Breaking Down the Social Security Fairness Act of 2025
On January 5, 2025, President Joe Biden signed the Social Security Fairness Act, repealing the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO). These provisions previously reduced Social Security benefits for individuals receiving both U.S. Social Security and a pension from non-covered work (such as foreign pensions). The legislation passed with strong bipartisan support in Congress and applies retroactively to January 2024.
How the Fairness Act Impacts U.S. Expats and Retirees
This change significantly impacts U.S. expats and individuals who qualify for both U.S. Social Security and other pensions, including foreign Social Security programs. The WEP previously reduced benefits for those with earnings under non-U.S. Social Security programs, while the GPO cut benefits for dependents (like spouses or children) after the beneficiary’s death. Removing these reductions ensures that affected individuals now receive full Social Security benefits, potentially improving retirement income.
Understanding the History of WEP and GPO
The WEP was introduced as a part of the 1983 Social Security Amendments. The U.S. Social Security benefit formula is designed in a way that those with lower lifetime earnings receive a higher percentage of their pre-retirement income. Prior to the introduction of WEP, many workers with high career earnings who worked under both the U.S. Social Security program and another non-covered pension or benefit plan (like a foreign social security program), were able to receive a higher percentage of pre-retirement income than they would otherwise be able because their non-covered earnings were not factored into the benefits calculation.
In addition to foreign pensions, the WEP also affected employees in state, local, or federal government roles who contributed to alternative retirement systems instead of Social Security. This law also eliminated the Government Pension Offset (GPO) that applies to people receiving concurrent U.S. Social Security spousal or widow(er) benefits and a federal, state, or local pension effective January 2024.
The Fairness Act: What It Means for Your Benefits
- The WEP and GPO are fully repealed, retroactively applying to benefits as of January 2024.
- Full Social Security benefits are (or should be soon) restored for affected individuals, including U.S. expats, state and local government retirees, and federal employees under alternate retirement systems.
- Widow(er)s and eligible dependents will no longer be subject to the GPO reduction in benefits.
The Challenges Ahead: Balancing Benefits and Costs
The passage of this bill is not without controversy. While the repeal benefits many, especially expats, critics argue it could accelerate the insolvency of the Social Security Trust Fund by allowing high earners to ‘double dip’. A Congressional Budget Office report estimates the repeal will cost $88 billion over to the Social Security Trust Fund over 10 years.
Before this law, the 2024 Social Security Trustees Report projected that by 2035, the Trust Fund would only be able to pay around 80% of benefits due to insolvency risks. This new legislation may hasten the timeline, increasing pressure for broader Social Security reform.
Baobab Wealth Abroad Insights
For U.S. workers with foreign pensions or mixed work histories, this change could provide a significant boost to retirement income. This repeal removes a major barrier for U.S. expats and cross-border workers, encouraging overseas careers without penalizing future Social Security benefits. However, it also underscores the urgent need for Congress to address the system’s financial sustainability.
Baobab Wealth Abroad will be monitoring related developments. To determine how they will affect benefits for cross-border workers and other U.S. Social Security beneficiaries.