On January 5, 2025, U.S. President Joseph R. Biden signed into law the Social Security Fairness Act1, which removes the longstanding Windfall Elimination Provision (WEP) reduction that applied to the U.S. Social Security benefits of persons who concurrently receive a U.S. Social Security benefit and another pension or benefit based on work not covered under the U.S. Social Security program. In earlier bipartisan votes, the U.S. Senate and House of Representatives voted by large margins to approve the legislation.
WHY THIS MATTERS
The WEP frequently reduced the amount of U.S. Social Security benefits received by cross-border workers whose careers required them to split working time between the United States and another country. It achieved this reduction by modifying the benefit calculation formula used to determine a person’s U.S. Social Security amount, for certain social security beneficiaries who also receive a social security pension from another country. It also reduced the benefit amount received by any dependents, such as a spouse or children, who also receive benefits on that person’s record. This legislation will remove that reduction and restore full benefits to such persons retroactively to as far back as January 2024.
Background
The WEP was introduced as a part of the 1983 Social Security Amendments3. The U.S. Social Security benefit formula is designed such that those with lower lifetime earnings receive a higher percentage of their pre-retirement income. Prior to the introduction of WEP, many workers with high career earnings who worked under both the U.S. Social Security program and another non-covered pension or benefit plan were able to receive a higher percentage of pre-retirement income than they would otherwise be able because their non-covered earnings were not factored into the calculation4.
The WEP applied not only to persons who receive both U.S. and non-U.S. social security benefits, but also to those who receive a non-covered pension or benefit from another source. For example, some state and local government employees, as well as certain federal government employees, are exempt from paying into the U.S. Social Security system and instead contribute into another pension system5. The WEP reduction would also be removed from the U.S. Social Security benefits of such affected persons. This law also eliminates the Government Pension Offset (GPO) that applies to persons receiving concurrent U.S. Social Security spousal or widow(er) benefits and a federal, state, or local pension effective January 2024.
KPMG INSIGHTS
The passage of this bill is not without controversy. Some contend that the repeal of the WEP and GPO allow high earners to “double-dip” and that it exacerbates the impending insolvency of the Social Security Trust Fund6. The Congressional Budget Office recently found that repealing the WEP without replacing it would cost around $88 billion to the U.S. Social Security Trust Funds over 10 years7.
Prior to the passage of this legislation, the 2024 U.S. Social Security Trustees Report found that by 2035, the combined old-age and survivors (OASI) and disability (DI) Trust Funds will be exhausted, after which time the system will only be able to pay out slightly more than 80 percent of promised benefits8. Passage of this bill may hasten the date of insolvency.
The elimination of the WEP should increase future retirement benefits for many cross-border workers and their families. However, it also has potentially substantial implications for the solvency of the U.S. Social Security program, and Congress will likely need to expedite reform efforts in the wake of the law being enacted.
KPMG LLP (U.S.) will be monitoring related developments to determine how they will affect benefits for cross-border workers and other U.S. social security beneficiaries.
Footnotes:
1 Social Security Fairness Act of 2023, H.R. 82, 118th Cong. (2023) (on the website of www.Congress.gov).
2 See “National Commission on Social Security Reform (aka The Greenspan Commission)” on the website of the Social Security Administration.
3 Springstead, Glenn R (2019), “The Social Security Windfall Elimination Provision: Issues and Replacement Alternatives,” Social Security Bulletin (online) Vol. 79 No. 3.
4 See "Program Explainer: Windfall Elimination Provision" on the website of the Social Security Administration.
5 Ibid.
6 See A. Munnell, “The Social Security Fairness Act Is a Bad Idea” (December 10, 2024), on the website of the Center for Retirement Research at Boston College. Please note that by clicking on this link, you are leaving the KPMG website for an external site (non-governmental, non-KPMG), that KPMG is not affiliated with nor does KPMG endorse its content. The use of the external site and its content may be subject to the terms of use and/or privacy policies of its owner or operator.
7 Congressional Budget Office, H.R. 82, Social Security Fairness Act of 2021 As ordered reported by the House Committee on Ways and Means. September 2022.
8 See “A Summary of the 2024 Annual Reports,” Social Security and Medicare Boards of Trustees, on the website of the Social Security Administration.
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