Millions of retirees are set to see a boost in their Social Security benefits as President Biden prepares to sign a new law eliminating the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO). This landmark legislation particularly impacts cross-border workers—those who split their careers between the United States and Canada, contributing to both Social Security and the Canada Pension Plan (CPP).
For cross-border workers, this change marks a significant financial improvement, addressing long-standing inequities in how their Social Security benefits were calculated.
Elimination of WEP and GPO
The WEP and GPO provisions have long reduced Social Security benefits for individuals with pensions from non-covered employment—jobs where Social Security taxes were not withheld, such as positions covered by the CPP.
- WEP Impact: Previously, workers who earned Social Security benefits from U.S. jobs and a CPP pension from Canadian employment saw their Social Security payments reduced.
- GPO Impact: Spousal and survivor benefits were also reduced for those receiving a CPP pension, significantly impacting family financial planning.
The new law eliminates these provisions, allowing cross-border workers to receive their full Social Security benefits without penalties for their CPP contributions.
Why It Matters for Cross-Border Workers
- Fairness for Dual Contributions
Cross-border workers often contribute to both Social Security and CPP, yet their retirement benefits have historically been penalized under WEP and GPO. With this repeal, these workers can now benefit fully from their contributions in both systems. - Higher Retirement Income
The repeal is expected to increase Social Security benefits by hundreds of dollars per year, and in some cases, over $1,000 annually. These adjustments make a meaningful difference, particularly for retirees relying on fixed incomes. - Retroactive Payments
The law provides retroactive benefits for 2024 and permanent increases beginning in 2025. This ensures that retirees impacted by these provisions will receive compensation for prior reductions.
For more detailed insights into the WEP and GPO repeal, check out this article on the Social Security boost.
The Role of the U.S.-Canada Totalization Agreement
Cross-border workers have historically benefited from the U.S.-Canada Totalization Agreement, which allows contributions to Social Security and CPP to be combined for eligibility purposes. However, until now, the WEP and GPO provisions undermined the Agreement’s intent by reducing benefits for those with earnings in both systems.
This new law complements the Totalization Agreement, ensuring fair treatment for workers who spent part of their careers contributing to CPP and Social Security.
Financial Planning Considerations
- Higher Monthly Benefits
Retirees should reassess their financial plans to account for higher Social Security payments. This may influence decisions on when to claim benefits or whether to delay withdrawals from IRAs and RRSPs. - Tax Implications
While benefits are increasing, recipients should also consider the tax treatment of Social Security in both the U.S. and Canada. Social Security benefits may be taxed differently depending on residency and tax treaties. - Healthcare Coverage
Cross-border retirees should revisit their healthcare plans, including Medicare eligibility in the U.S. and provincial healthcare plans in Canada, to align with higher income levels and potential changes in premiums.
Challenges and Future Implications
While the repeal of WEP and GPO provides immediate financial relief, it comes with an estimated cost of $196 billion over the next decade. This could accelerate the depletion of Social Security trust funds, currently projected to be exhausted by 2035. Future reforms, such as payroll tax increases or adjustments to benefit formulas, may be necessary to maintain Social Security’s long-term solvency.
Final Thoughts
The repeal of the WEP and GPO represents a long-awaited win for cross-border workers who split their careers between the U.S. and Canada. By removing unfair penalties, this legislation ensures these workers can fully benefit from both Social Security and CPP contributions, providing a meaningful boost to retirement income. For a more in-depth analysis of the WEP and GPO repeal and its impact, visit this detailed blog post. If you’d like to discuss how this change may impact your cross-border financial plan and how to maximize your benefits, please contact Cardinal Point.