In a historic move on January 5, 2025, President Biden signed a law that fully repeals both the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). These two Social Security provisions have long been a source of controversy and financial strain for millions of teachers, police officers, firefighters, and other public employees who work in states or municipalities that did not withhold Social Security taxes. Now that the repeal has been signed into law, there are significant implications for retirees and their families across the country.
Before we go any further, it’s essential to take a quick look at what both of these provisions actually did. The WEP reduced Social Security benefits for individuals who earned a pension from “non-covered” employment (where Social Security taxes were not withheld), and who also qualified for Social Security benefits from other work. Lawmakers introduced WEP decades ago to prevent an “artificial boost” in Social Security benefits for those who spent part of their career outside the Social Security system.
The actual mechanics of how the benefits are reduced is complex. However, based on how the formula works, the consensus was that someone who worked both covered and non-covered jobs would have an advantage over other workers.
Moving to the GPO, it reduced or wholly eliminated spousal and survivor Social Security benefits for those receiving a government pension from non-covered work. Again, lawmakers designed the original law to prevent “double dipping.” In reality, the GPO often slashed the Social Security benefits available to spouses or survivors if the retiree already had a government pension.
So, with the lawmakers managing to push through legislation that fully repeals both WEP and GPO and the signing of the new bill last week, the changes are now official. The immediate impact on benefits will help nearly 3 million Social Security beneficiaries (about 4% of all recipients). This will result in higher monthly distributions, and individuals impacted by WEP will receive the full amount based on their earnings record. Meanwhile, those affected by GPO will have their spousal or survivor benefits fully reinstated.
Lawmakers acted as retirees and public service employees have advocated for repeal for years, citing financial hardship and inequity. Constituents urged immediate reform in states where many public-sector positions opted out of Social Security—such as California, Texas, Illinois, Louisiana, Massachusetts, and Ohio. In the end, members from both sides of the aisle found common ground, arguing that public servants deserve the same rights and protections under Social Security as those who paid in their entire careers.
Obviously, not everyone agreed with the decision. Critics warn that removing WEP and GPO may add billions of dollars in long-term costs to the Social Security system. However, supporters say retirees’ financial security outweighs these concerns and that adjustments in funding will be addressed in subsequent legislation. Moreover, some lawmakers believe the repeal opens the door for more comprehensive talks on Social Security’s solvency, retirement ages, and benefit formulas.
With the long-term status of Social Security funding still up in the air, the short-term ramifications are pretty straightforward. Public employees—such as teachers, firefighters, and police officers—who spent part or all of their careers in non-covered roles will no longer be penalized. They can count on their pension plus a full Social Security benefit.
In addition, surviving spouses and those who qualify for spousal benefits are now eligible to receive what they would have without GPO—potentially thousands of dollars more per year.
If one thing is clear, repealing WEP and GPO represents a major win for retired teachers, police officers, firefighters, and countless others who have long argued these provisions unfairly slashed their Social Security income. With this groundbreaking legislation now signed into law, a new era of retirement security has dawned for America’s public workers—and the broader debate over Social Security’s future will undoubtedly remain a central concern for policymakers in the years ahead.
Markets / Economy
- Markets were weak, and good news was once again bad news. The S&P was down -1.9%, the Nasdaq was down -2.3%, and the small-cap Russell 2000 was down -3.5%.
- The number of job openings increased by 259K to 8.1 million in November, from an upwardly revised 7.8 million in October and above market expectations of 7.7 million.
- The U.S. economy added 256K jobs in December, the most in nine months, following a downwardly revised 212K in November and beating market forecasts of 160K.
Stocks
- U.S. equities were in negative territory. Real Estate and Technology led the decline, while Energy and Healthcare outperformed. Value stocks led growth stocks, and large caps beat small caps.
- International equities closed lower for the week. Developed markets fared better than emerging markets.
Bonds
- The 10-year Treasury bond yield increased 18 basis points to 4.78% during the week.
- Global bond markets were in negative territory this week.
- High-yield bonds led for the week, followed by government bonds and corporate bonds.
