This is complicated. It involves adding money to the Social Security payments to retirees. Note that this is geared teachers and other government employees. They will get the benefit—the rest of us will pay for it.
This is at a time when Social Security is already set to go bankrupt by 2033—eight years from now. The system is collapsing and the government unions are squeezing it to collapse even quicker.
Why California is likely to be one of biggest beneficiaries of new Social Security law
By Kathleen Pender, SF Chronicle, 1/9/25 https://www.sfchronicle.com/personal-finance/article/california-social-security-benefits-law-20020436.php
California should be one of the biggest beneficiaries of a bill signed by President Biden on Monday that will increase Social Security benefits for about 2.8 million Americans by an average of $360 a month.
California will benefit more than most states because it has more workers likely to be impacted by the bill, both in sheer numbers and as a percentage of all workers. They mainly include public-school and community college educators and many police, fire and other public-safety workers.
Who is impacted by the new law?
The Social Security Fairness Act repeals two laws enacted in 1977 and 1983 that reduced or eliminated the Social Security benefits of certain workers. These were people who worked most of their lives in public-sector jobs covered by a state- or local-government pension, but not Social Security.
Although these groups didn’t pay into Social Security and therefore didn’t accrue Social Security benefits while holding these jobs, many are eligible for Social Security retirement benefits because they had enough other work (such as a part-time job or second career) that was covered by Social Security. Or they had a spouse who worked primarily in a job covered by Social Security and were therefore eligible for spousal or survivor benefits based on their spouse’s covered employment.
The decades-old laws created two programs, the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO), which reduced or eliminated their Social Security benefits. The programs were designed to offset a perceived advantage these workers had over others with no public pension.
Workers affected by the two provisions — a small but vocal minority — didn’t see it that way and have been fighting to overturn the two laws almost since their inception.
Now they’ve finally succeeded. The new law, passed with strong bipartisan support in late December, repeals the two provisions, retroactive to January 2024. Biden said those entitled to retroactive pay will get a lump sum, but didn’t say when. The Social Security Administration said it is “evaluating how to implement the Act. We will provide more information as soon as available.”
While it’s unclear how many workers in California will benefit from the laws’ repeal, 5.7% of the state’s total labor force are in jobs not covered by Social Security and potentially could be impacted. Only nine states have a higher percentage, according to one estimate.
Looking just at state- and local-government workers, in 2021 about 54% in California lacked Social Security coverage versus 27% nationwide, according to the Congressional Research Service.
The new and old laws didn’t affect federal workers hired since 1983 because they participate in Social Security. Most state and local workers also participate in Social Security and likely won’t be impacted.
The California Public Employees’ Retirement System, or Calpers, said that almost 30% of its active and retired members do not participate in Social Security but can’t say how many of them will benefit from the new law.
Susan Dixon, president of the California Retired Teachers Association, said her members “are thrilled” about the new law.
The National Education Association called the repealed measures “punitive and discriminatory.” It said they affected almost 300,000 retired workers and their spouses in California.
Many economists on the left and right, however, opposed repeal because it will mostly help workers who already have generous pensions and because it will exhaust Social Security’s trust fund about six months earlier than it would have if the new law had not passed, according to the Congressional Budget Office.
“I don’t think it’s good policy. It’s good politics. It’s very popular among the people who benefit from it,” said Dean Baker, a senior economist with the left-leaning Center for Economic and Policy Research. But “it’s not the least bit progressive. If you want to increase benefits, there are reasonable ways to do it. Do an across-the-board increase or an increase for lower-paid workers.”
Andrew Biggs, a senior fellow with the right-leaning American Enterprise Institute, said, “Among people who are considered experts, across the spectrum, I don’t know a single one who supported (the new act). Literally everybody thought it was a bad idea. It takes five or 10 minutes to understand that public employees will receive windfalls” that the previous laws were meant to avoid. “And it cost a lot of money, (almost) $200 billion over 10 years.”
How Social Security is calculated
The key to understanding the controversy is knowing that Social Security is a “progressive” program that replaces a larger percentage of a low-income worker’s pay than a high-income worker’s pay.
It first calculates your average monthly earnings (adjusted for wage inflation) in jobs covered by Social Security during your working years. It then applies a formula to that income to determine how much you will get in retirement.
Although low-income workers receive a smaller dollar amount in retirement than higher-income workers, that benefit represents a higher percentage of their pre-retirement income.
Last year, Social Security determined that the average wage-replacement rates for hypothetical workers born in 1959 ranged from almost 80% of average pre-retirement pay for the lowest-paid workers to 28% for the highest-paid ones, according to AARP.
Why the WEP?
Here’s the rub: The basic Social Security formula looks only at earnings covered by Social Security, not a government pension. It essentially treats a person who earned $10,000 a year in a job covered by Social Security and $70,000 a year in a government job not covered by Social Security the same way as a person who truly earned only $10,000 a year total.
Biggs gives this example. Take two teachers; each earns $72,000 during the school year and each takes a summer job earning $10,000 a year. They are identical except Teacher 1 has Social Security deducted from her teaching salary (teachers in all but 15 states including California do). Teacher 2 pays into a teacher retirement pension, such as the California State Teachers’ retirement System (CalSTRS), instead of Social Security. Both retire in 2025 at age 67. Teacher 1 gets an annual Social Security benefit of $25,064 from her teaching job and $1,500 a year from her summer job.
Now assume that Teacher 2 also gets $25,064 a year from her teacher pension. “Her $10,000 in summer earnings each year, however, entitle her to an annual Social Security benefit of $7,305. That’s $5,805 more than the $1,500 annual benefit that Teacher 1 receives based on her summer earnings,” Biggs wrote.
How the WEP worked
The Windfall Elimination Provision, or WEP, was designed to limit this advantage by reducing (but not eliminating) Social Security benefits for people who also get a government pension from work not covered by Social Security.
CalSTRS provided an example for a member turning 62 in 2024 with average Social Security-covered monthly earnings of $2,000. The WEP would reduce this educator’s monthly Social Security benefit by almost $600, from $1,321 to $734. (The WEP did not reduce the member’s CalSTRS pension.)
The WEP could not reduce retirees’ Social Security benefit by more than half their public pension.
The new law eliminates the WEP.
Spousal and survivor benefits
The second repealed provision is the Government Pension Offset, or GPO. It reduced, or in some cases eliminated, Social Security spousal and survivor benefits.
When a worker files for Social Security retirement benefits, the worker’s spouse may be eligible for benefits based on the worker’s earnings. The “spousal benefit” can provide up to half of the worker’s benefit while the worker is still alive. When the covered worker dies, the survivor can receive up to 100% of the deceased spouse’s benefit. This is the “survivor benefit.”
But if both spouses worked under Social Security, the lower-earning spouse’s spousal benefit is reduced dollar-for-dollar by his or her own benefit.
Suppose a husband’s benefit is $2,000. The wife is entitled to as much as $1,000 while the husband is alive and $2,000 when he dies.
However, if she worked and earned her own Social Security benefit of say $700 a month, her spousal benefit is $300, for a total benefit of $1,000. She won’t get her $700 plus his $1,000. When her husband dies, she will get $2,000, not $2,700.
Now suppose the wife earned a public-sector pension of $700 and never worked in a job covered by Social Security. Before the GPO, her government pension would not be deducted from the spousal or survivor benefit. She would get $1,700 while her husband was alive and $2,700 after he died.
How the GPO worked
The GPO was designed to offset that advantage by deducting two-thirds of the government pension from the spousal and survivor benefit. In some cases, this deduction eliminated the spousal or survivor benefit.
Congress created the GPO “to help ensure that spousal and widow(er) benefits of those with covered or non-covered lifetime earnings would be roughly equal,” the Social Security Administration said.
But teachers and others affected by the provision said it unfairly penalized them because spouses who never worked do not have their Social Security spousal and survivor benefits reduced.
“If we had stayed home and never worked, we are eligible for half our spouse’s (benefit) while they are alive and when they pass, the whole amount. We were being punished for being a teacher,” Dixon said.
That may be true if you compare a teacher to a non-working spouse. But Baker said that a husband and wife who had comparable earnings in jobs covered by Social Security get little or no spousal or survivor benefits.
The new law eliminates the GPO.
