January 7, 2025 • 27 mins
Social Security Fairness – With the repeal of Social Security’s Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO), Chris Boyd, Jeff Perry, and Russ Ball share this breaking news and what it means to over three million people who will see an increase in benefits. The discussion starts off with a review of the 30+ year history of these provisions. Jeff outlines the average benefit increases while Chris provides his commentary on the long-term outlook and need for overall reform to the Social Security system.
For more information or to reach Chris Boyd, Russ Ball or Jeff Perry, click the following link: https://www.wealthenhancement.com/s/advisor-teams/amr
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Episode Transcript
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(00:00):
Welcome to something more with Chris Boyd.
Chris Boyd is a certified financial planner, practitioner,
and senior vice president, financial advisor at Wealth
Enhancement Group, one of the nation's largest registered
investment advisors.
We call it something more because we'd like
to talk not only about those important dollar
and cents issues, but also the quality of
life issues that make the money matters matter.
(00:22):
Here he is, your fulfillment facilitator, your partner
in prosperity, advising clients on Cape Cod and
across the country.
Here's your host, Jay Christopher Boyd.
Welcome everybody to another episode of something more
with Chris Boyd.
I'm glad to have you with us.
We are having a special episode today because
there's been some significant legislation that was recently
(00:45):
passed and signed into law, it's called the
Social Security Fairness Act.
And we wanted to have an opportunity to
share some of the implications of this with
you.
I'm joined by Jeff Perry and Russ Ball,
both of whom are part of our AMR
team here at Wealth Enhancement Group.
And we appreciate you listening and hope you
get a lot out of this.
(01:05):
This is something that, Jeff, you've been tracking
for months now.
This is not the first time there's been
legislative rules.
Yeah.
I've been saying for years I've been tracking
this.
And with a lot of skepticism along the
way, will it pass?
Oh, we're down to the last few days.
Is it going to make it through?
(01:27):
And maybe this is the big one you've
been waiting for, for this repeal.
Let's tell everyone a little bit about what
this legislation, the Social Security Fairness Act does,
and then we can talk a little bit
about some of the particulars.
Okay.
Let's go back in history a little bit.
In 1983, when Congress passed some Social Security
(01:50):
form, which increased the retirement age, which was
the headline of that bill, they included-
And the tax structure, right?
Correct.
And as I said previously, Social Security benefits
had been untaxed.
That's right.
They became taxable income in varying degrees.
And then there was also the change in
(02:11):
the age as to full retirement age.
Increasing it, yeah.
Yeah.
But there was also this impact.
So it was a goal by President Reagan
and the Congress at that time to strengthen
the Social Security system, right?
To make it more- It's solvency.
That's right.
So, you know, generally a good idea.
Well, I'm sure we'll go back to this
(02:32):
subject in a minute.
And they included a windfall elimination provision in
that bill, which basically was designed to prevent
or mitigate individuals who had a government pension,
civil servants, state and local employees who were
not paying into Social Security, but to decrease
(02:54):
the amount of their Social Security if they
had earned the necessary credits otherwise.
So they were eligible for Social Security in
the process, but were they perceived to be
double dipping in a sense, you know, getting
benefit from their Social Security benefits and public
pension?
That's right.
That's right.
And it, just a side note, in 1977,
(03:18):
there was a provision called the government.
Why can't I remember the name of this?
Government pension offset.
I forget it earlier.
Which has to do with spousal benefits, how
much they could receive.
So that was already on the books.
Similar idea that as we know, a long
(03:38):
time ago when Social Security was created or
revised, they wanted to incentivize in that time
mothers to stay home.
Right.
And be able to be penalized for not
working essentially.
I could argue either side, right.
Incentivized to stay home or penalized for not
(03:58):
working.
And they were able to collect 50%
of their spouse's Social Security benefits.
In the creation of the Social Security, you
know, at its origins, there were just a
lot more people who, women who were, you
know, stay at home moms who weren't part
of the workforce that also needed some consideration
(04:22):
in retirement.
The goal of Social Security was to provide
an element of Social Security, a retirement stability
for people that they wouldn't be on welfare
in retirement.
So this was like a base income.
So this was, it was part of the
rationale based on the social structure at that
(04:43):
time.
That's right.
That's a well said Chris.
And also as part of that GPO, there's
surviving spouse benefits.
So if the spouse died, that 50%
would go up to a hundred percent.
However, when the windfall elimination provision was enacted,
(05:03):
they also included the individuals, the spouses or
the surviving spouses into that where that benefit,
if that was, if they had a private,
if they had a government pension in that
mix as well, then that Social Security benefit,
either one, either spouses or a survivor could
be eliminated as well.
(05:24):
So both of these have been on the
books for a very long time.
And it doesn't necessarily work identically.
The government offset and the windfall elimination provision,
but the conceptually, so since we don't have
to go into the details on this anymore,
the conceptually both would discount the Social Security
(05:44):
benefit in differing ways, in different degrees, but
for people who either as a surviving spouse
benefited from that public pension while receiving Social
Security benefits or for the worker, depending on
which part of this we're talking about.
And we won't get into the details, but
I just want to add some commentary is
(06:04):
it seemed like the most harshest treatment was
to the surviving spouse, which, you know, why
probably unintentional, right?
But still, yeah, it's, it's kind of surprising.
The big hit came to the surviving spouse
twice, right?
They lose somebody and then what they expect
to get as a survivor benefit.
Got reduced substantially.
(06:26):
Their, their Social Security spousal benefit perhaps, and
was reduced because of this pension that they
got the percentage of certainly was right.
So since then, right.
So since 1983, this has been an issue
and it was an issue for some state
and local employees whose states decided not to
(06:48):
opt into the Social Security system.
Massachusetts was one of them.
Not all state and local governments made that
decision back then.
Some said, okay, well, this is the way
it's going to be.
We're going to opt into Social Security and
government employees were paying both.
And so that did not affect them.
Just the ones that those states said, no,
we're just going to stay with our pension
system and we understand Social Security would be
(07:12):
reduced.
So, so it's kind of not a one,
one size fits all.
Yeah.
It's important to recognize that there are many
other jurisdictions where the public, they may even
have a, a public pension in the state,
but they may also be participating in the
Social Security system.
(07:33):
So it's, it's a, which would make it
more like a private pension in many respects
in that scenario.
In our case in Massachusetts, other jurisdictions that
not all, but many there is this separate,
you don't participate in Social Security, but you're
participating in the public pension paying nine to
(07:55):
12% of your salary into the public
pension system.
Not unlike what you would do in the
Social Security.
And if you were doing FICA taxes or
something like that.
So it's a slightly different, but parallel perhaps.
And so now this is most relevant for
people who qualify for both, right?
This is where it's like, what happened when
(08:18):
you had your 40 quarters of, of eligibility
for Social Security benefits, you, you participated sufficiently
to receive Social Security.
But you also had the benefit of working
in the public sector where you got a
public pension, where you'd get some benefit there
as in retirement.
(08:39):
The challenge for this, this windfall elimination provision
would, would limit how much your Social Security
benefit would, it would be deducted.
It'd be reduced essentially.
So under the old formula, just to, I
know nobody needs to know it, but just
a point of reference.
If you had your quarters, your 40 quarters,
(09:01):
and you had less than 18 years of
substantial earnings, you would get the maximum reduction
to your Social Security, which was changed every
year, but around $550 in the latest year,
that would be the maximum windfall elimination provision.
If you had between 18 and 30 quarters,
(09:22):
18 and 30 years of substantial earnings, your
reduction would be on a sliding scale.
The closer you get to 30, the less
percentage of the reduction.
And if you hit 30 years of Social
Security contributions at substantial earnings, which really weren't
that hard to meet substantial earnings, you would
not have any reduction.
(09:43):
So people, there's no one, once again, no,
there's no single answer for everybody.
It really depended on where you were.
I'll just share with, I've shared it before.
I'm one of those people.
I had like 18 years of private sector
employment and 26 years of public sector employment.
So I am eligible for a pension in
(10:06):
the pension system in Massachusetts, and I'm not
collecting Social Security, but when I was going
to collect Social Security, I was probably going
to lose four or $500, you know, roughly
a month because of where I was in
the number of years I had in the
private sector.
Well, and you mentioned having talked with another,
(10:29):
a client of ours, who's benefiting, going to
see maybe about a $500 difference in their
retirement income as a consequence of that.
I had a meeting this morning with, with
someone who works for a city in Massachusetts,
and he hadn't heard about this yet, but
he was very happy to hear about it,
the argument to repeal these provisions was fairness,
(10:55):
you know, the title of the bill in
essence, that if you, for example, if you
worked in two different pension jobs, private sector,
say you worked in two companies that had
pensions and you worked X number of years
in each ones, you qualified for both pensions.
One pension wasn't reduced because you had another
pension.
(11:15):
It was a matter of fairness.
I worked my case 18 years in the
private sector.
I contributed.
I don't have, I have a very low
Social Security benefit because I only worked 18
years in, and so I shouldn't be reduced
or someone shouldn't be reduced because I chose
to work in the public sector as well.
(11:36):
That was the political argument.
Yeah.
I mean, in that scenario, you're saying one
pension isn't affected by the other, but in
both of those instances, those pensions were also
paying into the Social Security system, which, uh,
you know, it's apples and oranges for your
analogy here, but you follow my point that
(11:58):
people were still participating in Social Security all
along the way.
Um, and that, that those, those pensions are
irrelevant to the Social Security conversation.
As a matter of fairness, it's a solid
argument that they are irrelevant to each other,
right?
Now there's other issues that are always involved
(12:19):
with these, these decisions that Congress had to
make, but I think, I think it passed
because it's a compelling argument because a lot
of other reasons, political reasons, I think it
passed.
There's, you know, roughly 3 million people who
are affected by this repeal who will benefit
from this repeal.
Arguably there are 3 million government employees.
(12:41):
So in that 3 million, there's a lot
of individuals who are connected to members of
Congress, connected to the political system just by
being in the government And so there's some,
uh, lobbying, right?
There's some lobbying, all the, uh, retirement associations
(13:01):
in the given states were pushing for it
for decades.
It was a lot of momentum.
In fact, there were more sponsors in the
House and the Senate of, of the bill.
This was HR 42, the name of the
bill, but there were more sponsors every session
than they were required to pass it.
I mean, because the constituents who were affected
(13:22):
by this were knocking on those legislators' doors,
talking to members of Congress all the time.
So the support was always there.
The argument wasn't, the argument was never that
this is, this is fair.
This is just, Congress would never make that
argument publicly.
Um, the argument was it costs too much
(13:44):
money, right?
We'd like to do it, but it's too
expensive.
The Congressional Budget Office puts a price tag,
um, from this repeal at $195 billion over
a 10 year period.
Um, and what's, uh, interesting that, uh, of
the 51 million retired workers who receive social
(14:05):
security.
Uh, probably about 3 million are the number
that's, that's less than 6% are affected
by, uh, this, the impact of this.
Well, you know, I, as I, you know,
I was alluding to it.
I have seen articles about, Oh, is the
fairness, the social security fairness act fair?
You know, I, I think, you know, you've
(14:26):
made the case for why it is.
Um, I think the, um, the bigger, you
know, challenge it affects is how does it
affect the solvency of the social security system
overall, you know, as you say, this is,
it has a cost, um, of, uh, you
know, a hundred, nine, 10 billion over 10
(14:46):
years.
Okay.
Roughly 200 billion.
Okay.
200 billion.
So, um, you know, that's, that's, uh, over
a fair amount of time, but we are
also in within that timeframe, you know, 2033,
we have the issue of, um, challenge of
whether social security benefits will be sufficient, uh,
(15:09):
based on who we're taxing at that time
to pay benefits, there's the expectation we'll be
in a position where, uh, we'll be facing
a 21%, uh, or somewhere thereabouts a reduction
in benefits, uh, because unless this is addressed
the, the, from 2033 or whatever the number
was, uh, the CBO, I think, uh, also
(15:31):
indicated this might move that clock up.
Uh, what was it?
Russ six months.
Yeah.
Six months.
And so, um, it does have some consequence
to, you know, all of us who, um,
maybe at, by, I don't know if I'll
be participating at that point.
I, I haven't done the math.
How old will I be then?
But, uh, you know, that notion of, uh,
(15:54):
the people who are affected by social security
benefits.
The big issue is we've got to deal
with this and the longer the runway to
start a better will be.
Uh, but you know, the likelihood is, is
we'll get down to the wire, you know,
over the last several years, Jeff, I've been
saying to clients when they ask about this,
(16:16):
uh, this notion of social security, will it
be, you know, will it pay out, will
we receive benefits as planned?
I've always said, well, you know, I think,
um, there's a lot of people in Congress
who like their jobs, you know, and there's
a lot of voters who are affected by
social security.
Um, but you know, I'm starting to wonder
(16:36):
about the, uh, the plausibility of, you know,
when you look at the fact that, um,
we have these growing debts, um, you know,
uh, what are we almost $2 trillion deficit
last year?
Um, was it 1.9?
I think, uh, something like that.
Um, that's the deficit in the annual budget
(16:57):
and then the debt that's growing and growing
and growing, um, with then you compound that
with the fact that we'd have the social
security issue, uh, in need of addressing, you
know, you could, it's not, uh, unthinkable.
We could be in a position where, you
know, we always worry about, Oh, where's that
tipping point, the debt.
(17:19):
And, um, uh, the notion that it's partly
funded by other people around the world, by
the confidence they have in the debt paying
ability on treasuries.
And, you know, we're, we're up coming this
year with the likelihood of a showdown regarding
the debt ceiling.
And, uh, this is something that could undermine
(17:42):
confidence in people's willingness to own us debt,
if there's not clarity that we're going to
pay our debts.
So, you know, this becomes a political football,
uh, certainly.
And so, um, you know, I guess I,
I've always had the mindset, Congress is going
to deal with it, but you, you could
(18:03):
get to a point where the question is,
uh, is there still confidence from investors around
the world in us debt?
Does that undermine the ability, the cost of
financing our debts?
Could that envision a period of greater austerity?
Like we saw in Europe in the last
(18:25):
decade, uh, where we might not be as
free to simply say, Hey, let's just address
this, um, in, in a way that seems
very attainable and manageable today.
(18:48):
And in, uh, 30, 20, 33 is eight
years from now.
Right.
I don't know.
Uh, I'll just throw that out there.
Uh, what, what are your thoughts?
I actually thought that this issue of the
social security fairness and their repeal of weapon
GPO is going to be handled in a
larger social security reform act, where, you know,
(19:12):
they take all the, this is just one
thing that people say is wrong with social
security.
I mean, we could have, I'm sure we
will.
We'll have a whole episode on what, on
what we think should be done to solve
the financial challenges.
That's right.
Or taxes, uh, later ages, all these kinds
of variables.
Um, they talk about, um, income, uh, I
(19:36):
can't think of the right term for it
where if you make so much, Oh, you
might not be eligible, you know, it means
testing is one of those things.
And it's all these different, it's the cap
on social security.
It's like a tax, uh, where they, why
is there a cap?
Maybe they don't, or maybe there's a donut
hole or something.
There's all these different things.
Right.
Right.
Right.
So there's, I, I really sincerely thought if
(19:59):
I was a betting person, I would have
bet that this would be handled someday.
Yeah.
I don't know what would have happened.
You know, I didn't have really a feeling
about it.
Uh, this was a surprise.
If you read the, if you read the
commentary from the various retiree and employee association
groups.
Yeah.
Kind of snuck up on everyone from the
Massachusetts folks.
Um, they acknowledged that they've been working on
(20:20):
this for 30 years and same thing happened
in Congress, you know, it gets through committee
and everything.
And it doesn't go anywhere.
Uh, they had knowledge that they were surprised
and they didn't really feel confident that it
was going to happen until actually president Biden
signed it.
I talked to, um, I mean, I'm off
topic a little bit, but I talked with
someone who's a congressional staffer, who's an old
(20:41):
friend of mine, uh, he works in the
house and he's not sure, obviously, you know,
he's not going to give me like.
This is exactly what happened, but sometimes one
branch of government passes something to get the,
uh, pressure off their back.
Yeah.
If you, if you remember how it went,
uh, the house passed it.
And then Schumer, uh, who was, who is
(21:04):
the leader of the Senate for the Democrats,
um, was approached, if you will, cornered perhaps
at a union event and said, you know,
the house passed it.
Why don't you, why don't you?
And he, whether intentionally or because of where
he was said, we're going to get it
out.
And then the momentum started and the, you
(21:24):
know, the hundreds of thousands of phone calls
started to Congress.
And so this could be, this could just
be one of those things that just happened
because of political pressure at the time and
political maneuvering.
Yeah.
Um, it's kind of amazing.
Uh, yeah.
As it kind of crept up unexpectedly, Jeff,
um, tell everyone a little bit about, um,
how, how quickly people will start to feel
(21:46):
the impact of this.
When will benefits change?
Uh, when will people, when does it take
effect in essence?
Sure.
It takes effect January 1st, 2025.
So last week, um, and it is provided
to be retroactive.
So, you know, it's going to take, yeah,
it's going to take social security administration, some
(22:06):
time to figure out how they're going to
do this.
Um, I would think they'd have all the
data because they have calculated the, the offsets.
Right.
So, um, but, so this goes back to
December of 2023 or is it January of
2024?
Like when does, how far back to, is
(22:27):
that retroactive?
I wonder, uh, article I was looking at,
made it sound like it goes back to
last, uh, to 2023 to December or some
of this, but I don't know if that's
accurate.
Yeah.
I don't know if it's accurate either.
I do know it's retroactive, but I'm not
a hundred percent sure on the date.
I read November 23, November 23.
(22:47):
Yeah.
Nailed down what exactly that is.
So, um, anyway, it's a full year plus
that people are, who are affected by this
will recover more benefit that they didn't get
in that period of time.
Right.
And just for a point of reference, the
average increase from the WEP, the windfall elimination
(23:10):
provision is $360 per recipient a month.
And on the government offset pension offset, the
average is $700 increase for, um, 380,000
people who are spouses and the average for
the surviving spouse.
And this 390,000 of them is $1
(23:33):
,190.
Oh, pretty, uh, pretty impactful.
Yeah.
I'll tell you what, this is, um, from
a Kiplinger article.
It says, uh, that the text of the
law indicates that the legislation's effective date will
apply to benefits payable for months after December
2023.
(23:54):
So that'd be the entirety of 2024.
Right.
So by the time they get this done
in a few months, you know, people could
be looking at maybe a year and a
few months.
So it's, uh, if you're at the top
of that amount, you know, $1,100 between
360 and $1,190 could be up to
(24:16):
10,000, maybe a little bit more.
Well, um, so what's the financial planning, uh,
ramifications?
What should we be?
Uh, I think the, the bottom line for
listeners is time to revisit your financial plan
a little bit.
If you think you might be affected by
this, um, let's, let's get into the details
(24:38):
and, uh, if you're coming into a little
bit of money, maybe that's a good opportunity
to think about what should you be doing
with that?
Is that part of your, your reserve, your
liquidity reserve?
Is it part of, uh, you're going to
fund your, your goals?
Uh, what's going to happen with that when
it comes to that change in cashflow?
Does that have a material consequence on, uh,
(24:58):
your financial profile, your financial picture?
I don't know.
Anything you want to add to that, Jeff?
No, I agree a hundred percent.
And it's a good time to re re
revisit your financial plan and update the modeling
of it, update your income, your monthly income.
It may, uh, it's going to make it
look better, whatever it is.
I would just add, um, as we go
(25:21):
to wrap up momentarily, if, uh, you are
someone who, uh, is a municipal employee or
someone who has, uh, is affected by this,
um, Jeff has a lot of expertise on
these issues on understanding the, uh, the way
the public pensions work.
And so if you, um, are kind of
(25:41):
facing some of the decisions you might need
to deal with, uh, we would encourage you
to reach out.
Um, we can, uh, we've got some great
resources here as a team and Jeff, uh,
in his wealth of knowledge can be a
great tool as well.
I think we're going to do some episodes
specifically geared toward, uh, those, uh, listeners who
might be in benefit from that in the
(26:03):
future.
So, uh, if you're a public employee, uh,
stay tuned and let us know if we
can be a resource to you as well.
Um, with that, uh, anything else to add?
Should we call it a day?
Let's call it a day.
It's good news for most of us out
there.
Excellent.
All right.
Well, thanks for listening, everybody.
Until next time, keep striving for something more.
(26:25):
Thank you for listening to something more with
Chris Boyd.
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planning or portfolio management, insurance concerns, or those
quality of life issues that make the money
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Whatever's on your mind, visit us at something
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(26:48):
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(27:10):
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Welcome to something more with Chris Boyd.
Chris Boyd is a certified financial planner, practitioner,
and senior vice president, financial advisor at Wealth
Enhancement Group, one of the nation's largest registered
investment advisors.
We call it something more because we'd like
to talk not only about those important dollar
and cents issues, but also the quality of
life issues that make the money matters matter.
(00:22):
Here he is, your fulfillment facilitator, your partner
in prosperity, advising clients on Cape Cod and
across the country.
Here's your host, Jay Christopher Boyd.
Welcome everybody to another episode of something more
with Chris Boyd.
I'm glad to have you with us.
We are having a special episode today because
there's been some significant legislation that was recently
(00:45):
passed and signed into law, it's called the
Social Security Fairness Act.
And we wanted to have an opportunity to
share some of the implications of this with
you.
I'm joined by Jeff Perry and Russ Ball,
both of whom are part of our AMR
team here at Wealth Enhancement Group.
And we appreciate you listening and hope you
get a lot out of this.
(01:05):
This is something that, Jeff, you've been tracking
for months now.
This is not the first time there's been
legislative rules.
Yeah.
I've been saying for years I've been tracking
this.
And with a lot of skepticism along the
way, will it pass?
Oh, we're down to the last few days.
Is it going to make it through?
(01:27):
And maybe this is the big one you've
been waiting for, for this repeal.
Let's tell everyone a little bit about what
this legislation, the Social Security Fairness Act does,
and then we can talk a little bit
about some of the particulars.
Okay.
Let's go back in history a little bit.
In 1983, when Congress passed some Social Security
(01:50):
form, which increased the retirement age, which was
the headline of that bill, they included-
And the tax structure, right?
Correct.
And as I said previously, Social Security benefits
had been untaxed.
That's right.
They became taxable income in varying degrees.
And then there was also the change in
(02:11):
the age as to full retirement age.
Increasing it, yeah.
Yeah.
But there was also this impact.
So it was a goal by President Reagan
and the Congress at that time to strengthen
the Social Security system, right?
To make it more- It's solvency.
That's right.
So, you know, generally a good idea.
Well, I'm sure we'll go back to this
(02:32):
subject in a minute.
And they included a windfall elimination provision in
that bill, which basically was designed to prevent
or mitigate individuals who had a government pension,
civil servants, state and local employees who were
not paying into Social Security, but to decrease
(02:54):
the amount of their Social Security if they
had earned the necessary credits otherwise.
So they were eligible for Social Security in
the process, but were they perceived to be
double dipping in a sense, you know, getting
benefit from their Social Security benefits and public
pension?
That's right.
That's right.
And it, just a side note, in 1977,
(03:18):
there was a provision called the government.
Why can't I remember the name of this?
Government pension offset.
I forget it earlier.
Which has to do with spousal benefits, how
much they could receive.
So that was already on the books.
Similar idea that as we know, a long
(03:38):
time ago when Social Security was created or
revised, they wanted to incentivize in that time
mothers to stay home.
Right.
And be able to be penalized for not
working essentially.
I could argue either side, right.
Incentivized to stay home or penalized for not
(03:58):
working.
And they were able to collect 50%
of their spouse's Social Security benefits.
In the creation of the Social Security, you
know, at its origins, there were just a
lot more people who, women who were, you
know, stay at home moms who weren't part
of the workforce that also needed some consideration
(04:22):
in retirement.
The goal of Social Security was to provide
an element of Social Security, a retirement stability
for people that they wouldn't be on welfare
in retirement.
So this was like a base income.
So this was, it was part of the
rationale based on the social structure at that
(04:43):
time.
That's right.
That's a well said Chris.
And also as part of that GPO, there's
surviving spouse benefits.
So if the spouse died, that 50%
would go up to a hundred percent.
However, when the windfall elimination provision was enacted,
(05:03):
they also included the individuals, the spouses or
the surviving spouses into that where that benefit,
if that was, if they had a private,
if they had a government pension in that
mix as well, then that Social Security benefit,
either one, either spouses or a survivor could
be eliminated as well.
(05:24):
So both of these have been on the
books for a very long time.
And it doesn't necessarily work identically.
The government offset and the windfall elimination provision,
but the conceptually, so since we don't have
to go into the details on this anymore,
the conceptually both would discount the Social Security
(05:44):
benefit in differing ways, in different degrees, but
for people who either as a surviving spouse
benefited from that public pension while receiving Social
Security benefits or for the worker, depending on
which part of this we're talking about.
And we won't get into the details, but
I just want to add some commentary is
(06:04):
it seemed like the most harshest treatment was
to the surviving spouse, which, you know, why
probably unintentional, right?
But still, yeah, it's, it's kind of surprising.
The big hit came to the surviving spouse
twice, right?
They lose somebody and then what they expect
to get as a survivor benefit.
Got reduced substantially.
(06:26):
Their, their Social Security spousal benefit perhaps, and
was reduced because of this pension that they
got the percentage of certainly was right.
So since then, right.
So since 1983, this has been an issue
and it was an issue for some state
and local employees whose states decided not to
(06:48):
opt into the Social Security system.
Massachusetts was one of them.
Not all state and local governments made that
decision back then.
Some said, okay, well, this is the way
it's going to be.
We're going to opt into Social Security and
government employees were paying both.
And so that did not affect them.
Just the ones that those states said, no,
we're just going to stay with our pension
system and we understand Social Security would be
(07:12):
reduced.
So, so it's kind of not a one,
one size fits all.
Yeah.
It's important to recognize that there are many
other jurisdictions where the public, they may even
have a, a public pension in the state,
but they may also be participating in the
Social Security system.
(07:33):
So it's, it's a, which would make it
more like a private pension in many respects
in that scenario.
In our case in Massachusetts, other jurisdictions that
not all, but many there is this separate,
you don't participate in Social Security, but you're
participating in the public pension paying nine to
(07:55):
12% of your salary into the public
pension system.
Not unlike what you would do in the
Social Security.
And if you were doing FICA taxes or
something like that.
So it's a slightly different, but parallel perhaps.
And so now this is most relevant for
people who qualify for both, right?
This is where it's like, what happened when
(08:18):
you had your 40 quarters of, of eligibility
for Social Security benefits, you, you participated sufficiently
to receive Social Security.
But you also had the benefit of working
in the public sector where you got a
public pension, where you'd get some benefit there
as in retirement.
(08:39):
The challenge for this, this windfall elimination provision
would, would limit how much your Social Security
benefit would, it would be deducted.
It'd be reduced essentially.
So under the old formula, just to, I
know nobody needs to know it, but just
a point of reference.
If you had your quarters, your 40 quarters,
(09:01):
and you had less than 18 years of
substantial earnings, you would get the maximum reduction
to your Social Security, which was changed every
year, but around $550 in the latest year,
that would be the maximum windfall elimination provision.
If you had between 18 and 30 quarters,
(09:22):
18 and 30 years of substantial earnings, your
reduction would be on a sliding scale.
The closer you get to 30, the less
percentage of the reduction.
And if you hit 30 years of Social
Security contributions at substantial earnings, which really weren't
that hard to meet substantial earnings, you would
not have any reduction.
(09:43):
So people, there's no one, once again, no,
there's no single answer for everybody.
It really depended on where you were.
I'll just share with, I've shared it before.
I'm one of those people.
I had like 18 years of private sector
employment and 26 years of public sector employment.
So I am eligible for a pension in
(10:06):
the pension system in Massachusetts, and I'm not
collecting Social Security, but when I was going
to collect Social Security, I was probably going
to lose four or $500, you know, roughly
a month because of where I was in
the number of years I had in the
private sector.
Well, and you mentioned having talked with another,
(10:29):
a client of ours, who's benefiting, going to
see maybe about a $500 difference in their
retirement income as a consequence of that.
I had a meeting this morning with, with
someone who works for a city in Massachusetts,
and he hadn't heard about this yet, but
he was very happy to hear about it,
the argument to repeal these provisions was fairness,
(10:55):
you know, the title of the bill in
essence, that if you, for example, if you
worked in two different pension jobs, private sector,
say you worked in two companies that had
pensions and you worked X number of years
in each ones, you qualified for both pensions.
One pension wasn't reduced because you had another
pension.
(11:15):
It was a matter of fairness.
I worked my case 18 years in the
private sector.
I contributed.
I don't have, I have a very low
Social Security benefit because I only worked 18
years in, and so I shouldn't be reduced
or someone shouldn't be reduced because I chose
to work in the public sector as well.
(11:36):
That was the political argument.
Yeah.
I mean, in that scenario, you're saying one
pension isn't affected by the other, but in
both of those instances, those pensions were also
paying into the Social Security system, which, uh,
you know, it's apples and oranges for your
analogy here, but you follow my point that
(11:58):
people were still participating in Social Security all
along the way.
Um, and that, that those, those pensions are
irrelevant to the Social Security conversation.
As a matter of fairness, it's a solid
argument that they are irrelevant to each other,
right?
Now there's other issues that are always involved
(12:19):
with these, these decisions that Congress had to
make, but I think, I think it passed
because it's a compelling argument because a lot
of other reasons, political reasons, I think it
passed.
There's, you know, roughly 3 million people who
are affected by this repeal who will benefit
from this repeal.
Arguably there are 3 million government employees.
(12:41):
So in that 3 million, there's a lot
of individuals who are connected to members of
Congress, connected to the political system just by
being in the government And so there's some,
uh, lobbying, right?
There's some lobbying, all the, uh, retirement associations
(13:01):
in the given states were pushing for it
for decades.
It was a lot of momentum.
In fact, there were more sponsors in the
House and the Senate of, of the bill.
This was HR 42, the name of the
bill, but there were more sponsors every session
than they were required to pass it.
I mean, because the constituents who were affected
(13:22):
by this were knocking on those legislators' doors,
talking to members of Congress all the time.
So the support was always there.
The argument wasn't, the argument was never that
this is, this is fair.
This is just, Congress would never make that
argument publicly.
Um, the argument was it costs too much
(13:44):
money, right?
We'd like to do it, but it's too
expensive.
The Congressional Budget Office puts a price tag,
um, from this repeal at $195 billion over
a 10 year period.
Um, and what's, uh, interesting that, uh, of
the 51 million retired workers who receive social
(14:05):
security.
Uh, probably about 3 million are the number
that's, that's less than 6% are affected
by, uh, this, the impact of this.
Well, you know, I, as I, you know,
I was alluding to it.
I have seen articles about, Oh, is the
fairness, the social security fairness act fair?
You know, I, I think, you know, you've
(14:26):
made the case for why it is.
Um, I think the, um, the bigger, you
know, challenge it affects is how does it
affect the solvency of the social security system
overall, you know, as you say, this is,
it has a cost, um, of, uh, you
know, a hundred, nine, 10 billion over 10
(14:46):
years.
Okay.
Roughly 200 billion.
Okay.
200 billion.
So, um, you know, that's, that's, uh, over
a fair amount of time, but we are
also in within that timeframe, you know, 2033,
we have the issue of, um, challenge of
whether social security benefits will be sufficient, uh,
(15:09):
based on who we're taxing at that time
to pay benefits, there's the expectation we'll be
in a position where, uh, we'll be facing
a 21%, uh, or somewhere thereabouts a reduction
in benefits, uh, because unless this is addressed
the, the, from 2033 or whatever the number
was, uh, the CBO, I think, uh, also
(15:31):
indicated this might move that clock up.
Uh, what was it?
Russ six months.
Yeah.
Six months.
And so, um, it does have some consequence
to, you know, all of us who, um,
maybe at, by, I don't know if I'll
be participating at that point.
I, I haven't done the math.
How old will I be then?
But, uh, you know, that notion of, uh,
(15:54):
the people who are affected by social security
benefits.
The big issue is we've got to deal
with this and the longer the runway to
start a better will be.
Uh, but you know, the likelihood is, is
we'll get down to the wire, you know,
over the last several years, Jeff, I've been
saying to clients when they ask about this,
(16:16):
uh, this notion of social security, will it
be, you know, will it pay out, will
we receive benefits as planned?
I've always said, well, you know, I think,
um, there's a lot of people in Congress
who like their jobs, you know, and there's
a lot of voters who are affected by
social security.
Um, but you know, I'm starting to wonder
(16:36):
about the, uh, the plausibility of, you know,
when you look at the fact that, um,
we have these growing debts, um, you know,
uh, what are we almost $2 trillion deficit
last year?
Um, was it 1.9?
I think, uh, something like that.
Um, that's the deficit in the annual budget
(16:57):
and then the debt that's growing and growing
and growing, um, with then you compound that
with the fact that we'd have the social
security issue, uh, in need of addressing, you
know, you could, it's not, uh, unthinkable.
We could be in a position where, you
know, we always worry about, Oh, where's that
tipping point, the debt.
(17:19):
And, um, uh, the notion that it's partly
funded by other people around the world, by
the confidence they have in the debt paying
ability on treasuries.
And, you know, we're, we're up coming this
year with the likelihood of a showdown regarding
the debt ceiling.
And, uh, this is something that could undermine
(17:42):
confidence in people's willingness to own us debt,
if there's not clarity that we're going to
pay our debts.
So, you know, this becomes a political football,
uh, certainly.
And so, um, you know, I guess I,
I've always had the mindset, Congress is going
to deal with it, but you, you could
(18:03):
get to a point where the question is,
uh, is there still confidence from investors around
the world in us debt?
Does that undermine the ability, the cost of
financing our debts?
Could that envision a period of greater austerity?
Like we saw in Europe in the last
(18:25):
decade, uh, where we might not be as
free to simply say, Hey, let's just address
this, um, in, in a way that seems
very attainable and manageable today.
(18:48):
And in, uh, 30, 20, 33 is eight
years from now.
Right.
I don't know.
Uh, I'll just throw that out there.
Uh, what, what are your thoughts?
I actually thought that this issue of the
social security fairness and their repeal of weapon
GPO is going to be handled in a
larger social security reform act, where, you know,
(19:12):
they take all the, this is just one
thing that people say is wrong with social
security.
I mean, we could have, I'm sure we
will.
We'll have a whole episode on what, on
what we think should be done to solve
the financial challenges.
That's right.
Or taxes, uh, later ages, all these kinds
of variables.
Um, they talk about, um, income, uh, I
(19:36):
can't think of the right term for it
where if you make so much, Oh, you
might not be eligible, you know, it means
testing is one of those things.
And it's all these different, it's the cap
on social security.
It's like a tax, uh, where they, why
is there a cap?
Maybe they don't, or maybe there's a donut
hole or something.
There's all these different things.
Right.
Right.
Right.
So there's, I, I really sincerely thought if
(19:59):
I was a betting person, I would have
bet that this would be handled someday.
Yeah.
I don't know what would have happened.
You know, I didn't have really a feeling
about it.
Uh, this was a surprise.
If you read the, if you read the
commentary from the various retiree and employee association
groups.
Yeah.
Kind of snuck up on everyone from the
Massachusetts folks.
Um, they acknowledged that they've been working on
(20:20):
this for 30 years and same thing happened
in Congress, you know, it gets through committee
and everything.
And it doesn't go anywhere.
Uh, they had knowledge that they were surprised
and they didn't really feel confident that it
was going to happen until actually president Biden
signed it.
I talked to, um, I mean, I'm off
topic a little bit, but I talked with
someone who's a congressional staffer, who's an old
(20:41):
friend of mine, uh, he works in the
house and he's not sure, obviously, you know,
he's not going to give me like.
This is exactly what happened, but sometimes one
branch of government passes something to get the,
uh, pressure off their back.
Yeah.
If you, if you remember how it went,
uh, the house passed it.
And then Schumer, uh, who was, who is
(21:04):
the leader of the Senate for the Democrats,
um, was approached, if you will, cornered perhaps
at a union event and said, you know,
the house passed it.
Why don't you, why don't you?
And he, whether intentionally or because of where
he was said, we're going to get it
out.
And then the momentum started and the, you
(21:24):
know, the hundreds of thousands of phone calls
started to Congress.
And so this could be, this could just
be one of those things that just happened
because of political pressure at the time and
political maneuvering.
Yeah.
Um, it's kind of amazing.
Uh, yeah.
As it kind of crept up unexpectedly, Jeff,
um, tell everyone a little bit about, um,
how, how quickly people will start to feel
(21:46):
the impact of this.
When will benefits change?
Uh, when will people, when does it take
effect in essence?
Sure.
It takes effect January 1st, 2025.
So last week, um, and it is provided
to be retroactive.
So, you know, it's going to take, yeah,
it's going to take social security administration, some
(22:06):
time to figure out how they're going to
do this.
Um, I would think they'd have all the
data because they have calculated the, the offsets.
Right.
So, um, but, so this goes back to
December of 2023 or is it January of
2024?
Like when does, how far back to, is
(22:27):
that retroactive?
I wonder, uh, article I was looking at,
made it sound like it goes back to
last, uh, to 2023 to December or some
of this, but I don't know if that's
accurate.
Yeah.
I don't know if it's accurate either.
I do know it's retroactive, but I'm not
a hundred percent sure on the date.
I read November 23, November 23.
(22:47):
Yeah.
Nailed down what exactly that is.
So, um, anyway, it's a full year plus
that people are, who are affected by this
will recover more benefit that they didn't get
in that period of time.
Right.
And just for a point of reference, the
average increase from the WEP, the windfall elimination
(23:10):
provision is $360 per recipient a month.
And on the government offset pension offset, the
average is $700 increase for, um, 380,000
people who are spouses and the average for
the surviving spouse.
And this 390,000 of them is $1
(23:33):
,190.
Oh, pretty, uh, pretty impactful.
Yeah.
I'll tell you what, this is, um, from
a Kiplinger article.
It says, uh, that the text of the
law indicates that the legislation's effective date will
apply to benefits payable for months after December
2023.
(23:54):
So that'd be the entirety of 2024.
Right.
So by the time they get this done
in a few months, you know, people could
be looking at maybe a year and a
few months.
So it's, uh, if you're at the top
of that amount, you know, $1,100 between
360 and $1,190 could be up to
(24:16):
10,000, maybe a little bit more.
Well, um, so what's the financial planning, uh,
ramifications?
What should we be?
Uh, I think the, the bottom line for
listeners is time to revisit your financial plan
a little bit.
If you think you might be affected by
this, um, let's, let's get into the details
(24:38):
and, uh, if you're coming into a little
bit of money, maybe that's a good opportunity
to think about what should you be doing
with that?
Is that part of your, your reserve, your
liquidity reserve?
Is it part of, uh, you're going to
fund your, your goals?
Uh, what's going to happen with that when
it comes to that change in cashflow?
Does that have a material consequence on, uh,
(24:58):
your financial profile, your financial picture?
I don't know.
Anything you want to add to that, Jeff?
No, I agree a hundred percent.
And it's a good time to re re
revisit your financial plan and update the modeling
of it, update your income, your monthly income.
It may, uh, it's going to make it
look better, whatever it is.
I would just add, um, as we go
(25:21):
to wrap up momentarily, if, uh, you are
someone who, uh, is a municipal employee or
someone who has, uh, is affected by this,
um, Jeff has a lot of expertise on
these issues on understanding the, uh, the way
the public pensions work.
And so if you, um, are kind of
(25:41):
facing some of the decisions you might need
to deal with, uh, we would encourage you
to reach out.
Um, we can, uh, we've got some great
resources here as a team and Jeff, uh,
in his wealth of knowledge can be a
great tool as well.
I think we're going to do some episodes
specifically geared toward, uh, those, uh, listeners who
might be in benefit from that in the
(26:03):
future.
So, uh, if you're a public employee, uh,
stay tuned and let us know if we
can be a resource to you as well.
Um, with that, uh, anything else to add?
Should we call it a day?
Let's call it a day.
It's good news for most of us out
there.
Excellent.
All right.
Well, thanks for listening, everybody.
Until next time, keep striving for something more.
(26:25):
Thank you for listening to something more with
Chris Boyd.
Call us for help, whether it's for financial
planning or portfolio management, insurance concerns, or those
quality of life issues that make the money
matters matter.
Whatever's on your mind, visit us at something
more with chrisboyd.com or call us toll
free at 866-771-8901.
(26:48):
Or send us your questions to amr-info
at wealthenhancement.com.
You're listening to something more with Chris Boyd,
financial talk show, wealth enhancement advisory services, and
Jay Christopher Boyd provide investment advice on an
individual basis to clients only proper advice depends
on a complete analysis of all facts and
circumstances.
The information given on this program is general
financial comments and cannot be relied upon as
(27:10):
pertaining to your specific situation.
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