Issue Brief: Mandatory Social Security
Updated April 2009
Background
In 1950, 1954, and 1956, amendments were adopted to the Social Security Act allowing States to enter into voluntary agreements with the Social Security Administration (SSA) in order to elect Social Security coverage for their public employees. These amendments also permitted States that had entered into such agreements to elect to withdraw from the Social Security program. In 1983, Congress removed the authority of States and localities to withdraw from the program, but retained their ability to voluntarily participate. Additionally, in 1990, Congress mandated Social Security for all State and local employees not covered by a qualified public pension plan.
According to the Government Accounting Office, approximately 70 percent of State and local government employees are now covered by Social Security. The SSA estimates that five million state and local public employees are not currently covered. They are predominantly located in 10 states: Alaska, California, Colorado, Illinois, Louisiana, Maine, Nevada, Ohio, and Texas.
State and local retirement systems that do not participate in Social Security must provide comparable benefits to the retirement, disability, and survivors' benefits provided by Social Security. In addition, many provide flexibility to specific classifications of employees (particularly public safety employees) who are ill-suited to participate in a program that does not allow for normal retirement until age 62 or later.
In May 2001, President Bush created a commission to address the future solvency of the Social Security system. GFOA, in partnership with other state and local government organizations, urged the commission not to mandate state and local government employee participation in the Social Security system. The commission, after a series of hearings and townhall meetings, issued its final recommendations to the President and Congress in December 2001, and did not recommend mandatory coverage in its final report. The report proposed redesigning Social Security around a system of individual personal accounts.
Impact to State and Local Governments
Mandatory coverage of state and local government employees would seriously undermine public pension plans and place an unnecessary financial burden on state and local government employers and employees. Mandatory coverage would cost states and localities $44 billion over five years, while adding just two years to the projected solvency of Social Security, according to a 2005 estimate by The Segal Company. This estimate is nearly double the $26 billion that mandatory coverage was projected to cost in Segal's 1999 report on mandatory coverage. Segal’s conclusions in both 1999 and 2005 were that these costs could lead to cuts in retirement benefits for public employees, financial uncertainty in public pension funds, and pressure on state and local governments to raise taxes or cut public services.
Obama Position Of interest and significance to the state and local government pension community is that President Barack Obama is on record opposing mandatory Social Security coverage for state and local workers. At least he opposed it in 2005, when as a member of the Senate he joined a letter with 10 colleagues opposing mandatory coverage that was sent to then Senate Finance Committee Chairman Charles Grassley (R-Iowa). This letter can be found at: http://www.retirementsecurity.org/Grassley_letter.pdf.
Obama’s position on mandatory Social Security may be particularly relevant especially if he is in office two-terms, as he would then leave office the year that Social Security’s annual revenues start to fall short of expenditures. Moreover, Obama’s choice for director of the Office of Management and Budget, Peter Orszag, is known to be a supporter of mandatory coverage. While the Obama Administration appears to have some plans to address retirement security issues, particularly in the wake of record losses of retirement assets, these will likely take a back seat to the economy and health care reform. It may not be until 2010 that Congress and the Obama Administration have the chance to make good on their intentions to consider legislation aimed at strengthening retirement security, as well as what, if any, actions to take with regard to mandatory Social Security.
Recommendations
GFOA supports current law, which permits state and local governments to voluntarily participate in Social Security. This allows states and localities to design, administer and finance retirement plans that best meet the needs of their employees. GFOA opposes mandatory coverage of state and local government employees as any element of Social Security reform. GFOA will continue to closely monitor the Social Security reform debate and advocate against any reform proposals that include mandatory coverage for public employees.
Related GFOA Public Policy Statements - Mandatory Social Security Coverage for State and Local Government Employees (1999)
- Proposed Social Security Reforms (2000)
Additional Resources GFOA • Federal Liaison Center • (202) 393-8020 • (202) 393-0780 FAX • Email
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