Social Security Fairness Act
Congress passed the Social Security Fairness Act of 2023 early this morning. None of the articles I read did a good job of describing the purpose of the provisions which were repealed, so you cannot judge whether this was a good or bad choice by Congress. I think it was a mistake because it increases SS costs by eliminating provisions which were there for a valid reason.
I use the wordy phrase “Social Security is insurance against running out of money in retirement.” I do this because people who have sources other than SS benefits have less need for benefits. The changes in 1983 (when SS was in dire straits) included two provisions to reduce benefits for workers who have such other benefits. These provisions made sense to that Congress because the other benefits came from work which was not taxed by Social Security.
Senator Brown, who sponsored the Act, said it is “a victory for all the public servants who will finally get the Social Security they have earned.” The problem is that their work history messes with the calculation of their Primary Insurance Amount in a way that gives them more benefits than typical workers. The provisions eliminated may have had unintended consequences, but they were there to compensate for benefits that were not really earned.
The PMA formula is progressive. It returns a benefit which is a percentage of “average indexed monthly earnings”. (*) Higher earnings means higher benefits, but lower earnings means a higher percentage. At an average income of $64K, the benefit is 30% (**). At half that it is 41%. At twice it is 24%.
Windfall Elimination Provision (pdf)
Some workers have jobs that do not require paying SS taxes because the job comes with pension. If someone works that job for enough years and a “covered” job for 10 years, they will qualify for both retirement benefits. Their SS earning history will look like they had a low paying job, so their benefit will be higher than someone who had the same covered job for a whole career. The WEP is designed to adjust the PIA so that the benefits are comparable.
Government Pension Offset (pdf)
This provision also applies to retirement (or disability) benefits from work that was not taxed by SS.
401k Benefits Do Not Change PIA
I saved quite a bit in a 401k. That income was not taxed when I earned it. It will be taxed when I withdraw it. If I withdraw it while taking SS, I will have additional tax on my SS. Whether it is fair depends on whether you accept that I do not need retirement insurance as much as someone without my 401k.
(*) The “indexing” is worth another post, but is not discussed here.
(**) Using the online calculator with its assumptions about earning history.
The part about 401k has nothing to do with the Act passed today, but it does relate to my understanding of SS as insurance.
Arne:
Widow:
Was a public-school teacher and paid into a pension. Hubby paid into Social Security in enormous amounts. She can not draw from his SS as a widow? Does that make sense? This is my sister who is thrilled and doesn’t care much of this may disappear in less than a decade.
Arne:
I tried to explain this myself. If you worked and did not pay in, then entitlement to SS comes to question. Is there special dispensation if you are stark broke? Then what is it?
I take issue because at the same time maybe they could have considered bumping up the SS tax a couple of tenths of 1 percent to get the ball rolling. As it stands the addition of more people who already were under pensions now get to draw more too. We just reached zero sooner which they do not realized or refuse to accept.
Sorry if this is mentioned in the post (tl;dr). It was my understanding that the taxes on SS benefits go back into the SS system, and not the general fund. Is that correct?
I cleaned up the first two paragraphs so they fit the main page better.
My post was about the same length as your last one.
Taxes on SS benefits go to the SS trust fund.
Thanks. That’s what I thought.
I am impacted by the WEP, being a CSRS annuitant with 10 years work in SS before and about 16 years post CSRS work.
I may see a small increase in my SS check.
I do not think WEP is/was unfair!
The increase will not pay for a Lambo!
I have heard the stories of some folks impacted by WEP who do think it was unfair. When I explained how it actually works they were quiet. Either they had not understood it before complaining, or they did not want to talk about it. Or both.
Arne:
Please explain the widow issue also. To me, it does not make sense. There has to be reasoning for this. I am not as aware of it as you or Dale might be. If you do not wish to do it here. Send me an email.
I worked for many years as an “Independent Contractor,” it was my responsibility to pay into the system. I didn’t. Now I receive reduced benefits. That’s on me, it was my responsibility. I don’t ask for sympathy and as with just everything else these days have none. Certainly not asking to have the rules changed fifty years after I broke them
Cassandra’s Grandson:
It is like I said. So many people worked and did not contribute. Where do they sit today on the spectrum? It was meant to provide something and not everything. I worked till I was 70 as did my wife. My health is also compromised by exposure to toxins at Lejeune over a two-year period with tours to overseas duties. Even so I was there over a year showering in and drinking the water.
I “may” be eligible for funds and then again I may not. I am not sure how they could deny it. The loss of platelets and low red blood cells in directly related. But this is the military and the VA. They can do anything and delay till you die. So many of us have already died from being at Lejeune from the sixties onward.
Politicians favor taxing the hell out of the rich to support Social Security. The plan could have been very small increases in withholding to build longer length security into it. Unfortunately, our politicians know little about fixing it and do not care.
Cassandra, I hope you hang around. We can use more commenters especially women commenters.