Quick update: At the moment, I am no longer writing at Forbes, because, for the time being, I am not able to commit to their desired monthly pacing. Fair enough, but that means that I'm back to sharing retirement-related commentary here at Patheos.
And quick background: the Social Security Fairness Act, which just received approval in the Senate and awaits Biden's signature, will remove two Social Security provisions, the Windfall Elimination Provision and the Government Pension Offset, which had reduced the Social Security benefits of individuals who had simultaneously participated in state or local pension plans in cases where those plans had opted out of Social Security. For decades, they had moaned about the unfairness of those reductions, and, well, the obvious answer of the public sector provider opting into Social Security was never even considered as an option, and instead they demanded to receive their Social Security benefits based on the same formula as everyone else, a formula that, by the basic math of it all, assumed that their Social Security earnings were the entirety of their lifetime earnings.
Now, I did a whole explainer on this at Forbes several years ago, but I'll provide the condensed version here:
There are three elements of the Social Security formula which are designed specifically to provide extra benefits to workers with low incomes:
First, the benefit formula divides income into tranches, with each tranche getting a different benefit percentage.
Here's a quick summary from the first search hit, AARP:
The formula breaks down your average monthly wage into three parts. In 2024, it is:
90 percent of the first $1,174 of your AIME [Average Indexed Monthly Earnings];
plus 32 percent of any amount over $1,174 up to $7,078;
plus 15 percent of any amount over $7,078.
The sum of those three figures is your PIA, also known as your full or basic retirement benefit. The sliding scale is designed to weight the benefit to help low-wage earners, who need retirement money the most.
This means if your wages are lower, you get a higher percentage benefit, regardless of whether your wages are low due to working a minimum wage job, or because your Social Security earnings are based only on a summer or moonlighting job while your primary job was exempt.
Second, the formula averages your income over 35 years. This means someone who worked for, say, 10 or 15 years in the private sector and the rest in the public sector, gets those 10 or 15 years of wages divided by 35 and "on paper" looks much poorer than was truly the case.
Third, wages beyond the 35 years don't count at all for the benefit formula. If you work 45 years and contribute to Social Security, your benefit is no different than someone who worked 35 years (well, with respect to the averaging part). If you work half the time for a private-sector employer and half the time for a public-sector employer, you never have any "lost years" - every part of your work history counts towards earning benefit dollars.
How does this play out? I did some hypothetical calculations on the Social Security website, where you can enter in your birthdate and your entire salary history (the website initially asks for your current salary, but after it calculates your estimated benefit, you can click "see the earnings we used" and actually fill out the pay history from start to finish).
So my hypothetical worker was born on January 1, 1958, and is getting ready to retire in 2025. Her current salary is $75,000, and she has worked steadily since graduating college, and has had 4% pay increases every year. For the sake of being able to compare apples-to-apples, we're going to imagine that her hypothetical public-sector pension has two parts, one part that's just like Social Security and another part that's a supplement - and we're only going to care about the hypothetical Social Security-replacement. (The reality is that public sector pensions are typically much more generous than a typical combination of Social Security and a private-sector retirement benefit, for long-career workers, but can often have stiff vesting requirements and shortchange short-term workers. But that's another story.)
At any rate, here are the scenarios:
Worker 1 has been in the private sector for 45 years, from age 22 to age 66, and has earned a Social Security benefit of $2,527 per month, or 40% of pre-retirement pay.
Worker 2 worked as a teacher from age 22 to age 51, then reached a 30 year-service retirement and got a job in the private sector. It's necessary to fudge a little and add $200 each in three years of summer job earnings to get Worker 2 up to the 40 quarters before age 62. That worker would get $2,104 from the teaching job (again, the portion of it that hypothetically replaces Social Security) and $1,571 from the late-career private sector job. That adds up to $3,675, which is 59% of pay, or 45% more than the "all-private-sector" Worker 1.
Worker 3 did the opposite: she worked in the private sector for 10 years after college, then decided to become a teacher and worked until retiring at age 67 with a pay of $75,000. Worker 3 gets $1,170 in Social Security for the early-career private-sector job, and $2,504 from the teaching job, for a nearly identical total of $3,674, 59% of pay and 45% higher than Worker 1.
And Worker 4 had a total salary of $75,000, after a full career as a teacher from age 22 to age 66 combined with a private-sector job (moonlighting and/or summer jobs), where we'll assume that 75% of her income came from teaching and 25% from the private sector jobs. Here her total benefit is less because she doesn't benefit from the "never having lost years" aspect of participating in two systems, since in our hypothetical we're treating any more-generous benefit provision in her public sector pension as an "extra" benefit not comparable to Social Security. But she still benefits from the "looks like a lifetime poor worker" aspect of the work history being split between two pensions. Her Social Security benefit is 73% of her private-sector pay (25% of the total), while her "Social Security-equivalent" benefit on her teacher pay is 44% of her teacher pay (75% of the total). This adds up to $1,146 and $2,066, $3,212 in total, or 51% of her total pay at retirement.
Now, in twitter conversations I've had or read, I've seen defenders of this extra benefit claim that it's totally fair because they are just following the rules. There's even an implicit "since the option is open to everyone, why should anyone complain about people benefitting?" when, of course, ordinary American workers do not have the option available to them to form a separate Social Security-replacement plan -- and that's not simply that the government is being paternalistic, but that the government in fact doesn't want to let slip any of the FICA revenue that is needed to subsidize these "extra benefits for the poor." (After all, why don't states just opt-in to Social Security? Partly because many state pensions have been functionally pay-as-you-go and they don't want to start having to pay the FICA tax, but even absent that element, they know they can give their teachers higher benefits if they don't have to subsidize low-income workers.) I suspect there's also a belief that's never explicitly stated, that state and local government workers are worthy and deserving and (in the same way as they are given student loan forgiveness regardless of whether their job is particularly low-income or "sacrificial") that they merit the extra benefits regardless of whether they were designed with these workers in mind or not. You will not be surprised to hear that I reject this claim.
And the non-partisan Committee for a Responsible Federal Budget has done the math: because the increased Social Security benefits from the WEP/GPO repeal would move forward the Trust Fund insolvency date by half a year, it would over time, assuming benefits are reduced to only the amount of FICA tax taken in, cost American retirees, on average, $25,000 in lifetime lower benefits. There's real money at stake.
Sadly, I'd love to finish out this post with some brilliant ideas for the future -- but in fact a large part of the reason why I had been writing at Forbes in the first place is that I had had the belief that, if only I wrote about these issues diligently enough and with enough care to how I explained them, and promoted them to the best of my ability, I could make an impact, contribute to some degree towards moving the conversation forwards to reform -- and, well, I've pretty much thrown in the towel. The United States will not eliminate its massive debt/deficit by means of concerned citizens coming together, but as a result of some outside forces compelling us to. The state of Illinois will not reform itself due to public-spirit-minded legislators; instead at the moment Illinois appears headed toward a boost in its pension benefits despite the massive pension debt, and Chicago has even less hope of good governance. And the WEP/GPO elimination bill passed because members of Congress were happy to proclaim that they were looking out for the welfare of poor retirees, and there's no benefit to them to being prudent with spending and debt.
Addendum: If you want to replicate my calculations, here is the salary history I used: