By Mark J Warshawsky

Bipartisan legislation introduced in the House and Senate early last year, the “Social Security Fairness Act of 2021,” (HR 82 and S 1302) has recently gained some attention because of the large number of co-sponsors and the possibility that it will be soon brought forward to a vote in the House. The legislation would repeal the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO)—long-standing features of Social Security that adjust somewhat the Social Security benefits of those receiving “non-covered” pensions paid by employers that do not withhold Social Security taxes, typically state and local governments and non-US employers. These workers and spouses or widow(er)s with non-covered pensions also have had jobs during their careers covered by Social Security, that is, for which they paid taxes. In a fact sheet accompanying the annual Statement sent to those with non-covered earnings, the Social Security Administration (SSA) provides a reasoned justification on fundamental fairness grounds for WEP and GPO:

Why we use a different formula for the WEP

Social Security calculates benefits by applying a formula to a worker’s average monthly earnings over his or her lifetime. . . . [T]he formula is weighted so that the benefits replace a greater percentage of the wages of lower-wage workers than they do for higher-wage workers. Non-covered earnings are not included in the … benefit calculation. . . . Before 1983, people whose primary job wasn’t covered by Social Security had their Social Security benefits calculated as if they were long-term, low-wage workers. They had the advantage of receiving Social Security benefits representing a higher percentage of their earnings, plus a pension from a job for which they didn’t pay Social Security taxes. Congress passed the WEP to remove that advantage by accounting for the non-covered pension.

Why we reduce your benefits by the GPO

Congress intended for Social Security spousal benefits to support non-working spouses who are financially dependent on a working spouse. Because many spouses have their own careers and are not financially dependent on their spouse, the law requires us to reduce spouse and widow[er] benefits by the dollar amount of the spouse’s own Social Security . . . benefit. However, before 1977, the same was not true for spouse . . . beneficiaries who received a government pension based on employment on which they had not paid Social Security taxes. They could simultaneously receive an unreduced Social Security spousal benefit and a pension based on their own non-covered career in state or local government employment. The GPO reduces spouse . . . benefits by two-thirds of the person’s own monthly government pension based on work that was not covered by Social Security. This approximates the $1-for-$1 reduction that applies to spouses . . . who receive their own Social Security . . . benefit.

Because WEP and GPO improve the fairness of Social Security benefits, removing them would be unfair. Such removal would transfer resources from all taxpayers and beneficiaries (including government workers with covered pensions) at an amount estimated by the Social Security actuary as equivalent to a permanent increase in the payroll tax of 0.12 percent, $150 billion over the next 10 years, and moving the date of Trust Fund exhaustion forward by a year, to about 2.7 million beneficiaries currently affected by WEP and GPO. Neither the moral justification nor economic efficiency gain for such a transfer is apparent.

Opposition to the “Social Security Fairness Act” is not to say that the current WEP and GPO mechanisms are the best ways to address the fundamental fairness issues in play here. Analysts have discovered that the current mechanisms favor somewhat high-wage government workers compared to low-wage ones. Moreover, the need for the worker or spouse to declare to the SSA, at the time of claiming of benefits, the existence and amount of non-covered pension being received leads to non-compliance and overpayments. That is, a type of unfairness for those who are honest, as well as an administrative burden on SSA to try to find out the existence of non-covered pensions and to collect overpayments. So lawmakers and analysts have proposed several alternative mechanisms, regulatory changes, and data exchanges to more precisely, more automatically, and even more fairly adjust Social Security and pension benefits for those with non-covered pensions. Covering all new state and local government workers in Social Security is the best long-term solution to this fairness problem, but even then a transition would be needed for older non-covered workers and current beneficiaries. Congress should work to refine these proposals, rather than give out yet another unjustified and unpaid-for large transfer of taxpayer resources to politically favored groups—here some government workers and retirees, recently, members of union multiemployer pension plans, and prospectively, student loan borrowers.

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