The Hidden Cost of The Social Security Fairness Act

Last month during its post-election "lame duck" session, Congress passed the Social Security Fairness Act (H.R.82) that repealed the GPO and WEP. These two provisions reduced or eliminated the Social Security benefits of workers who receive a pension from a job that was not covered by Social Security.

As numerous organizationsthat span the political spectrum have explained, these provisions were intended to prevent workers who did not fully participate in Social Security throughout their entire career from getting more and paying less than workers who did. Nevertheless, the intensive lobbying effortsof federal, state, and localgovernment employees and retirees persuaded Congress to repeal these provisions.

The Congressional Budget Office (CBO) estimated repealing the GPO and WEP will cost $196 billionbetween 2024 and 2034, and the costwill continue to rise thereafter. However, it's likely the cost of repeal has been underestimated for two reasons. First, some workers who would have never applied for Social Security will do so now, which will increase the amount of benefits paid. Second, some state and local governments, as well as individual workers, will choose to opt-out of Social Security, which will reduce the amount of payroll taxes collected.

According to the latest estimates, roughly 750,000 individuals had their Social Security benefits reduced as a result of the GPO. However, this number does not include those who never applied because they expected their benefits to be eliminated by the GPO. Now that the GPO has been repealed, these individuals will apply for spousal and survivor benefits. Moreover, those who apply soon can also receive up to six months of retroactivebenefits. Although CBO's estimate accounts for such individuals - roughly 70,000 per year - the actual number is likely to be higher given there are millionsof non-covered state and local government employees.

State and local government workers were originally exempt from Social Security. They were allowed to opt-in (or later opt-out) through a voluntary processbeginning in 1951. This process was amended in 1983, ostensibly eliminatingthe ability to opt-out. However, Social Security applies to covered positionswithin existing political entities, not individual employees or newly created entities. Covered positions within two (or more) existing political subdivisions would no longer be covered if they were mergedinto a single new subdivision. Workers who move from covered to non-covered positions would also lose their coverage.

Whether state and local governments, or individual workers, stand to gain or lose from opting-in or opting-out of Social Security depends on the tenureof their employees, the financial statusof their pension fund, and the timingof their covered and non-covered employment.

The repeal of the GPO and WEP raises many questions about the impact on the federal budget, the Social Security trust fund, and the retirement security of non-covered workers. Unfortunately, Congress chose to capitulate to political pressure, rather than answer these questions.