Will Our Elected Leaders Ever Fix Social Security's Broken System?

On December 20, the United States Senate passed the Social Security Fairness Act with 76-20 votes. The measure had already passed the House 327-75, and President Biden is expected to sign the bill into law.

The legislation's Windfall Elimination Provision (WEP) primarily helps people who receive defined benefit pensions from work not covered by Social Security, but contribute to Social Security through other jobs. Firefighters, police officers, teachers, and first responders work for local and state agencies and accrue defined benefit pensions from their employers.

However, if these individuals also worked other jobs, such as an active-duty police officer who served as a paid security guard for a company, , their Social Security benefits would have been reduced earlier because the officer was already receiving a pension from his police department. The new measure restored those benefits.

Consider a retired police officer, Stan Smith, who retires after 30 years in the Bedford City Police Department and receives a monthly pension of $1,500 from his employer. However, if Officer Smith worked for more than 10 collective years (40 quarters, the minimum required to earn Social Security benefits) as a private security guard for ABC Company, his Social Security benefits from that job, at age 62, are $900 a month. Earlier, the Social Security Administration reduced his $900 a-month benefits by nearly $500 because Officer Smith also receives a pension from his police work.

The Windfall Elimination Provision (WEP) restores Officer Smith's duly owed amount, resulting in a true windfall of $6,000 in annual increases from his Social Security benefits.

We respect first responders and teachers as much as the next person. Still, we are unhappy with Congress's vote to discriminate against millions of retirees, whose benefits have been reduced for decades and have not obtained relief. We are also profoundly concerned by the financial implications of this bill. The Congressional Budget Office estimates that it would add about $195 billion to federal deficits over a decade, potentially accelerating the insolvency of Social Security's trust funds by approximately six months.

Discrimination against retiring early: The U.S. government has decided that 67 is the Full Retirement Age (FRA) for beneficiaries. Compare the retirement age with that of other countries: France and Luxembourg (62), Greece (62 if someone worked 40 years), Turkey (60), Brazil (62 for women, 65 for men), Japan (65), and Germany (66). American workers who retire early (the earliest age is 62) earn a significantly reduced benefit of 25%. Therefore, if an employee's benefit amount at FRA is $1,000, his benefit at age 62 would be $750 per month. This reduction is permanent for as long as he receives benefits.

If it were up to us, we would want the Social Security Administration to dispense full monthly benefits even at age 62. He contributed money, so it legitimately belongs to him. In the unlikely event that his benefits run out over the years before he dies, that is up to him. He made a choice, and he needs to stand by the consequences of that choice.

Discrimination against dying early: If a worker hoping to receive FRA benefits at 67 dies a month earlier, the Social Security Administration gives his family nothing. Zero. Zip. Nada. The government conveniently eats all of the worker's lifetime forced contributions to Social Security and Medicare. Not all, exactly. The Social Security Administration generously provides a one-time, lump-sum death benefit payment of $255 to help with funeral expenses.

Earnings Test Discrimination: Consider an employee who applies for Social Security benefits as soon as she is eligible, three months before she turns 62 in April, but continues to work part-time jobs to make ends meet. The Social Security Administration promptly sends her a letter informing her that her monthly benefits would be $2,285, with her first full check expected to be mailed out in June.

However, in May, this employee will get another letter from SSA saying that because of the "earnings test," her benefits are being reduced. For 2024, the so-called earnings limit is $22,320 - meaning the government decides how much she can earn in her part-time employment. If the employee had already earned $32,320 outside of Social Security, her benefits would be reduced by $1 for every $2 she earned above this limit. In this instance, she earned $10,000 over the limit, so her Social Security benefits would be cut by $5,000 - about $416 a month.

Never mind that if a private organization offered the Social Security Scheme as it currently operates, even the government would be investigating it.

Terrible rates of return: Social Security is not only a retirement program but also an insurance program that provides disability insurance to millions of Americans, making comparisons with personal IRA accounts challenging. Still, many conservative organizations, like Cato and Heritage, have calculated that the average return for a worker collecting Social Security benefits after making 40 years of contributions is about 2%, compared to at least 8% in the stock market. At a minimum, the worker's principal contributions would be returned to his estate after he died, something that Social Security does not do. This latter truth is ripe for a DOJ criminal charge.

Taxation: Social Security benefits are heavily taxed, even at moderate income levels. For a retired married couple filing jointly, receiving Social Security benefits, with a combined income of more than $44,000 a year (including from part-time jobs and nontaxable interest (like interest from municipal bonds) ), up to 85% of the couple's benefits may be taxable.

Congress should legitimately address these other areas of discrimination, not just the Windfall Elimination Provision affecting public services retirees, who are primarily unionized and a reliable voting bloc for Democrats. However, Social Security politics is Washington's classic third rail, and few legislators want to touch it.