This social security solution for state pensioners will not be cheap

Over the weekend, Congress did something fairly unusual these days: A lopsided bipartisan majority voted to address an issue related to spending and benefits. The Senate passed the Social Security Fairness Act by a vote of 76-20. The House of Representatives passed it with a similar majority last month. To become law, it must be signed by the President.

The legislation addresses an issue faced by about three million former state and local government employees, including teachers, firefighters and police officers. They receive reduced Social Security retirement and survivor benefits because they also receive separate state pensions. The law also applies to a much smaller group of former federal employees.

The fix will restore all benefits. It will also cost the social security system a lot of money.

These 3 million former government workers will receive reduced Social Security benefits alongside their public pensions as part of a cost-saving reform introduced during the Ronald Reagan administration, said Daniel Horowitz of the American Federation of Government Employees.

“So even if you have paid into both systems, under current law you are at risk of losing most of your Social Security benefits. “Fortunately, Congress has finally corrected this and people are receiving their full Social Security benefits,” he said.

But Social Security is “progressive,” meaning lower-income workers receive relatively higher benefits in retirement.

Some state and local government workers appear like low earners — because they don’t have to pay much into the system — which means they may end up receiving larger Social Security checks.

Congress tried to fix this 40 years ago, said Alicia Munnell of the Boston College Center for Retirement Research. But the result reduced benefits too much for some retirees and not enough for others.

“The anger of state and local workers convinced Congress to eliminate the provision altogether. It’s a step backwards. We should have fixed it, not eliminated it,” she said.

Now some retired government workers will get outsized Social Security checks again, said Maya MacGuineas of the Committee for a Responsible Federal Budget.

And Congress, she said, “created a very expensive benefit – about $200 billion that went unpaid, causing the program to become insolvent even sooner than it already will be.”

About six months early, she said, which means Congress will either have to cut benefits or increase Social Security revenue in an estimated eight and a half to nine years.