President Biden’s much-anticipated enactment of the Social Security Fairness Act is a major development in the lives of many current and former government workers, one that could have a big effect on their benefit claiming strategies.
According to Joe Elsasser, a certified financial planner and the founder and president of Covisum, the law could result in a substantial wave of new Social Security claims by people at all stages of retirement — particularly those who would have had spousal benefits reduced to $0 by the Government Pension Offset.
In many cases, such would-be beneficiaries simply declined to go through the trouble of filing for a spousal benefit that would have been reduced to nothing. With the elimination of GPO, however, many people in this situation now have a significant incentive to file.
“It is possible that there will be an administrative fix for these situations, but in general, benefits can only be paid when beneficiaries are both eligible and have filed for benefits,” Elsasser told ThinkAdvisor.
It is thus beholden on advisors and the media to spread the word, he argued.
In addition to repealing the GPO, the law also eliminated the Windfall Elimination Provision. This is also a big development, according to Elsasser, though people who have had benefits reduced via the WEP have already filed for Social Security — so their pathway to increased benefits is likely to be simpler.
“These changes will take time to implement while the Social Security Administration updates its systems to conform to the legislation,” Elsasser said. “New enrollees to Social Security may be paid full benefits during the transition, but those who have already filed for benefits and are impacted by either provision will likely not see an immediate change to their benefit amounts.”
The good news for this latter group is that, when system updates are completed, affected beneficiaries will receive a retroactive payment for any increase in benefits that would have been payable back to January of 2024.
To Revoke or Not to Revoke?
As Elsasser observed, one particular area of concern for financial advisors are people who are affected by the WEP or GPO and became entitled to benefits within the last 12 months — especially if they claimed benefits earlier than their full retirement age.
“Part of the motivation for an early claim may have been that spousal and/or survivor benefits would not be available to a spouse who had worked primarily in non-covered employment,” Elsasser noted. “Now that spousal and survivor benefits will be available to this group, delayed claiming may make considerably more sense.”
Clients in this situation can revoke their application using SSA Form 521, but the wisdom of doing so will need to be weighed against the difficulty of repaying any benefits already received. Additionally, revoking the claim would also forfeit any additional retroactive payments that would be received if the claim were left as is.
“Clients would need to repay any benefits received, but the value of a larger eventual benefit and the fact that it may now be payable over the joint life of the couple may more than justify the time and effort associated with revoking the application,” Elsasser said.
Two WEP Case Studies
Additional analysis of the Social Security Fairness Act was shared with ThinkAdvisor by HealthView Services, a provider of health care, Social Security and retirement incoming planning tools. The analysis includes some illuminating case studies.
