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For professionals who started their careers in the private sector and later transitioned to public service, there’s good news regarding Social Security benefits. A long-standing provision that reduced benefits for these workers has finally been addressed through recent legislation. The Social Security Fairness Act, signed into law on January 5, 2025, brings welcome relief to millions of affected workers.
The Windfall Elimination Provision: A 40-Year Burden
While often reported as an issue primarily affecting government employees and safety workers such as firefighters and police officers, the Windfall Elimination Provision (WEP) has had significant impacts across many professions, including those in the tech industry and education.
The WEP was enacted as part of the Social Security Amendments of 1983, a comprehensive package of changes designed to prevent Social Security from becoming insolvent. This bipartisan legislation, based on recommendations from the National Commission on Social Security Reform, included a mix of tax increases, benefit cuts, and a gradual raising of the retirement age.
At the time, lawmakers were concerned about a quirk in how benefits were calculated. The Social Security formula gives greater benefits to people with lower lifetime earnings. People who worked part of their career outside Social Security appeared to have lower lifetime earnings, so they’d get higher Social Security benefits while also receiving a separate pension. The WEP was created to eliminate what lawmakers considered an unintended “windfall” for these workers.
How WEP Worked
Under the WEP, Social Security benefits were calculated using a modified formula for individuals receiving a pension from non-Social Security-covered employment. To understand the impact, it helps to know how Social Security benefits are normally calculated.
The standard Social Security formula uses a three-tiered approach to determine your primary insurance amount (PIA), which is your basic benefit:
90% of the first tier of your average indexed monthly earnings (AIME)
32% of your AIME exceeding the first tier up to the second tier
15% of your AIME exceeding the second tier
For those affected by WEP, the first-tier percentage was reduced from 90% to as low as 40%, resulting in substantially lower monthly benefits. This reduction could mean a loss of up to $512 per month in 2022 (according to SSA publications).
The WEP did include an exception for workers with 30 or more years of “substantial earnings” in Social Security-covered employment. For those with 20-29 years of substantial earnings, the provision applied on a sliding scale, with the reduction gradually decreasing as years of service increased.
The Social Security Administration defined “substantial earnings” through a threshold that changed annually. For example, in 2025, “substantial earnings” means making at least $32,700 in Social Security-covered employment.
Impact on Careers and Public Service
The WEP created a significant disincentive for talented professionals to transition into public service after successful careers in the private sector. Consider this real-world example:
A former chip designer and engineering department director at a major semiconductor company, with a PhD in Electrical Engineering, wanted to teach high school math as an encore career. However, because of WEP, his Social Security benefit was reduced by nearly $500 per month. With the elimination of WEP through the Social Security Fairness Act, his Social Security benefit will be restored to its full value of over $3,000 per month. He will now receive both his teacher pension and the full Social Security benefit he earned through decades of contributions during his private sector employment.
For years, the WEP was criticized as fundamentally unfair. The basic question many asked was straightforward: If you’ve paid the full amount into Social Security throughout your private sector career, why shouldn’t you receive the full benefit you earned?
The Social Security Fairness Act: Restoring Equity
After years of advocacy, the Social Security Fairness Act was finally signed into law on January 5, 2025. According to the Social Security Administration’s official update (last updated February 25, 2025), this legislation brings long-awaited relief to over 3.2 million affected workers.
The Social Security Fairness Act, which received strong bipartisan support, eliminates the Windfall Elimination Provision (WEP). The law benefits several groups of workers who receive pensions from non-Social Security-covered employment, including:
Teachers, firefighters, and police officers in many states
Federal employees covered by the Civil Service Retirement System
People whose work had been covered by a foreign social security system
This significant change has been widely praised for increasing fairness and transparency in the Social Security system, acknowledging the full contributions made by workers throughout their careers regardless of whether they chose to serve in the public sector.
Looking Ahead: Remaining Challenges for Social Security
While eliminating the WEP represents a significant victory for affected workers, Social Security still faces substantial challenges. According to the 2023 Trustees Report, the program is projected to become insolvent by 2034, meaning it will no longer be able to pay full benefits without reforms. At that point, incoming payroll taxes would only cover about 77% of scheduled benefits.
This situation bears similarity to the 1983 Social Security crisis that led to the creation of the WEP in the first place. Then, as now, difficult choices needed to be made to ensure the system’s sustainability.
Several potential solutions are under consideration:
Raising the Social Security payroll tax rate (currently 6.2% for employees, matched by employers)
Increasing the cap on income subject to Social Security taxes (set at $176,100 for 2025, up from $168,600 in 2024)
Further increasing the retirement age (already gradually rising to 67 for those born in 1960 or later)
Reducing benefits for future retirees
Implementing some form of “means testing” where people with higher net worth might receive reduced benefits
Congress has approximately 10 years to address these structural issues. The sooner reforms are implemented, the more gradual and less disruptive the changes can be.
What the WEP Elimination Means for You
If you’ve had a mixed career spanning both private and public sectors where some of your employment was not subject to Social Security taxes, you may be entitled to an increase in benefits. Here’s what you should know:
Current beneficiaries: If you’re already receiving Social Security benefits and were affected by the WEP, you will see an automatic increase in your monthly benefit. The Social Security Administration is currently implementing the changes. You do not need to take any action to receive these increases. You may also be eligible for retroactive compensation for past reductions.
Future retirees: If you haven’t yet started receiving benefits, your future benefit amount will no longer be reduced by the WEP when you claim benefits.
Not sure if you’re affected?: If you worked in a position where you didn’t pay Social Security taxes (often indicated by the absence of Old-Age, Survivors and Disability Insurance (OASDI) withholding on your paystub) and also worked at least 10 years in positions where you did pay into Social Security, you may have been subject to the WEP.
The Social Security Administration has created a dedicated webpage about the Social Security Fairness Act at https://www.ssa.gov/benefits/retirement/social-security-fairness-act.html, where you can find the latest information about implementation and eligibility.
Parkworth Wealth Management provides holistic wealth management services including financial planning, equity compensation planning, investment management, tax planning, and others, on a fee-only basis and as a fiduciary, acting in clients’ best interests. If you’ve changed careers from private to public sector and want to learn how the repeal of WEP may impact your financial situation, schedule a complimentary consultation.
