What is the Social Security Fairness Act?

The Social Security Fairness Act was signed into law on January 5, 2025. Prior to passage of this new law, the Windfall Elimination Provision and Government Pension Offset rules reduced benefits for certain individuals who received both Social Security and a pension based on work that was not covered by Social Security. A non-covered pension is a pension paid by an employer that does not withhold Social Security taxes from your salary, typically, state and local governments or non-U.S. employers.

When Social Security calculates how much to pay retired workers, it uses an average indexed of monthly earnings (AIME) and adds them up to determine a primary insurance amount (PIA). The PIA calculation is a three-part formula that sums  90% of the first $1,174 of AIME, 32% of AIME over $1,174 through $7,078 and 15% of AIME over $7,078. The different percentages used in the calculation are called bend points. If the worker paid into the Social Security system for less than 30 years, then first bend point in the PIA calculation was reduced as explained on the Social Security website. That reduction could cause the first part of the calculation to fall from 90% to 40%. The new Act eliminates this reduction in benefits. The amendments made by this Act shall apply with respect to monthly insurance benefits payable under title II of the Social Security Act for months after December 2023.

Another factor that impacts the amount paid is whether the worker retires early. If a worker retires at age 62, the benefit paid is 30% less than the worker would receive at full retirement age. If the worker retires between age 62 and full retirement age, then the worker’s benefit is reduced by an amount up to 30%. Lastly, if the worker retires after full retirement age, then the benefit amount increased 8% for each year retirement is delayed until age 69. See Effect of Early or Delayed Retirement on Retirement Benefits.