Social Security Fairness Act of 2023…Signed, Sealed & Delivered

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Since the late 1970’s, Social Security retirement benefits have been reduced for many public sector retirees such as employees of public schools, police officers, firefighters, mail carriers, and many others. The Social Security Fairness Act of 2023 changes that. With the repeal of the Government Pension Offset (GPO) and the Windfall Elimination Provision (WEP), the Social Security Fairness Act is poised to increase retirement benefits for nearly 3 million currently retired public workers as well as millions of future retirees in the public sector.

President Joe Biden officially signed the Social Security Fairness Act of 2023 (H.R. 82) into law on Sunday, January 5th, 2025. This law will fully repeal the Windfall Elimination Provision, which affected individuals with non-covered pensions and fewer than 30 years of Social Security earnings, and the Government Pension Offset, which affected individuals with non-covered pensions who would otherwise be eligible to receive Social Security retirement or survivor’s benefits through a spouse or ex-spouse’s earnings record. The repeal of these two provisions will be retroactive to December 31, 2023.

What Does This Mean?

The repeal of WEP and GPO allows previously affected individuals to now receive their full Social Security benefit. According to the Congressional Budget Office (CBO), these changes are estimated to have the following impact:

  • Eliminating the Windfall Elimination Provision is estimated to increase the Social Security retirement benefits for more than 2 million affected retirees. The average anticipated increase is $360/month or $4,320/year.
  • Eliminating the Government Pension Offset is expected to raise benefits for nearly 400,000 retirees by an average of $700/month or $8,400/year who may be eligible to claim a spousal benefit based on a spouse or ex-spouse’s earnings history.
  • Nearly 200,000 affected widows and widowers are estimated to see their Social Security Survivor’s Benefits increase by an average of $1,190/month or $14,280/year.

What Should Affected Social Security Recipients Expect?

The Social Security Administration has provided guidance based on your current filing status.

  • If you have previously filed for Social Security benefits and they are partially or completely offset due to a public pension…
    • Verify that your current mailing address and direct deposit information is up to date by logging into your “my Social Security” account, calling, or visiting Social Security.
  • If you have not previously filed for Social Security benefits and are receiving a public pension…
    • You may file for benefits online at SSA.Gov/apply or schedule an appointment.

Even though the Social Security Administration is still evaluating how to implement the act, it is expected that affected individuals may receive a lump sum payment for any WEP or GPO reductions back-dated to 12/31/2023.

How Can Your Sterling Wealth Management Team Assist You?

If you believe that you or someone you care about may be affected by these changes, please don’t hesitate to reach out to the advisory team at Sterling. We can help you understand the benefits to which you may be entitled, identify any impact on your personal situation, and help you identify the appropriate next steps to ensure that you receive your full benefits. It’s our honor to help provide education and assistance to people you care about who may be impacted by these changes. Please don’t hesitate to reach out if we can be of assistance in this or any other matter in your financial life.



Sources

Folley, Aris. “Biden Signs Social Security Fairness Act into Law: What to Know.” The Hill, The Hill, 6 Jan. 2025, https://thehill.com/homenews/administration/5070259-social-security-benefits-expansion/

Higham, Aliss. “Social Security Update: Recipients to Get $4,320 in Backdated Payments.” Newsweek, Newsweek, 7 Jan. 2025, https://www.newsweek.com/social-security-update-recipients-backdated-payments-2010319

Konish, Lorie. “Biden Signs Bill to Increase Social Security Benefits for Millions of Public Workers.” CNBC, CNBC, 5 Jan. 2025, https://www.cnbc.com/2025/01/05/biden-signs-social-security-bill-to-increase-benefits-for-millions-of-public-workers.html

Social Security Administration Press Release. “Social Security Fairness Act: Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) update, 6 January, 2025,  https://www.ssa.gov/benefits/retirement/social-security-fairness-act.html

Social Security Fairness Act of 2023 Heads to the President for Signature

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The Social Security Fairness Bill (H.R. 82), introduced in January of 2023, has passed the Senate and House and is on the desk of President Biden awaiting his signature by year-end. While supporters and critics of the bill still have concerns as to how it would be funded over the long-term, it appears poised to be signed by the President having received largely bipartisan support in Congress.

This legislation is designed to eliminate the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO). These two provisions currently reduce Social Security benefits for people with retirement from non-covered employers such as public-school educators, state university employees, police officers, firefighters, and many other local, state, and federal employees. If signed into law, this repeal will be effective as of December 2023. 

History of WEP and GPO 

In 1977 and 1983, Congress established the Government Pension Offset (GPO) and the Windfall Elimination Provisions (WEP) respectively to reduce Social Security benefits for individuals receiving retirement benefits from employers who were not required to withhold for Social Security taxes.  

The WEP provision applies to individuals with non-covered pensions who were employed for fewer than 30 years by a Social Security-covered job. The GPO provision reduces the benefits that would be received by spouses and widow(er)s of covered workers. Currently, the WEP reduces the Social Security benefits of 1.7 Million Americans and the GPO affects 420,000. Those who are critical of these policies state that the WEP and GPO over-correct the unintended windfall and disproportionately affect lower and more moderate-income retirees. Two-thirds of retirees affected by these two provisions were formerly employed by state or local government employees.

How Could This Bill Affect You?

Windfall Elimination Provision – If you are eligible to receive retirement benefits from a ‘non-covered’ employer and have at least 40 quarters of Social Security earnings history, your Social Security benefits may no longer be reduced.

Government Pension Offset – Married, Divorced (with a marriage of at least 10 years), and widow(er) individuals who are eligible to receive retirement benefits from a non-covered employer may be entitled to Social Security Spousal or Survivor Benefits.

What Should You Do If You Believe These Changes May Affect You?

Gather your information.

  • Start by creating your login with Social Security and downloading your most recent benefit estimate statement or your Social Security retirement statement at SSA.GOV.
  • Obtain information about your non-covered retirement benefits. If you are receiving benefits, what is the gross amount? If you are not yet receiving benefits, obtain a copy of a benefits estimate.
  • Contact the team at Sterling to discuss your unique situation and provide us with this updated information.

We will continue to keep you informed as information becomes available. Have a wonderful holiday season and a very happy new year!

Sources

2019, Springstead, Glenn R., The Social Security Windfall Elimination Provision: Issues and Replacement Alternatives, Social Security Bulletin, Vol. 79 No. 3, (https://www.ssa.gov/policy/docs/ssb/v79n3/v79n3p1.html#:~:text=Congress%20established%20the%20Windfall%20Elimination,pension%20income%20from%20noncovered%20employment).

2024 May, Social Security Program Explainers. Government Pension Offset & Windfall Elimination Provision, (https://www.ssa.gov/policy/docs/program-explainers/government-pension-offset.html#:~:text=Congress%20created%20the%20GPO%20in,earnings%20would%20be%20roughly%20equal).

2024 December, US Congressman Garret Graves Press Release, U.S. Senate Passes Graves-Spanberger Social Security Fairness Act to Eliminate the WEP & GPO, Sends Bill to President’s Desk to Provide Long Overdue Fairness to Police Officers, Firefighters, Educators, & Local & Governmental Employees, (https://garretgraves.house.gov/news/documentsingle.aspx?DocumentID=4136#:~:text=According%20to%20a%20nonpartisan%202024,the%20WEP%20and%20the%20GPO).

2024 December, H.R.82 – Social Security Fairness Act of 2023, https://www.congress.gov/bill/118th-congress/house-bill/82

Smart Tax Planning: A Primer on Tax Loss Harvesting

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A key element to the effective management of your taxable investment portfolio is the implementation of “tax loss harvest” opportunities. While we know it is harvest time here in Central Illinois, this strategy has nothing to do with corn and beans and everything to do with your income taxes. We thought we’d take a moment to highlight exactly what it is and how it is of benefit to you and your long-term wealth management plan.

What is tax loss harvesting?

Tax loss harvesting is a strategy used to potentially lower or defer tax bills by realizing losses on certain investments and utilizing those losses to offset gains or income in other areas of an investment portfolio.

Let’s consider a recent real-life example – going back in time to March of 2020, the S&P 500 dropped abruptly by 34% between February 19th and March 23rd. This precipitous drop presented a huge opportunity for tax loss harvesting whereby investors with loss positions could sell at the lowest point of the market while immediately purchasing replacement investments so that they did not lose out on the swift recovery. On paper, many investors were able to realize “taxable losses” while they reinvested their positions to maintain market exposure thereby not losing out on the recovery growth. These “taxable losses” could then be used to offset capital gains (in current and future years) and on a smaller scale to offset taxable income.

Tax Loss Harvesting involves four important steps:

1. Monitoring investments to identify positions with losses

2. Selling positions with losses

3. Immediately replacing the positions sold with a suitable replacement . The replacement position cannot be too similar to the position that was sold to realize the loss. For example, if you were invested in an ETF tracking the S&P 500, you should not replace your loss position with another S&P 500 index fund. The IRS would see this replacement as “substantially identical” and the loss would be disqualified. 

4. After a period of 31 days, you would be eligible to sell the replacement security and re-purchase your original position. If you buy back the same position (or substantially identical) before the end of the 31 days, you will trigger the “Wash Sale Rule,” which again would make your loss disqualified.

Why tax loss harvest?

This strategy may help lower tax bills by reducing or deferring capital gains, reducing taxable income, and offsetting future gains and income. It can only be utilized for taxable investments (assets held outside of retirement accounts). Using this strategy to defer taxes today may achieve higher ending wealth through the potential growth of assets not used to pay taxes.

Tax Loss Harvesting is a strategy that we implement when the market provides opportunities – whether the stock market pulls back broadly or there is a correction in a particular asset class, we are ready to act. These opportunities often arise at times where investor sentiment is at its lowest (remember March 23, 2020?) and it may be difficult to see the opportunity through the fog of pessimism that surrounds the situation. But hindsight has shown us time and time again that uncertainty creates opportunity for the disciplined and we have seen the benefits of this strategy realized over time for our clients.     

While this is an important tool in our professional toolbelt, it is one that we implement with great caution. The IRS has published much guidance on the issue and there are many nuances (which we have not gone into great detail here) that can make this strategy very tricky for individual investors. We advise that this is a strategy to be considered after consultation with your Sterling Wealth Advisor and tax advisor.

Sources: yCharts. Cruz, Ashley. “Tax Loss Harvesting: A Primer for Investors”, research paper, Dimensional Fund Advisors, October 2024.