The extent of the reduction under WEP depends on how many years an individual has paid into Social Security, with the WEP reduction being fully eliminated once the individual has 30 years of substantial Social Security earnings history.

Individuals qualify for Social Security retirement benefits on their own earnings record having at least 40 quarters of Social Security wages over their lifetime. However, if an individual doesn’t qualify for benefits on their own record, they may qualify based on their marital status.

This brings us to the Government Pension Offset, known as GPO. The GPO reduces Social Security retirement benefits for spouses, ex-spouses and survivors who receive pensions from non-Social Security covered work. In fact, the GPO reduces Social Security spousal and survivor benefits by two-thirds of the amount of the retiree’s non-Social Security-covered pension amount. For many public sector retirees, the GPO reduces their Social Security spousal or survivor benefits to $0.

How much are Social Security benefits estimated to increase for these individuals? Does it vary from person to person?

The impact of the Social Security Fairness Act may differ significantly from person to person, depending on their work and earnings history as well as their marital status. The Congressional Budget Office (CBO) estimates that the repeal of these two provisions will have the following average impact on affected individuals:

Windfall Elimination Provision

The repeal of WEP is estimated to increase the Social Security retirement benefits for more than 2 million affected retirees. The average anticipated increase will be $360/month or $4,320/year.

Government Pension Offset

• Historically, the Government Pension Offset has had a greater impact on women. Over 80 percent of retirees affected by the GPO reduction are women, according to data compiled by the American Federation of State, County and Municipal Employees.
• Eliminating the Government Pension Offset is expected to raise benefits for nearly 400,000 retirees who may be eligible to claim a spousal benefit based on a spouse or ex-spouse’s earnings history by an average of $700/month or $8,400/year.
• Nearly 200,000 affected widows and widowers are estimated to see their Social Security Survivor’s Benefits increase by an average of $1,190/month or $14,280/year.

When will impacted individuals begin to see a change in their benefits?

We are awaiting further information from the Social Security Administration regarding the timing and methods for these updates. It is expected that affected individuals may receive a lump sum payment for any WEP or GPO reductions backdated to Dec. 31, 2023.

Could you talk a little bit about the retroactive piece of the act?

The Social Security Fairness Act is effective as of Dec. 31, 2023. Individuals whose Social Security retirement benefits were reduced due to WEP or GPO will see their benefits increase beginning in 2024.

This means that they may receive a lump-sum payment for the shortfall in benefits for the period from Jan. 1, 2024, until the implementation of these changes which will likely be some time in 2025.

Is there anything beneficiaries need to do to take advantage of this change, or is the increase automatic?

The Social Security Administration has provided guidance based on a person’s current filing status:

• If you have previously filed for Social Security benefits and they are partially or completely offset due to a public pension, the Social Security Administration will automatically re-calculate your benefits. You should verify that your current mailing address and direct deposit information are up to date by logging into your “mySocialSecurity” account online or calling Social Security.
• If you have not previously filed for Social Security benefits and are receiving a public pension, you can file for benefits online at SSA.Gov/apply or schedule an appointment with your local Social Security Administration office. You should contact Social Security directly if you believe you are eligible to receive benefits based on your marital status as these applications are not available online.

What was the original purpose of the two provisions?

Both the Windfall Elimination Provision and Government Pension Offset were designed with the intention of creating “fairness” in pension retirement income between public and private sector workers.

The WEP, passed in 1983 by Congress, was supposed to prevent workers who receive non-covered pensions from also receiving their full Social Security benefits like they were long-time, low-wage earners. Without the Windfall Elimination Provision, a retiree who worked 10 years in a Social Security-covered job and 30 years for a non-covered employer may be eligible for full benefits from both systems. At the time, Congress considered this to be a “windfall” that should be reduced.

The GPO was created in 1977 to ensure that individuals would not be able to claim their own non-covered pension in addition to a full Social Security spousal or survivor’s benefit. Originally, the GPO reduced Social Security spousal and survivor benefits by the full amount of non-covered pension received. In 1983, Congress reduced the GPO offset to two-thirds.

Why has Congress decided to eliminate them now?

The push to repeal the WEP and GPO has been decades in the making.

When Congress enacted the WEP and GPO, comprehensive data regarding earnings from non-covered employment did not exist. As a result, they had to create an imprecise approach to adjusting Social Security benefits with the ultimate aim of preventing individuals entitled to multiple pension benefits from receiving income that would exceed the highest single benefit to which they were entitled. This often resulted in either over- or under-adjusting benefits.

The complexity and fairness issues, along with better available data on those impacted, resulted in the broad bipartisan support to eliminate these two provisions.

Are there estimates for the number of people that will be impacted nationally and statewide?

Nationally, it is estimated that over 2.8 million current retirees may be impacted by the Social Security Fairness Act.

The National Education Association estimates that over 100,000 Illinois retirees may be impacted by the repeal of the Windfall Elimination Provision and the Government Pension Offset.

Obviously, receiving greater Social Security benefits is a plus at the micro level. What’s the impact at the macro level, when it comes to government spending and the economy in general?

This is an extraordinarily complex issue that has and will have impact on individual households, the government and overall economy. One will find proponents and opponents on nearly every side, and it is difficult to predict what the long-term economic impact will be.

From a government spending perspective, according to the Congressional Budget Office, the new law will add an estimated $195 billion to the federal deficit over the next decade.

Is there anything else that the community should be aware of when it comes to the Social Security Fairness Act?

It is estimated that only 25 percent of retirees from the public sector are affected by the Windfall Elimination Provision or Government Pension Offset. It is important to determine your individual factors to understand whether your benefits may be impacted.

While much of the attention is drawn to current retirees who may see their benefits increase, it is worth noting that those currently working in public non-Social Security covered jobs may receive a larger Social Security benefit than they previously expected.

The Government Pension Offset is where we expect to see a lot of surprises. Because the GPO can result in large and even full reductions of spousal and survivor benefits, many affected retirees may have initially chosen not to file for these benefits.

Now that the GPO has been repealed, spousal and survivor benefits for these individuals will not automatically be granted unless they have previously filed. It is important for affected retirees who believe they will qualify for a spousal or survivor benefit to apply for these specific benefits.