Compliance January 6, 2025

Biden Signs Social Security Fairness Act

While a major win for public employees, the legislation is also projected to hasten the insolvency of the trust funds that back the benefit program.

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President Joe Biden signed the Social Security Fairness Act on Sunday, resulting in the increase of Social Security benefits for nearly 3 million public employees and beneficiaries.

The legislation repealed two changes from the Social Security Amendments of 1983, which authorized the Windfall Elimination Provision and amended the Government Pension Offset to reduce Social Security benefits for workers and spouses if they were covered by an employer that does not withhold Social Security taxes.

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The House of Representatives passed H.R. 82 on November 12, by a vote of 327 to 75, and the Senate voted 76 to 20 on December 21 to pass the bill.

According to a report from the nonpartisan Congressional Research Service, the GPO reduces a “spousal or widow(er)’s benefits of most people who also receive pensions based on federal, state or local government employment not covered by Social Security.”

The WEP changes the formula to reduce Social Security benefits for people who are also entitled to pension benefits on earnings from jobs not covered by Social Security. The WEP affects about 2.1 million Americans, according to the report, and the GPO impacts about 746,000.

The Congressional Budget Office estimated in September 2024 that eliminating the WEP would increase monthly benefits in December 2025 by an average of $360 for the 2.1 million beneficiaries—about 3% of all Social Security beneficiaries. Repealing the GPO was estimated to increase monthly benefits in December 2025 by an average of $700 for living spouses and an average of $1,190 for surviving spouses receiving a widow or widower benefit.

The number of Social Security beneficiaries affected by the GPO and WEP varies widely by state. For example, states with a larger share of GPO-affected beneficiaries are usually those with a larger share of state and local government employees not covered by Social Security or those with more retirees.

Mixed Reactions

Unions representing public employees have expressed their support for the law. Lee Saunders, president of the American Federation of State, County and Municipal Employees, who was at the signing ceremony, said in a statement that the law is a “historic victory” for public service workers.

“Finally, GPO-WEP is gone for good,” Saunders said. “These outdated rules denied over two million retired public service workers their hard-earned Social Security benefits. … Thousands of AFSCME members can now retire with peace of mind, and passionate jobseekers will be inspired to pursue these critical careers knowing their futures will be secure. It’s a game-changer for public service.”

The International Association of Fire Fighters also praised the signing of the legislation, noting that some public service workers would get up to a $587 increase in their monthly benefits.

Meanwhile, during the House debate on the measure, Ways and Means Committee Chairman Jason Smith, R-Missouri, said the repeal of the two provisions would cost the Social Security trust funds almost $200 billion over 10 years and accelerate by six months the insolvency of the trust funds, already projected to be depleted by 2035.

A spokesperson for the National Conference on Public Employee Retirement Systems says while the new law means a more secure retirement for millions of teachers, firefighters and other public servants across the country, the issue of Social Security solvency remains.

“We will be keeping close tabs on the process to make sure that the burden to fully fund Social Security is shared evenly, and not unfairly borne by state and local employees,” the spokesperson said.

Evidence of a ‘Broader Failure’ in Policymaking

Andrew Biggs, a senior fellow at the American Enterprise Institute and a former deputy commissioner of the Social Security Administration, also argues that the Social Security Fairness Act will unfairly benefit the small portion of public employees who pay into a state or local government pension instead of Social Security.

“When these employees gain eligibility for Social Security benefits—such as through a part-time job in a Social Security-covered job or through a spouse that paid into Social Security—they will receive a much better deal from Social Security than would a similar person who paid into the program throughout their career,” Biggs says. “The math is unequivocal and has been recognized for decades.”

The Urban Institute also found that repealing the WEP and GPO would favor higher-income people. For instance, restoring Social Security benefits to all government retirees who spent most of their career in uncovered employment would increase average annual 2025 Social Security benefits by $1,900 for people in the top fifth of the income distribution, compared with only $400 for people in the bottom fifth. About 60% of the additional Social Security benefits generated by repealing the WEP and GPO are expected to go to beneficiaries in the top 40% of the income distribution, the Urban Institute found.

Biggs also argues that Congress has been paying less strict attention to the costs of public policy decisions these days, especially when “spurred on by a powerful interest group such as public employee unions.”

“The Social Security Fairness Act isn’t merely unfair, and it doesn’t merely make Social Security’s trust fund run out sooner; it’s evidence of a broader failure in congressional policymaking that bodes poorly for when full-scale Social Security reform finally is considered,” Biggs says.

The legislation applies to payments from January 2024 and beyond, which means the SSA will owe back-dated payments to people affected by the change. The future management of the SSA and the taxation of Social Security benefits will likely be discussed after President-elect Donald Trump takes office later this month. As a candidate, Trump promised to repeal taxes on Social Security payments, which could also accelerate the insolvency of the Social Security and Medicare trust funds.

Data and Research January 3, 2025

Adoption of Optional SECURE 2.0 Provisions Still Slow Going Into 2025

Emergency sidecar accounts and student loan matching have been picked up by few employers, according to a new Alight survey.

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As 2025 begins, employers appear to be carefully incorporating some of the optional provisions made available by the SECURE 2.0 Act of 2022 and simultaneously shying away from other benefits that were anticipated to gain more traction.

According to Alight’s “2025 Hot Topics in Retirement and Financial  ,” based on data from a survey of 122 employers in September 2024, plan sponsors have shown interest in adding features like hardship self-certification, but less interest in emergency sidecar savings.

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Currently, about 30% of employers have incorporated hardship self-certification, and 15% of employers said they have definite plans to add this feature. Of those who said they will definitely or likely add the feature, more than half said they plan to add it in 2025. Hardship self-certification allows plan sponsors to rely on employees’ written self-certification that their hardship withdrawals fulfill one of the approved safe harbor hardship reasons and that the distribution does not exceed the amount required to satisfy the financial need.

The option for employees to take out up to $10,000 due to domestic abuse demonstrated particular interest: 15% of employers said they will definitely add this option, and 19% said they are likely to add it.

Many employers have also increased the individual retirement account force-out limit for vested balances up to $7,000, with 14% saying they are definitely adding this feature in 2025. Significantly fewer employers said they will be adding an employer match to Roth contributions and nonelective employer contributions to Roth.

Limited Pickup for Several 2025 Provisions

The optional provision to include a $2,500 emergency savings sidecar account has gained minimal traction, with merely 1% of employers adopting it so far. No employers reported to Alight that they are committed to adding it in 2025, and 33% said they are definitely not adding it.

Rob Austin, head of thought leadership at Alight Solutions, says one of the biggest barriers to adoption is the administrative hurdle faced when participant accounts near the $2,500 threshold. The savings account contributions are made on a Roth basis, and the sidecar account is capped at $2,500, which means additional contributions must go to a different account—most likely the before-tax 401(k) plan, Austin said via email. As a result, payroll departments often need time to change between Roth and before-tax contributions.

Some employers have expressed disinterest in connecting an emergency savings account to the retirement plan, fearing that employees will treat their 401(k) accounts as sources for short-term liquidity needs, rather than as long-term savings vehicles.

However, employers in Alight’s survey expressed some interest in adding the annual $1,000 emergency withdrawal option to their plans, with 12% saying they will definitely add this feature at some point.

Another optional provision struggling for employer take-up is the option to make matching contributions for student loan repayments. Almost 75% of workers say they want help from their employer to reduce their student loan debt or refinance at lower rates, Alight found. But only a handful of employers are offering tools to help, and only 5% of employers are currently offering the student loan 401(k) matching benefit authorized by SECURE 2.0.

With more recordkeepers developing the infrastructure to offer student loan matching, Alight’s report predicted that the prevalence of this benefit will increase in 2025.

Lastly, the recordkeeper found very low interest in pooled employer plans, as 93% of employers said they are not at all interested, and none said they were very interested in joining one in 2025. According to Austin, one possible explanation is that many large employers feel they already receive institutional pricing on funds, a primary benefit of a PEP.

More Sharing to Come

In planning for longer-term changes, legal uncertainty and a lack of clarity from the Department of Labor and IRS are causing some hesitation from plan sponsors, according to the survey results. Nearly half of employers said they need more legal clarity before adding the Saver’s Match contribution, which aims to help low- and moderate-income workers save for retirement by providing a nonrefundable tax credit. Only 1% of employers said they will definitely add the Saver’s Match feature, which does not take effect until 2027.

Austin says the Saver’s Match will require a new level of sharing between plans and the federal government. For example, the government will need to know who participates in each plan and will also need a mechanism to securely deposit funds into participants’ accounts.

“Several nuances and details are yet to be ironed out, such as how the Saver’s Match will work for married couples,” he says. “We are hopeful that the infrastructure and clarity is established before the Saver’s Match is effective in 2027.”

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