Thomas Noland: Biden’s signing of Social Security Fairness Act will be a boost for Kentucky’s economy

President Biden signed the Social Security Fairness Act on Sunday January 5. The legislation eliminates the Government Pension Offset (GPO) and Windfall Elimination Provision (WEP) of Social Security.

In many cases, the GPO prevented spouses such as teachers, firefighters and police who did not pay into Social Security from their government job from receiving a spousal or widow(er) benefit. Any Social Security benefit the spouse was eligible for was reduced by two-thirds of the spouse’s government pension.

If a Kentucky teacher was entitled to $14,000 a year in widow(er) benefits but earned a pension of more than $21,000 a year from teaching, no Social Security benefit would be paid. Many felt the GPO was unfair because a spouse who did not work outside the home or pay in the required 40 quarters to become eligible for Social Security was entitled to a benefit while the government employee was not.

The WEP was implemented in 1983 to improve the funding of Social Security. The purpose of the WEP was to remove any advantages that the Social Security formula provided to workers who had pensions from state or local governments and did not pay into Social Security for their entire career but still paid at least 40 quarters into Social Security.

Because of the tiered nature of Social Security benefits to benefit lower income workers and the 35-year averaging to calculate the average indexed monthly earnings (AIME), government pensioners that have lifetime earnings that are the same as a non-government worker will receive a greater return on their Social Security contributions because their AIME will be much lower than an individual that pays into the system for 35 years.

In September 2024, the Congressional Budget Office (CBO) estimated the total costs of eliminating the GPO and WEP over 10 years at nearly $200 billion. CBO estimates that nationwide eliminating the GPO would increase monthly benefits in 2025 by an average of $700 for 380,000 spouses and by an average of $1,190 for 390,000 surviving spouses while eliminating the WEP would increase average monthly benefits in 2025 by $369 for 2.1 million beneficiaries.

As shown in the Table below, the estimated annual increases in Social Security benefits for Kentuckians will be over $250 million. This is the equivalent of a new factory providing some 3,150 jobs with a pay and benefits package of $80,000 per year. The other additional impact is that since you have retired teachers, firefighters and police in every community, this benefit will be spread to every county in the state.

Thomas G. Noland Ph.D., CPA, CMA, CDFM is the chair of the accounting and finance department at the University of Southern Indiana.