Compensation and Benefits

Mandatory Social Security Coverage for State and Local Government Employees

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 in order to elect coverage for their public employees. These amendments also permitted states that had entered into such agreements to elect to withdraw from the program. In 1983, Congress removed the authority for states and localities to withdraw from the program, but retained their ability to voluntarily participate in the program. Additionally, in 1990 Congress mandated Social Security coverage for all state and local employees not covered by a qualified public pension plan.

Discussions are under way between the Congress and the Administration to find solutions to the pending fiscal crisis forecast for the Social Security program in the next 25 years. It has been estimated that by 2032 the Social Security Trust Fund will become insolvent when benefit payments begin to exceed revenues taken in through the payroll tax.

According to the General Accounting Office (GAO), approximately 70 percent of state and local government employees are now covered by Social Security. Those states with the fewest amounts of public employees covered by Social Security include Ohio, Massachusetts, Louisiana, Colorado, Nevada, Alaska, Maine, California, Illinois, and Texas. It is estimated that five million state and local public employees are not currently covered by Social Security. According to GAO, mandating coverage to all newly hired state and local government employees would extend the solvency of the Trust Fund for only an additional two years.

Mandating Social Security coverage for state and local government employees will generate significant fiscal demands. These concerns would primarily focus upon:

  • The history of the Social Security system, and its provisions involving state and local employees. Many public retirement systems in non-covered states have designed their plans in reliance on the current exclusion and are structured and funded on that basis.
  • State and local governments will incur sharp payroll cost increases that will necessitate an increase in taxes, a reduction in government services, or some combination of the two.
  • Some non-covered states provide a constitutional guarantee for public plan retirement benefits. They would be prohibited from adjusting their state plans to maintain a consistent level of benefits upon integration of Social Security coverage.
  • Cost increases would particularly affect currently non-covered public safety retirement plans and the bridge payments that are made to their many early retirees.

In 1983, the Congress also adopted the "Windfall Elimination Provision" and the "Government Pension Offset" to protect against inequities resulting from non-covered public employees eligible to receive full Social Security benefits based upon previous work experience in the private sector, or from benefits received based upon an employee's status as a spouse or widower. The Windfall Elimination Provision would reduce the multiplication factor used to calculate the average monthly benefit, while the Government Pension Offset would invoke a two-thirds reduction on benefits received as either a spouse or widower.

GFOA Position

The Government Finance Officers Association (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 and employment policies.

Mandatory coverage of the estimated five million current non-covered state and local government employees has been proposed as one element of overall Social Security reform. Adoption of such a mandate would require major alterations in current state and local retirement plans in exchange for uncertain benefits. GFOA opposes mandatory Social Security coverage for state and local government employees as a component of Social Security reform.

  • Publication date: February 1999