How the Social Security Fairness Act Affects Your Railroad Retirement

Welcome to another edition of the Highball Advisors Railroad Retirement Whiteboard! I’m John McNamara from Highball Advisors, and today we're discussing the impact of the newly signed Social Security Fairness Act on railroaders' retirement benefits. This law, signed by President Biden in early January 2025, will bring significant changes to how Social Security and Railroad Retirement benefits are treated, so let's dive in.

The Social Security Fairness Act eliminates two key provisions: the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). You might have heard these terms before, but let’s break down what they mean and how they affect railroaders.

These provisions primarily apply to people who worked in public service jobs and didn't pay into Social Security, like teachers, firefighters, or police officers. Before the law change, these workers often saw their Social Security benefits reduced or eliminated due to the pensions they earned from their public sector jobs. Here's where it connects to railroaders:

• WEP affects the Railroad Retirement Tier 1 benefits, which is similar to Social Security.
• GPO affects the spousal and survivor benefits.

So, if a railroader has earned Railroad Retirement benefits and is also eligible for Social Security, these provisions would previously reduce their Social Security or spousal benefits based on the pension they earned from public service jobs. Now, with the new law, both WEP and GPO have been eliminated for railroaders.

Let’s look at an example:

Say a woman worked as a school teacher for 30 years and has a $5,000 monthly pension from that job. She never paid into Social Security. Her husband, a railroader, has a $3,000 Tier 1 benefit. Normally, she would be eligible for 50% of his Tier 1 benefit, which would be $1,500. However, due to the GPO, two-thirds of her $5,000 pension ($3,333) would have been deducted from her Tier 1 benefit, leaving her with no spousal benefit.

With the elimination of the GPO, she can now collect the full $1,500 as her spousal Tier 1 benefit. Plus, if the new law is retroactively applied from January 1, 2024, she could receive a lump sum payment for the months she missed—around $27,000 (18 months of $1,500). Going forward, she’ll receive the full $1,500 monthly.

For railroaders with similar situations, here’s what you need to know:

If you worked in public service, such as being a police officer, and earned a pension without contributing to Social Security, you’ll now be eligible to receive the full Social Security spousal or survivor benefits without the reduction from WEP or GPO. These retroactive payments could apply to you too, depending on when you become eligible.

The effective date for the changes is January 1, 2024, and while we don’t know exactly when the retroactive payments will be issued, you should expect communication from the Railroad Retirement Board (or Social Security) once they start processing.

I hope you found this information helpful! If you have friends or family who could benefit from this update, be sure to share this video with them. You can also click the notification bell to stay updated on future videos where I’ll dive into more case studies about the impact of this new law.

Until next time, stay safe, stay on track, and take care!

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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. Highball Advisors encourages you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Highball Advisors, and all rights are reserved from Highball Advisors, and all rights are reserved.