Social Security Coverage of State and Local Government Employees

Changes from November 10, 2021 to March 19, 2024

This page shows textual changes in the document between the two versions indicated in the dates above. Textual matter removed in the later version is indicated with ~~red strikethrough~~ and textual matter added in the later version is indicated with blue.

Social Security Coverage of State and Local
~~November 10, 2021~~March 19, 2024
Government Employees
~~Dawn Nuschler~~Zhe Li
Social Security is the single largest federal program in terms of the number of beneficiaries as Social Security is the single largest federal program in terms of the number of beneficiaries as
~~Specialist in Income~~Analyst in Social Policy
well as budget. It pays cash benefits to over well as budget. It pays cash benefits to over 6567 million beneficiaries each month, and total benefit million beneficiaries each month, and total benefit
~~Security~~
payments are almost $ payments are almost $94119 billion on a monthly basis. Beneficiaries include retired or disabled billion on a monthly basis. Beneficiaries include retired or disabled

workers and their eligible family members and eligible family members of deceased workers. workers and their eligible family members and eligible family members of deceased workers.
People become eligible for Social Security benefits for themselves and their family members by People become eligible for Social Security benefits for themselves and their family members by

working in jobs that are covered by Social Security. Most jobs in the United States are working in jobs that are covered by Social Security. Most jobs in the United States are
mandatorily covered by Social Security. An estimated 94% of workers in paid employment and self-employment are covered mandatorily covered by Social Security. An estimated 94% of workers in paid employment and self-employment are covered
under the program, and an estimated under the program, and an estimated ~~176~~182 million people work in covered jobs. Workers in covered jobs and their employers million people work in covered jobs. Workers in covered jobs and their employers
are required to pay Social Security payroll taxes that are the primary source of funding for the program. In are required to pay Social Security payroll taxes that are the primary source of funding for the program. In ~~2021~~2024, workers and , workers and
their employers each contribute 6.2% (for a total tax rate of 12.4%) of the worker’s earnings up to a maximum earnings level their employers each contribute 6.2% (for a total tax rate of 12.4%) of the worker’s earnings up to a maximum earnings level
~~of $142,800~~of $168,600. Current payroll tax collections are used to fund current benefit payments. People who work in jobs that are not . Current payroll tax collections are used to fund current benefit payments. People who work in jobs that are not
covered by Social Security (noncovered workers) do not pay Social Security payroll taxes based on those earnings (nor do covered by Social Security (noncovered workers) do not pay Social Security payroll taxes based on those earnings (nor do
their employers), and they do not receive Social Security benefits based on those earnings. their employers), and they do not receive Social Security benefits based on those earnings.
Over the years, Congress expanded coverage under the program, making it a nearly universal system. On the basis of equity, Over the years, Congress expanded coverage under the program, making it a nearly universal system. On the basis of equity,
some argue that certain noncovered workers should be brought into the system to share in the program’s broader social goals. some argue that certain noncovered workers should be brought into the system to share in the program’s broader social goals.
Social Security keeps many beneficiaries out of poverty, which benefits the nation as a whole. In addition, some argue that Social Security keeps many beneficiaries out of poverty, which benefits the nation as a whole. In addition, some argue that
certain noncovered workers should share in the ongoing costs associated with the startup of the program (the certain noncovered workers should share in the ongoing costs associated with the startup of the program (the legacy costs). In ). In
the early years, workers who had paid into the system for a short period received benefits far in excess of their contributions. the early years, workers who had paid into the system for a short period received benefits far in excess of their contributions.
Because the family members of noncovered workers (e.g., grandparents) likely benefitted from the program in its early years, Because the family members of noncovered workers (e.g., grandparents) likely benefitted from the program in its early years,
they argue that noncovered workers should share in the system’s legacy costs. they argue that noncovered workers should share in the system’s legacy costs.
The largest and most high-profile group of noncovered workers is the segment of state and local government employees who The largest and most high-profile group of noncovered workers is the segment of state and local government employees who
are not covered by Social Security through their government employment. Social Security coverage is are not covered by Social Security through their government employment. Social Security coverage is voluntary for state and for state and
local government employees covered under public retirement systems that meet certain requirements. These employees may local government employees covered under public retirement systems that meet certain requirements. These employees may
elect Social Security coverage through Section 218 Agreements between the states and the Social Security Administration. elect Social Security coverage through Section 218 Agreements between the states and the Social Security Administration.
Coverage is elected through referendums held at the option of the state. Social Security coverage is Coverage is elected through referendums held at the option of the state. Social Security coverage is mandatory only for state only for state
and local government employees who are not covered under alternative retirement systems. Most state and local government and local government employees who are not covered under alternative retirement systems. Most state and local government
employees participate in Social Security. In employees participate in Social Security. In ~~2018~~2021, there were , there were ~~23.2~~nearly 21.9 million state and local government employees, and million state and local government employees, and ~~16.6~~
about 15.9 million (million (7273%) had Social Security coverage. The other %) had Social Security coverage. The other ~~6.6~~5.9 million ( million (2827%) did not have Social Security coverage through their %) did not have Social Security coverage through their
government employment. The largest share of noncovered state and local government employees work at the local level, and government employment. The largest share of noncovered state and local government employees work at the local level, and
most noncovered local government employees are police officers, firefighters, and teachers. most noncovered local government employees are police officers, firefighters, and teachers.
Proposals to make Social Security coverage mandatory for newly hired state and local government employees have been part Proposals to make Social Security coverage mandatory for newly hired state and local government employees have been part
of the policy debate for years. These proposals have drawn strong support and opposition for a variety of reasons. Supporters of the policy debate for years. These proposals have drawn strong support and opposition for a variety of reasons. Supporters
argue that mandatory coverage for newly hired state and local government employees would have a net positive effect on the argue that mandatory coverage for newly hired state and local government employees would have a net positive effect on the
Social Security trust funds and on federal revenues. Estimates show that the policy change would close Social Security trust funds and on federal revenues. Estimates show that the policy change would close 54% of the Social % of the Social
Security system’s projected long-range funding shortfall. It would eventually eliminate the need for two controversial and Security system’s projected long-range funding shortfall. It would eventually eliminate the need for two controversial and
administratively burdensome Social Security provisions that affect people who receive pensions from noncovered administratively burdensome Social Security provisions that affect people who receive pensions from noncovered
employment: the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). Supporters also employment: the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). Supporters also
maintain that mandatory Social Security coverage would eliminate gaps in Social Security and pension coverage for workers maintain that mandatory Social Security coverage would eliminate gaps in Social Security and pension coverage for workers
who move between covered and noncovered positions during their careers. Compared to state and local pension plans in who move between covered and noncovered positions during their careers. Compared to state and local pension plans in
general, Social Security provides better inflation protection, disability benefits, benefits for dependents and survivors, and a general, Social Security provides better inflation protection, disability benefits, benefits for dependents and survivors, and a
progressive benefit formula intended to help workers with lower career-average earnings. Benefit protections provided by progressive benefit formula intended to help workers with lower career-average earnings. Benefit protections provided by
Social Security could be particularly important for noncovered workers in states and localities with underfunded pension Social Security could be particularly important for noncovered workers in states and localities with underfunded pension
plans and whose future pensions may be at risk. plans and whose future pensions may be at risk.
Opponents maintain that mandatory coverage could pose administrative and cost burdens on state and local governments and Opponents maintain that mandatory coverage could pose administrative and cost burdens on state and local governments and
their employees at a time when many state and local pension systems are underfunded. State and local governments would their employees at a time when many state and local pension systems are underfunded. State and local governments would
have to negotiate with employee representatives and legislatures on the redesign of existing retirement systems in response to have to negotiate with employee representatives and legislatures on the redesign of existing retirement systems in response to
a Social Security coverage mandate, a process that could take years, and could have to administer existing retirement systems a Social Security coverage mandate, a process that could take years, and could have to administer existing retirement systems
alongside new retirement systems for many decades. Moreover, they point out that mandatory coverage could threaten or alongside new retirement systems for many decades. Moreover, they point out that mandatory coverage could threaten or
Congressional Research Service Congressional Research Service

Social Security Coverage of State and Local Government Employees

undermine existing retirement systems, particularly those tailored to workers in certain occupations such as police officers undermine existing retirement systems, particularly those tailored to workers in certain occupations such as police officers
and firefighters. The cost impact to state and local governments and their employees would depend on the type of pension and firefighters. The cost impact to state and local governments and their employees would depend on the type of pension
benefit structure states and localities adopt in response to a Social Security coverage mandate, among other factors. benefit structure states and localities adopt in response to a Social Security coverage mandate, among other factors.
Overall, the impact on state and local plans and the net effect on total benefits would vary across plans and across Overall, the impact on state and local plans and the net effect on total benefits would vary across plans and across
individuals, depending on how states and localities would respond to a coverage mandate, the relative differences between individuals, depending on how states and localities would respond to a coverage mandate, the relative differences between
existing pension plans and new or modified plans incorporating Social Security, and other factors. Any future legislative existing pension plans and new or modified plans incorporating Social Security, and other factors. Any future legislative
changes to Social Security to address the system’s projected funding shortfall and achieve other policy objectives would also changes to Social Security to address the system’s projected funding shortfall and achieve other policy objectives would also
be a factor. be a factor.
Every state has a mix of state and local government employees with and without Social Security coverage, so every state Every state has a mix of state and local government employees with and without Social Security coverage, so every state
would be affected by a Social Security coverage mandate. Some states would be affected to a larger degree than others given would be affected by a Social Security coverage mandate. Some states would be affected to a larger degree than others given
the variation in coverage rates among the states under current law. In the variation in coverage rates among the states under current law. In ~~2018~~2021, the share of state and local government , the share of state and local government
employees employees with Social Security coverage ranged from 3% to Social Security coverage ranged from 3% to 9798% among the states. Overall, eight states accounted for almost % among the states. Overall, eight states accounted for almost
three-fourths (three-fourths (7376%) of noncovered state and local government employees (%) of noncovered state and local government employees (from largest to smallest: California, Texas, Ohio, Massachusetts, Illinois, California, Texas, Ohio, Massachusetts, Illinois,
Colorado, Louisiana, and Georgia). Three states accounted for almost half (Colorado, Louisiana, and Georgia). Three states accounted for almost half (4849%) of noncovered state and local government %) of noncovered state and local government
employees (California, Texas, and Ohio). employees (California, Texas, and Ohio).
Figure 1.Share of State and Local Government Employees Not Covered by Social Security, 2021 Source: Data from the Social Security Administration obtained by CRS in February 2024. Congressional Research Service Congressional Research Service

link to page link to page 17 link to page 17 link to page 34 34 Social Security Coverage of State and Local Government Employees

Tables Table 1. Social Security Coverage of State and Local Government Employees, by State, in 2021 ........................................................................................................................................ 12 Contacts
Author Information ........................................................................................................................ 29

Congressional Research Service Congressional Research Service

Social Security Coverage of State and Local Government Employees

Introduction
The focus of this report is Social Security coverage among state and local government employees The focus of this report is Social Security coverage among state and local government employees
under current law and issues surrounding proposals to make Social Security coverage mandatory under current law and issues surrounding proposals to make Social Security coverage mandatory
for newly hired state and local government employees.1 To provide context for the discussion, the for newly hired state and local government employees.1 To provide context for the discussion, the
report begins with background on the Social Security program, including the expansion of report begins with background on the Social Security program, including the expansion of
coverage over time that has resulted in coverage for an estimated 94% of workers in paid coverage over time that has resulted in coverage for an estimated 94% of workers in paid
employment and self-employment today. The report identifies the major categories of employment and self-employment today. The report identifies the major categories of
work/workers not covered by Social Security under current law, including the segment of state work/workers not covered by Social Security under current law, including the segment of state
and local government employees who have not elected coverage (and local government employees who have not elected coverage (2827% in % in ~~2018~~2021).2 It briefly ).2 It briefly
discusses reasons often cited for why Social Security should be a more fully universal system—discusses reasons often cited for why Social Security should be a more fully universal system—
the social goals of the program and the legacy costs associated with the startup of the program. the social goals of the program and the legacy costs associated with the startup of the program.
The report then focuses on state and local government employees. The report then focuses on state and local government employees.
Background on Social Security
Social Security is the nation’s largest federal program in terms of the number of beneficiaries as Social Security is the nation’s largest federal program in terms of the number of beneficiaries as
well as budget. It pays monthly cash benefits to over well as budget. It pays monthly cash benefits to over 6567 million people, with almost $ million people, with almost $94119 billion in billion in
benefits paid each month.3 Beneficiaries include retired workers and their eligible family benefits paid each month.3 Beneficiaries include retired workers and their eligible family
members, disabled workers and their eligible family members, and eligible family members of members, disabled workers and their eligible family members, and eligible family members of
deceased workers. deceased workers.
Social Security is a work-related program that is funded primarily with dedicated payroll tax Social Security is a work-related program that is funded primarily with dedicated payroll tax
revenues. In all cases, a Social Security beneficiary becomes eligible for benefits either by revenues. In all cases, a Social Security beneficiary becomes eligible for benefits either by
working in a job that is covered by Social Security (a covered worker), by having a close family working in a job that is covered by Social Security (a covered worker), by having a close family
relationship to a covered worker, or both (among other requirements). For people who work in relationship to a covered worker, or both (among other requirements). For people who work in
jobs that are covered by Social Security, participation is mandatory.4 Covered workers and their jobs that are covered by Social Security, participation is mandatory.4 Covered workers and their
employers are required to pay Social Security payroll taxes. In employers are required to pay Social Security payroll taxes. In ~~2021~~2024, workers pay 6.2% of , workers pay 6.2% of
earnings in covered employment, up to a maximum earnings level of $earnings in covered employment, up to a maximum earnings level of $~~142,800~~168,600. The maximum . The maximum
earnings level is adjusted annually based on average wage growth in the national economy. (The earnings level is adjusted annually based on average wage growth in the national economy. (The
adjustment is made in years when a Social Security cost-of-living adjustment is payable.) adjustment is made in years when a Social Security cost-of-living adjustment is payable.)
Employers pay a corresponding amount—6.2% of the worker’s covered earnings up to the annual Employers pay a corresponding amount—6.2% of the worker’s covered earnings up to the annual
maximum. Self-employed workers pay 12.4% of net earnings up to the annual maximum. maximum. Self-employed workers pay 12.4% of net earnings up to the annual maximum.
To become eligible for benefits, a worker must have a sufficient connection to covered To become eligible for benefits, a worker must have a sufficient connection to covered
employment, which is measured in terms of employment, which is measured in terms of Quarters of Coverage (QCs). In . In ~~2021~~2024, a worker earns , a worker earns
one QC for every $1,one QC for every $1,~~470~~730 in covered earnings up to a maximum of four QCs for the year ( in covered earnings up to a maximum of four QCs for the year (~~based~~
on i.e., covered earnings of $covered earnings of $~~5,880~~6,920 or more). The amount needed to earn one QC is adjusted annually or more). The amount needed to earn one QC is adjusted annually
based on average wage growth in the national economy. When a worker has earned a sufficient based on average wage growth in the national economy. When a worker has earned a sufficient
number of QCs, he or she is number of QCs, he or she is insured under the program. The number of QCs needed for insured under the program. The number of QCs needed for insured
status varies depending on the circumstances and type of benefit, ranging from a minimum of six status varies depending on the circumstances and type of benefit, ranging from a minimum of six

QCs to a maximum of 40 QCs. Insured status allows a worker to establish eligibility for retired- 1 Generally, mandatory coverage proposals affect 1 Generally, mandatory coverage proposals affect newly hired state and local government employees, not current state and local government employees, not current
employees. Therefore, this report focuses on the mandatory coverage issue with respect to new hires. employees. Therefore, this report focuses on the mandatory coverage issue with respect to new hires.
2 It is the option of the state to hold a referendum on coverage among eligible employees covered by a retirement 2 It is the option of the state to hold a referendum on coverage among eligible employees covered by a retirement
system. system.
3 Social Security Administration (SSA), 3 Social Security Administration (SSA), Monthly Statistical Snapshot, ~~September 2021~~January 2024, Table 2, https://www.ssa.gov/, Table 2, https://www.ssa.gov/
policy/docs/quickfacts/stat_snapshot/index.html. policy/docs/quickfacts/stat_snapshot/index.html.
4 Social Security coverage is tied to positions, not to individuals. 4 Social Security coverage is tied to positions, not to individuals.
Congressional Research Service Congressional Research Service

1 1

Social Security Coverage of State and Local Government Employees

~~QCs to a maximum of 40 QCs. Insured status allows a worker to establish eligibility for retired-~~
worker or disabled-worker benefits and to establish eligibility for benefits for the worker’s family worker or disabled-worker benefits and to establish eligibility for benefits for the worker’s family
members in the event of the worker’s retirement, disability, or death.5 members in the event of the worker’s retirement, disability, or death.5
Most jobs in the United States are covered by Social Security. The Social Security Administration Most jobs in the United States are covered by Social Security. The Social Security Administration
(SSA) estimates that about 94% of workers in paid employment and self-employment are covered (SSA) estimates that about 94% of workers in paid employment and self-employment are covered
under the Social Security program and that an estimated under the Social Security program and that an estimated ~~176~~182 million people will work in covered million people will work in covered
employment in employment in ~~2021~~2024.6 .6
If a job is not covered by Social Security, the worker’s earnings are not subject to Social Security If a job is not covered by Social Security, the worker’s earnings are not subject to Social Security
payroll taxes. As a result, the earnings do not count toward the worker gaining insured status payroll taxes. As a result, the earnings do not count toward the worker gaining insured status
under the program (i.e., the earnings do not count toward establishing future benefit eligibility for under the program (i.e., the earnings do not count toward establishing future benefit eligibility for
the worker and his or her family members). In addition, the earnings are not included in the the worker and his or her family members). In addition, the earnings are not included in the
computation of benefits. computation of benefits.
Nearly Universal System
Social Security began as a compulsory federal old-age benefits program established under Title II Social Security began as a compulsory federal old-age benefits program established under Title II
of the Social Security Act of 1935 (P.L. 271, 74th Congress). The original program covered of the Social Security Act of 1935 (P.L. 271, 74th Congress). The original program covered
employees under the age of 65 in commerce and nonagricultural industry (excluding railroads) in employees under the age of 65 in commerce and nonagricultural industry (excluding railroads) in
the 48 states that existed at the time, plus Alaska, Hawaii, and the District of Columbia (about the 48 states that existed at the time, plus Alaska, Hawaii, and the District of Columbia (about
56% of the workforce at the time).7 Initially, the program provided monthly “old-age benefits” for 56% of the workforce at the time).7 Initially, the program provided monthly “old-age benefits” for
insured workers aged 65 or older. insured workers aged 65 or older.
Over the years, Congress expanded coverage under the Social Security program, bringing most Over the years, Congress expanded coverage under the Social Security program, bringing most
employees and self-employed workers into the system. Today, most jobs in the United States are employees and self-employed workers into the system. Today, most jobs in the United States are
covered by Social Security, regardless of whether the work is performed by U.S. citizens or covered by Social Security, regardless of whether the work is performed by U.S. citizens or
noncitizens, with some exceptions.8 In some cases, work performed outside the United States by noncitizens, with some exceptions.8 In some cases, work performed outside the United States by
U.S. citizens or resident aliens (noncitizens) is covered by Social Security (for example, if the U.S. citizens or resident aliens (noncitizens) is covered by Social Security (for example, if the
person is employed by an American employer, employed by a foreign affiliate of an American person is employed by an American employer, employed by a foreign affiliate of an American
employer that has elected coverage for its employees, or, under certain circumstances, self-employer that has elected coverage for its employees, or, under certain circumstances, self-
employed).9 Over the years, Congress also expanded the types of benefits available under the employed).9 Over the years, Congress also expanded the types of benefits available under the
program. For example, program. For example, ~~benefits became available for~~Congress extended benefits to a worker’s dependents and survivors in a worker’s dependents and survivors in
1939 and 1939 and ~~for~~to disabled workers in 1956. disabled workers in 1956.
Major Categories of Work Not Covered
The rules surrounding Social Security coverage and exceptions are extensive.10 The The rules surrounding Social Security coverage and exceptions are extensive.10 The major
categories of work/workers that are not covered by Social Security includecategories of work/workers that are not covered by Social Security include:

5 For more information, see CRS Report R42035, 5 For more information, see CRS Report R42035, Social Security Primer. .
6 SSA, Office of the Chief Actuary (OCACT), 6 SSA, Office of the Chief Actuary (OCACT), Fact Sheet on the Old-Age, Survivors, and Disability Insurance
Program, , ~~September 10, 2021~~January 29, 2024, https://www.ssa.gov/oact/FACTS/index.html. , https://www.ssa.gov/oact/FACTS/index.html.
7 William J. Nelson Jr., “Employment Covered Under the Social Security Program, 1935-84,” 7 William J. Nelson Jr., “Employment Covered Under the Social Security Program, 1935-84,” Social Security Bulletin, ,
vol. 48, no. 4 (April 1985), Table 2, p. 34, https://www.ssa.gov/policy/docs/ssb/v48n4/v48n4p33.pdf. vol. 48, no. 4 (April 1985), Table 2, p. 34, https://www.ssa.gov/policy/docs/ssb/v48n4/v48n4p33.pdf.
8 The term 8 The term United States is defined as the 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the is defined as the 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the
territories of Guam and American Samoa, the U.S. Virgin Islands, and the Commonwealth of the Northern Mariana territories of Guam and American Samoa, the U.S. Virgin Islands, and the Commonwealth of the Northern Mariana
Islands. Islands.
9 See Internal Revenue Service (IRS), 9 See Internal Revenue Service (IRS), Social Security Tax Consequences of Working Abroad, https://www.irs.gov/, https://www.irs.gov/
individuals/international-taxpayers/social-security-tax-consequences-of-working-abroad. individuals/international-taxpayers/social-security-tax-consequences-of-working-abroad.
10 For more information on the definition of 10 For more information on the definition of employment for Social Security purposes, see (1) Section 210 of the Social for Social Security purposes, see (1) Section 210 of the Social
Security Act [42 U.S.C. §410]; (2) Title 20, Part 404, of the Code of Federal Regulations, Subpart K; and (3) SSA’s Program Operations Manual System [POMS], Coverage and Exceptions. Congressional Research Service Congressional Research Service

2 2

Social Security Coverage of State and Local Government Employees

• Most civilian federal employees hired before 1984 (federal employees covered Most civilian federal employees hired before 1984 (federal employees covered
under the Civil Service Retirement System [CSRS]),11 under the Civil Service Retirement System [CSRS]),11
• Segment of state and local government employees who have not elected coverage Segment of state and local government employees who have not elected coverage
(28% of state and local government employees in 2018), (28% of state and local government employees in 2018),
• Railroad workers (the Railroad Retirement System and Social Security are Railroad workers (the Railroad Retirement System and Social Security are
separate but coordinated systems), separate but coordinated systems),
• Certain family employment, Certain family employment,
• Certain work performed by students, Certain work performed by students,
• Certain members of the clergy and others, and Certain members of the clergy and others, and
• Certain work performed by noncitizens. Certain work performed by noncitizens.
For some types of work, there are coverage thresholds. If the worker’s earnings are below a For some types of work, there are coverage thresholds. If the worker’s earnings are below a
specified threshold, the work is generally excluded from Social Security coverage. These specified threshold, the work is generally excluded from Social Security coverage. These
categories arecategories are:
• Farm work, Farm work,
• Self-employed workers, Self-employed workers,
• Election officials and election workers, and Election officials and election workers, and
• Household employees. Household employees.
Different coverage thresholds apply for each category; in all cases, the threshold is relatively low. Different coverage thresholds apply for each category; in all cases, the threshold is relatively low.
For example, the coverage threshold for self-employed workers is $400. Self-employed workers For example, the coverage threshold for self-employed workers is $400. Self-employed workers
with net earnings below $400 for the year are generally excluded from Social Security coverage.12 with net earnings below $400 for the year are generally excluded from Social Security coverage.12
Social Goals of the Program
Social Security is a Social Security is a social insurance system that is primarily self-financing with payroll taxes paid that is primarily self-financing with payroll taxes paid
by workers in covered employment and their employers, as well as self-employed individuals. It by workers in covered employment and their employers, as well as self-employed individuals. It
provides monthly cash benefits to insured workers and their family members when there is a loss provides monthly cash benefits to insured workers and their family members when there is a loss
of earnings due to the worker’s retirement, disability, or death. Social Security provides benefits of earnings due to the worker’s retirement, disability, or death. Social Security provides benefits
to people of all ages, including retired workers, disabled workers, spouses, former spouses, to people of all ages, including retired workers, disabled workers, spouses, former spouses,
surviving spouses, and dependent children. For many beneficiaries, Social Security represents a surviving spouses, and dependent children. For many beneficiaries, Social Security represents a
sizable share of their total income and serves to keep them out of poverty.sizable share of their total income and serves to keep them out of poverty.13 Given Social Security’s Given Social Security’s
role in reducing poverty, which benefits the nation as a whole, some argue that Social Security role in reducing poverty, which benefits the nation as a whole, some argue that Social Security
should be a more fully universal system.should be a more fully universal system.1314 That is, on the basis of equity, certain noncovered That is, on the basis of equity, certain noncovered
workers should be brought into the system to share in the program’s broader social goals. workers should be brought into the system to share in the program’s broader social goals.
On a related point, noncovered workers do not share in the costs associated with the startup of the On a related point, noncovered workers do not share in the costs associated with the startup of the
program. In the early years of Social Security, workers who had paid into the system for a short program. In the early years of Social Security, workers who had paid into the system for a short
period received benefits far in excess of their contributions. The inherited unfunded liability period received benefits far in excess of their contributions. The inherited unfunded liability

~~Security Act [42 U.S.C. §410]; (2) Title 20, Part 404, of the Code of Federal Regulations, Subpart K; and (3) SSA’s~~
~~Program Operations Manual System [POMS], Coverage and Exceptions.~~
11 For more information, see CRS Report 98-810, 11 For more information, see CRS Report 98-810, Federal Employees’ Retirement System: Benefits and Financing. .
12 For more information, see CRS In Focus IF11824, 12 For more information, see CRS In Focus IF11824, Social Security: Who Is Covered Under the Program? 13 For more information, see CRS Report R47341, Income for the Population Aged 65 and Older: Evidence from the Health Retirement Study (HRS). 14.
13 For example, Social Security lessens the reliance on need-based programs such as Supplemental Security Income For example, Social Security lessens the reliance on need-based programs such as Supplemental Security Income
(SSI), which is funded with federal general revenues. SSI provides monthly cash payments to aged, blind, or disabled (SSI), which is funded with federal general revenues. SSI provides monthly cash payments to aged, blind, or disabled
individuals who have limited income and resources. For more information, see CRS In Focus IF10482, individuals who have limited income and resources. For more information, see CRS In Focus IF10482, Supplemental
Security Income (SSI). .
Congressional Research Service Congressional Research Service

3 3

Social Security Coverage of State and Local Government Employees

associated with the startup of the program is referred to as the associated with the startup of the program is referred to as the legacy costs..15 It is estimated that It is estimated that
about 3 percentage points of the current 12.4% Social Security payroll tax goes toward covering about 3 percentage points of the current 12.4% Social Security payroll tax goes toward covering
these costs.these costs.1416 Benefits paid during the early years of the program often went to the parents, Benefits paid during the early years of the program often went to the parents,
grandparents, and great-grandparents of current noncovered workers. Therefore, on the basis of grandparents, and great-grandparents of current noncovered workers. Therefore, on the basis of
equity, some argue that certain noncovered workers should be brought into the system to share in equity, some argue that certain noncovered workers should be brought into the system to share in
the legacy costs. the legacy costs.
State and Local Government Employees
The largest and most high-profile group of noncovered workers is the segment of state and local The largest and most high-profile group of noncovered workers is the segment of state and local
government employees who participate in alternative public retirement systems that do not have a government employees who participate in alternative public retirement systems that do not have a
Social Security component. Under current law, state and local government employees are not Social Security component. Under current law, state and local government employees are not
required to participate in Social Security if they participate in public retirement systems through required to participate in Social Security if they participate in public retirement systems through
their employers that meet certain requirements.their employers that meet certain requirements.1517 However, they may elect coverage as a group However, they may elect coverage as a group
through a coverage agreement between the state and SSA. These agreements, called through a coverage agreement between the state and SSA. These agreements, called Section 218
Agreements, are authorized under Section 218 of the Social Security Act (42 U.S.C. §418). Social , are authorized under Section 218 of the Social Security Act (42 U.S.C. §418). Social
Security coverage is mandatory only for those state and local government employees who do not Security coverage is mandatory only for those state and local government employees who do not
participate in public retirement systems that qualify as an alternative to Social Security. SSA data participate in public retirement systems that qualify as an alternative to Social Security. SSA data
shows that there were shows that there were ~~23.2~~nearly 21.9 million state and local government employees in million state and local government employees in ~~2018.16~~2021.18 Of those, Of those,
~~16.6~~about 15.9 million ( million (7273%) were covered by Social Security. The other %) were covered by Social Security. The other ~~6.6~~ approximately 5.9 million state and local million state and local
government employees (government employees (2827%) were not covered by Social Security through their government %) were not covered by Social Security through their government
employment. Over the years, there have been proposals to make Social Security coverage employment. Over the years, there have been proposals to make Social Security coverage
mandatory for newly hired state and local government employees. mandatory for newly hired state and local government employees.
The remainder of the report discusses Social Security coverage among state and local government The remainder of the report discusses Social Security coverage among state and local government
employees under current law and provides a brief legislative history of coverage for these employees under current law and provides a brief legislative history of coverage for these
workers. It then discusses proposals to mandate coverage for newly hired state and local workers. It then discusses proposals to mandate coverage for newly hired state and local
government employees and issues to consider with respect to mandatory coverage. government employees and issues to consider with respect to mandatory coverage.
Key Points (Part I): Recap
•
Participation in Social Security is mandatory for most workers. An estimated 94% of workers in the United Participation in Social Security is mandatory for most workers. An estimated 94% of workers in the United
States participate in Social Security, making it a nearly universal system. States participate in Social Security, making it a nearly universal system.
•
The largest and most high-profile group of noncovered workers is the segment of state and local government The largest and most high-profile group of noncovered workers is the segment of state and local government
employees who do not participate in Social Security through their government employment. employees who do not participate in Social Security through their government employment.
•
Participation in Social Security is Participation in Social Security is voluntary for state and local government employees who are covered by for state and local government employees who are covered by
alternative public retirement systems that meet certain requirements. Participation is alternative public retirement systems that meet certain requirements. Participation is mandatory only for only for
those state and local government employees who are not covered by such systems. those state and local government employees who are not covered by such systems.
•
State and local government employees covered by alternative public retirement systems may elect Social State and local government employees covered by alternative public retirement systems may elect Social
Security coverage via referendums held at the option of the state. Security coverage via referendums held at the option of the state.
•
In In ~~2018~~2021, there were , there were ~~23.2~~21.9 mil ion state and local government employees. Based on data from SSA, mil ion state and local government employees. Based on data from SSA, 7273% of % of
these workers were covered by Social Security. The other these workers were covered by Social Security. The other 2827% of workers were not covered by Social % of workers were not covered by Social
Security through their government employment. Security through their government employment.

14 15 See Dean R. Leimer, “The Legacy Debt Associated with Past Social Security Transfers,” Social Security Bulletin, vol. 76, no. 3 (2016). 16 Alicia H. Munnell, Jean-Pierre Aubry, and Anek Belbase, “The Impact of Mandatory Coverage on State and Local Alicia H. Munnell, Jean-Pierre Aubry, and Anek Belbase, “The Impact of Mandatory Coverage on State and Local
Budgets,” Center for Retirement Research at Boston College, CRR WP 2014-9, May 2014, pp. 6-7, available at Budgets,” Center for Retirement Research at Boston College, CRR WP 2014-9, May 2014, pp. 6-7, available at
https://crr.bc.edu/https://crr.bc.edu/the-impact-of-mandatory-coverage-on-state-and-local-budgets/. 17.
15 To qualify as an alternative to Social Security, the public retirement system must provide a minimum level of To qualify as an alternative to Social Security, the public retirement system must provide a minimum level of
benefits. In general, it must provide a retirement benefit that is comparable to Social Security. benefits. In general, it must provide a retirement benefit that is comparable to Social Security.
1618 Data from SSA obtained by CRS in Data from SSA obtained by CRS in ~~January 2021~~February 2024. .
Congressional Research Service Congressional Research Service

4 4

Social Security Coverage of State and Local Government Employees

•
There have been proposals to make Social Security coverage mandatory for newly hired state and local There have been proposals to make Social Security coverage mandatory for newly hired state and local
government employees. On the basis of equity, some argue that Social Security should be a more ful y government employees. On the basis of equity, some argue that Social Security should be a more ful y
universal system given the program’s broader social goals and the system’s legacy costs. universal system given the program’s broader social goals and the system’s legacy costs.
State and Local Coverage Under Current Law
Unlike most employers, state and local governments are not required to participate in Social Unlike most employers, state and local governments are not required to participate in Social
Security. Social Security coverage is Security. Social Security coverage is voluntary for state and local government employees who are for state and local government employees who are
covered under alternative public retirement systems that meet certain requirements. If these state covered under alternative public retirement systems that meet certain requirements. If these state
and local government employees choose to participate in Social Security, they may elect coverage and local government employees choose to participate in Social Security, they may elect coverage
as a group through the state’s Section 218 Agreement with SSA. Coverage is elected through a as a group through the state’s Section 218 Agreement with SSA. Coverage is elected through a
referendum held by the state. Ultimately, the decision to extend coverage to certain state and local referendum held by the state. Ultimately, the decision to extend coverage to certain state and local
government positions lies with the state, as the state must hold a referendum among eligible government positions lies with the state, as the state must hold a referendum among eligible
employees covered by a retirement system before Social Security coverage can be extended.employees covered by a retirement system before Social Security coverage can be extended.1719
Social Security coverage is Social Security coverage is mandatory for state and local government employees who are not for state and local government employees who are not
covered under alternative public retirement systems, with some exceptions.covered under alternative public retirement systems, with some exceptions.1820 Every state has a Every state has a
mix of state and local government employees with and without Social Security coverage, and the mix of state and local government employees with and without Social Security coverage, and the
relative share of covered and noncovered workers varies widely by state. By comparison, relative share of covered and noncovered workers varies widely by state. By comparison,
Medicare coverage is mandatory for state and local government employees.Medicare coverage is mandatory for state and local government employees.1921
Alternative Public Retirement Systems
A public retirement system must meet certain requirements to qualify as an alternative to Social A public retirement system must meet certain requirements to qualify as an alternative to Social
Security. For example, the system must provide a minimum level of benefits. In general, an Security. For example, the system must provide a minimum level of benefits. In general, an
alternative public retirement system is a pension, annuity, retirement, or similar fund or system alternative public retirement system is a pension, annuity, retirement, or similar fund or system
maintained by a state or local government that provides a retirement benefit to the employee maintained by a state or local government that provides a retirement benefit to the employee
comparable to the benefit provided under the old-age component of the Old-Age, Survivors, and comparable to the benefit provided under the old-age component of the Old-Age, Survivors, and
Disability Insurance (Social Security) program. Disability Insurance (Social Security) program.
In general, there are two types of public retirement systems that may meet the minimum benefit In general, there are two types of public retirement systems that may meet the minimum benefit
requirement: defined benefit retirement systems and defined contribution retirement systems. requirement: defined benefit retirement systems and defined contribution retirement systems.
Defined benefit plans provide lifetime benefits based on a formula, generally taking into account Defined benefit plans provide lifetime benefits based on a formula, generally taking into account
the employee’s salary, years of service, and an accrual rate (benefit multiplier).the employee’s salary, years of service, and an accrual rate (benefit multiplier).~~20 Defined~~

1722 Defined contribution plans provide an individual account for each participant. The employer and/or the 19 As noted in SSA’s POMS, “Ultimately, it is within the state’s discretion to determine for whom, whether, and when As noted in SSA’s POMS, “Ultimately, it is within the state’s discretion to determine for whom, whether, and when
to extend Section 218 coverage, subject to the requirements of the [Social Security] Act” (POMS, Section SL to extend Section 218 coverage, subject to the requirements of the [Social Security] Act” (POMS, Section SL
30001.301, Section 218 Agreements, Paragraph C, https://secure.ssa.gov/apps10/poms.nsf/lnx/1930001301#c). 30001.301, Section 218 Agreements, Paragraph C, https://secure.ssa.gov/apps10/poms.nsf/lnx/1930001301#c).
1820 Under Section 210(a) of the Social Security Act (42 U.S.C. §410(a)), certain categories of employees are not subject Under Section 210(a) of the Social Security Act (42 U.S.C. §410(a)), certain categories of employees are not subject
to mandatory Social Security coverage, including state and local government employees who fall within these to mandatory Social Security coverage, including state and local government employees who fall within these
categories. For example, services performed by individuals hired to be relieved from unemployment are not subject to categories. For example, services performed by individuals hired to be relieved from unemployment are not subject to
mandatory Social Security coverage. For more information, see IRS Publication 963, mandatory Social Security coverage. For more information, see IRS Publication 963, Federal-State Reference Guide, ,
Revised July 2020, Chapter 5: Social Security and Medicare Coverage, pp. 44-45, https://www.irs.gov/pub/irs-pdf/Revised July 2020, Chapter 5: Social Security and Medicare Coverage, pp. 44-45, https://www.irs.gov/pub/irs-pdf/
p963.pdf. p963.pdf.
1921 Medicare payroll taxes generally apply to all wages (not limited by the taxable maximum) of all state and local Medicare payroll taxes generally apply to all wages (not limited by the taxable maximum) of all state and local
government employees hired or re-hired after March 31, 1986, unless specifically excluded under Section 210(p) of the government employees hired or re-hired after March 31, 1986, unless specifically excluded under Section 210(p) of the
Social Security Act (42 U.S.C. §410(p)). This requirement was mandated by the Consolidated Omnibus Budget Social Security Act (42 U.S.C. §410(p)). This requirement was mandated by the Consolidated Omnibus Budget
Reconciliation Act (COBRA) of 1985 (P.L. 99-272). See IRS Publication 963, pp. 49-50. Reconciliation Act (COBRA) of 1985 (P.L. 99-272). See IRS Publication 963, pp. 49-50.
2022 A traditional defined benefit formula would be: annual benefit = an accrual rate A traditional defined benefit formula would be: annual benefit = an accrual rate ~~of x~~% *X the number of years of the number of years of
service service * X the average of the worker’s final the average of the worker’s final x years of salary. The accrual rate is a percentage factor typically ranging years of salary. The accrual rate is a percentage factor typically ranging
from 2% to 3% in most traditional defined benefit plans. from 2% to 3% in most traditional defined benefit plans.
Congressional Research Service Congressional Research Service

5 5

Social Security Coverage of State and Local Government Employees

~~contribution plans provide an individual account for each participant. The employer and/or the~~
employee contribute a specific dollar amount or percentage of pay into an account, which is employee contribute a specific dollar amount or percentage of pay into an account, which is
usually invested in stocks and bonds. Upon retirement, the employee receives the balance in the usually invested in stocks and bonds. Upon retirement, the employee receives the balance in the
account, which is the sum of all the contributions that have been made plus interest, dividends, account, which is the sum of all the contributions that have been made plus interest, dividends,
and capital gains (or losses), and capital gains (or losses), minus fees and expenses. Generally, the employee may choose to fees and expenses. Generally, the employee may choose to
receive the funds as a series of payments over a period of years (for example, as an annuity) or as receive the funds as a series of payments over a period of years (for example, as an annuity) or as
a lump sum. In a defined benefit plan, the a lump sum. In a defined benefit plan, the employer bears the financial risk. In a defined bears the financial risk. In a defined
contribution plan, the contribution plan, the employee bears the financial risk. Most state and local government bears the financial risk. Most state and local government
employees are covered by traditional defined benefit plans.employees are covered by traditional defined benefit plans.2123
The requirements that public retirement systems (defined benefit, defined contribution, or hybrid The requirements that public retirement systems (defined benefit, defined contribution, or hybrid
plans) must meet to qualify as an alternative to Social Security are explained in Internal Revenue plans) must meet to qualify as an alternative to Social Security are explained in Internal Revenue
Service (IRS) Publication 963 (Service (IRS) Publication 963 (Federal-State Reference Guide).).2224 A defined benefit retirement A defined benefit retirement
system, for example, must provide the employee with an annual benefit that is at least equal to the system, for example, must provide the employee with an annual benefit that is at least equal to the
annual primary insurance amount (PIA) the employee would have under Social Security.annual primary insurance amount (PIA) the employee would have under Social Security.2325 The The
benefit must start on or before the employee attains the Social Security full retirement age benefit must start on or before the employee attains the Social Security full retirement age
(FRA),(FRA),2426 which is 67 for most current workers. which is 67 for most current workers.2527 A defined benefit plan that provides a benefit A defined benefit plan that provides a benefit
that is, for example, at least 1.5% of average compensation during an employee’s last three years that is, for example, at least 1.5% of average compensation during an employee’s last three years
of employment, multiplied by the employee’s years of service, would generally meet the of employment, multiplied by the employee’s years of service, would generally meet the
requirement of providing a retirement benefit comparable to Social Security.requirement of providing a retirement benefit comparable to Social Security.2628
Section 218 Agreements
Social Security coverage is extended to state and local government employees through voluntary Social Security coverage is extended to state and local government employees through voluntary
agreements between the states and SSA, known as Section 218 Agreements.agreements between the states and SSA, known as Section 218 Agreements.2729 All states have a All states have a
Section 218 Agreement with SSA. However, the extent of coverage under these agreements varies Section 218 Agreement with SSA. However, the extent of coverage under these agreements varies
from state to state.from state to state.2830 A majority of state and local government employees may be covered by A majority of state and local government employees may be covered by

21 23 For data on how pension plan access and participation rates compare among public- and private-sector employees, For data on how pension plan access and participation rates compare among public- and private-sector employees,
see CRS Report R43439, see CRS Report R43439, Worker Participation in Employer-Sponsored Pensions: Data in Brief. .
2224 IRS Publication 963, Chapter 6: Social Security and Public Retirement Systems. See also (1) Section 31.3121(b)(7)- IRS Publication 963, Chapter 6: Social Security and Public Retirement Systems. See also (1) Section 31.3121(b)(7)-
2(e) of the IRS Employment Tax Regulations, https://www.ecfr.gov/current/title-26/chapter-I/subchapter-C/part-31/2(e) of the IRS Employment Tax Regulations, https://www.ecfr.gov/current/title-26/chapter-I/subchapter-C/part-31/
subpart-B/subject-group-ECFR996050e2e4c4937/section-31.3121(b)(7)-2#p-31.3121(b)(7)-2(e); and (2) IRS Revenue subpart-B/subject-group-ECFR996050e2e4c4937/section-31.3121(b)(7)-2#p-31.3121(b)(7)-2(e); and (2) IRS Revenue
Procedure 91-40, which sets forth rules related to the minimum retirement benefit requirement prescribed under Section Procedure 91-40, which sets forth rules related to the minimum retirement benefit requirement prescribed under Section
31.3121(b)(7)-2 of the IRS Employment Tax Regulations. IRS Revenue Procedure 91-40 is included as an appendix in 31.3121(b)(7)-2 of the IRS Employment Tax Regulations. IRS Revenue Procedure 91-40 is included as an appendix in
IRS Publication 963, and it is available at https://www.ssa.gov/slge/revenue_procedure_91-40.htm. IRS Publication 963, and it is available at https://www.ssa.gov/slge/revenue_procedure_91-40.htm.
2325 In the Social Security program, the worker’s PIA is the benefit payable at full retirement age (FRA), before any In the Social Security program, the worker’s PIA is the benefit payable at full retirement age (FRA), before any
applicable adjustments are taken into account. applicable adjustments are taken into account.
2426 The Social Security FRA is the age at which full (unreduced) Social Security retirement benefits are first payable. The Social Security FRA is the age at which full (unreduced) Social Security retirement benefits are first payable.
The FRA ranges from 65 to 67, depending on the worker’s year of birth. Workers born in 1960 or later have an FRA of The FRA ranges from 65 to 67, depending on the worker’s year of birth. Workers born in 1960 or later have an FRA of
67. Retirement benefits are payable as early as age 62, but benefits claimed between age 62 and the FRA are 67. Retirement benefits are payable as early as age 62, but benefits claimed between age 62 and the FRA are
permanently reduced to take into account “early retirement.” permanently reduced to take into account “early retirement.”
2527 See Section 31.3121(b)(7)-2(e)(2) of the IRS Employment Tax Regulations at https://www.ecfr.gov/current/title-26/ See Section 31.3121(b)(7)-2(e)(2) of the IRS Employment Tax Regulations at https://www.ecfr.gov/current/title-26/
chapter-I/subchapter-C/part-31/subpart-B/subject-group-ECFR996050e2e4c4937/section-31.3121(b)(7)-2#p-chapter-I/subchapter-C/part-31/subpart-B/subject-group-ECFR996050e2e4c4937/section-31.3121(b)(7)-2#p-
31.3121(b)(7)-2(e)(2). 31.3121(b)(7)-2(e)(2).
2628 IRS Publication 963, p. 54. IRS Publication 963, p. 54.
2729 Section 218 Agreements are governed by Section 218 of the Social Security Act (42 U.S.C. §418) and the Section 218 Agreements are governed by Section 218 of the Social Security Act (42 U.S.C. §418) and the Code of
Federal Regulations (20 C.F.R. §§404.1200-404.1219). See also SSA’s POMS beginning with the section (20 C.F.R. §§404.1200-404.1219). See also SSA’s POMS beginning with the section
“Introduction to State and Local Coverage Handbook” at https://secure.ssa.gov/apps10/poms.nsf/lnx/1910000000. “Introduction to State and Local Coverage Handbook” at https://secure.ssa.gov/apps10/poms.nsf/lnx/1910000000.
2830 The term The term state includes the 50 states, the Commonwealth of Puerto Rico, and the U.S. Virgin Islands. It also includes includes the 50 states, the Commonwealth of Puerto Rico, and the U.S. Virgin Islands. It also includes
interstate instrumentalities. An interstate instrumentality is an independent legal entity organized by two or more states interstate instrumentalities. An interstate instrumentality is an independent legal entity organized by two or more states
to carry out one or more governmental functions, such as police power, taxing power, and/or power of eminent domain. to carry out one or more governmental functions, such as police power, taxing power, and/or power of eminent domain.
For example, the New Jersey–New York Port Authority is an interstate instrumentality. Approximately 60 interstate instrumentalities have Section 218 Agreements with SSA (IRS Publication 963, p. 1). Congressional Research Service Congressional Research Service

6 6

Social Security Coverage of State and Local Government Employees

Social Security in one state, while a small percentage of workers may be covered in another state. Social Security in one state, while a small percentage of workers may be covered in another state.
There can be variation within a state as well. For example, teachers in one county may be covered There can be variation within a state as well. For example, teachers in one county may be covered
by Social Security, while teachers in a neighboring county may not be covered. by Social Security, while teachers in a neighboring county may not be covered.
Section 218 Agreements cover positions, not individuals (i.e., Social Security coverage is tied to a Section 218 Agreements cover positions, not individuals (i.e., Social Security coverage is tied to a
particular job, not to a particular individual). If a position is covered by Social Security under a particular job, not to a particular individual). If a position is covered by Social Security under a
Section 218 Agreement, generally any current or future employee who fills that position is subject Section 218 Agreement, generally any current or future employee who fills that position is subject
to Social Security payroll taxes.to Social Security payroll taxes.2931 A state’s Section 218 Agreement specifies which state and local A state’s Section 218 Agreement specifies which state and local
government positions are covered by Social Security. government positions are covered by Social Security.
Under Section 218 Agreements, Social Security coverage is extended to groups of employee Under Section 218 Agreements, Social Security coverage is extended to groups of employee
positions known as positions known as coverage groups. Coverage is not extended on an individual basis. Various . Coverage is not extended on an individual basis. Various
laws and regulations govern how coverage may be extended to state and local government laws and regulations govern how coverage may be extended to state and local government
positions through referendums held by the state among eligible employees covered by a positions through referendums held by the state among eligible employees covered by a
retirement system. All states are authorized to use a retirement system. All states are authorized to use a majority vote referendum process. Twenty-referendum process. Twenty-
three states are also authorized to use a three states are also authorized to use a divided vote referendum process (discussed below). referendum process (discussed below).
Typically, states allow their political subdivisions (such as a school board) to decide whether to Typically, states allow their political subdivisions (such as a school board) to decide whether to
hold a referendum on coverage. hold a referendum on coverage.
Generally, Section 218 Agreements may be modified to increase (but not reduce) the extent of Generally, Section 218 Agreements may be modified to increase (but not reduce) the extent of
Social Security coverage. Once coverage is provided, it cannot be terminated, and all future Social Security coverage. Once coverage is provided, it cannot be terminated, and all future
employees in covered positions are required to participate in Social Security. employees in covered positions are required to participate in Social Security.
Each of the 50 states, as well as Puerto Rico and the U.S. Virgin Islands, has a state Social Each of the 50 states, as well as Puerto Rico and the U.S. Virgin Islands, has a state Social
Security administrator (state administrator). The state administrator is a designated state Security administrator (state administrator). The state administrator is a designated state
employee who is the main resource for information about Social Security (and Medicare) employee who is the main resource for information about Social Security (and Medicare)
coverage and reporting issues for state and local government employers and employees under the coverage and reporting issues for state and local government employers and employees under the
terms of the state’s Section 218 Agreement.terms of the state’s Section 218 Agreement.3032 Among other duties, the state administrator Among other duties, the state administrator
maintains the state’s Section 218 Agreement, prepares modifications to the agreement, and serves maintains the state’s Section 218 Agreement, prepares modifications to the agreement, and serves
as a bridge between (1) state and local government employers and (2) SSA and the IRS.as a bridge between (1) state and local government employers and (2) SSA and the IRS.3133
Legislative History Highlights
The original Social Security Act (1935; P.L. 74-271) did not extend Social Security coverage to The original Social Security Act (1935; P.L. 74-271) did not extend Social Security coverage to
state and local government employees. State and local government employees were excluded to state and local government employees. State and local government employees were excluded to
avoid the constitutional question of whether the federal government had the authority to impose avoid the constitutional question of whether the federal government had the authority to impose
payroll taxes on state and local governments and their employees. In addition, the objective of the payroll taxes on state and local governments and their employees. In addition, the objective of the
program was to cover employees most in need of coverage, and many state and local government program was to cover employees most in need of coverage, and many state and local government
employees were already covered under pension plans. Over time, coverage was extended to state employees were already covered under pension plans. Over time, coverage was extended to state

~~For example, the New Jersey–New York Port Authority is an interstate instrumentality. Approximately 60 interstate~~
~~instrumentalities have Section 218 Agreements with SSA (IRS Publication 963, p. 1).~~
29and local government employees as outlined below.34 In 1951, certain state and local government 31 See the discussion below regarding divided vote referendums/divided retirement systems authorized in certain states. See the discussion below regarding divided vote referendums/divided retirement systems authorized in certain states.
3032 A list of state Social Security administrators is available at http://www.ncsssa.org/statessadminmenu.html. For A list of state Social Security administrators is available at http://www.ncsssa.org/statessadminmenu.html. For
information on SSA contacts regarding Section 218 Agreements, see “SSA Regional Office State and Local Coverage information on SSA contacts regarding Section 218 Agreements, see “SSA Regional Office State and Local Coverage
Specialists” at https://www.ssa.gov/slge/specialists.htm. Specialists” at https://www.ssa.gov/slge/specialists.htm.
3133 See SSA, “State Social Security Administrator,” https://www.ssa.gov/slge/state_ssa.htm. For information on the See SSA, “State Social Security Administrator,” https://www.ssa.gov/slge/state_ssa.htm. For information on the
management of Section 218 Agreements, see U.S. Government Accountability Office (GAO), management of Section 218 Agreements, see U.S. Government Accountability Office (GAO), Social Security
Administration: Management Oversight Needed to Ensure Accurate Treatment of State and Local Government
Employees, GAO-10-936, September 2010, http://www.gao.gov/new.items/d10938.pdf. , GAO-10-936, September 2010, http://www.gao.gov/new.items/d10938.pdf.
34 For key dates in the history of coverage for state and local government employees, see also IRS Publication 963, p. 2. Congressional Research Service Congressional Research Service

7 7

Social Security Coverage of State and Local Government Employees

~~and local government employees as outlined below.32 In 1951, certain state and local government~~
employees first became eligible for Social Security coverage.employees first became eligible for Social Security coverage.3335 Before 1991, Social Security Before 1991, Social Security
coverage was coverage was generally optional for optional for ~~all~~ state and local government employees. In 1991, Social Security state and local government employees. In 1991, Social Security
coverage became mandatory for most state and local government employees who were not coverage became mandatory for most state and local government employees who were not
covered under public retirement systems.covered under public retirement systems.34
36 • 1950
Among other provisions, the Social Security Act Amendments of 1950 (P.L. 81-734) extended Among other provisions, the Social Security Act Amendments of 1950 (P.L. 81-734) extended
Social Security coverage to various groups of workers, including workers in Puerto Rico and the Social Security coverage to various groups of workers, including workers in Puerto Rico and the
U.S. Virgin Islands (i.e., those in the general workforce).U.S. Virgin Islands (i.e., those in the general workforce).3537
It also extended voluntary coverage to state and local government employees It also extended voluntary coverage to state and local government employees not covered under covered under
retirement systems (an estimated 1.5 million people at the time).retirement systems (an estimated 1.5 million people at the time).3638 State and local government State and local government
employees covered under retirement systems were excluded from voluntary Social Security employees covered under retirement systems were excluded from voluntary Social Security
coverage. Section 218 was added to the Social Security Act to allow the 48 states that existed at coverage. Section 218 was added to the Social Security Act to allow the 48 states that existed at
the time plus Alaska, Hawaii, Puerto Rico, and the U.S. Virgin Islands to elect Social Security the time plus Alaska, Hawaii, Puerto Rico, and the U.S. Virgin Islands to elect Social Security
coverage for certain state and local government employees through voluntary agreements coverage for certain state and local government employees through voluntary agreements
between the states and the federal government. Coverage became effective January 1, 1951. between the states and the federal government. Coverage became effective January 1, 1951.
The 1950 amendments permitted states to terminate coverage for state and local groups provided The 1950 amendments permitted states to terminate coverage for state and local groups provided
the coverage had been in effect for at least five years and notice of intent was given two years in the coverage had been in effect for at least five years and notice of intent was given two years in
advance. Termination of Social Security coverage was permanent. advance. Termination of Social Security coverage was permanent.
• 1954
Among other provisions, the Social Security Amendments of 1954 (P.L. 83-761) extended Among other provisions, the Social Security Amendments of 1954 (P.L. 83-761) extended
voluntary Social Security coverage to state and local government employees covered under voluntary Social Security coverage to state and local government employees covered under
retirement systems (except police officers and firefighters). retirement systems (except police officers and firefighters).
Under the 1954 amendments, police officers and firefighters covered under retirement systems Under the 1954 amendments, police officers and firefighters covered under retirement systems
continued to be excluded from voluntary Social Security coverage. The exclusion was left in continued to be excluded from voluntary Social Security coverage. The exclusion was left in
place because most of the organizations representing police officers and firefighters were opposed place because most of the organizations representing police officers and firefighters were opposed
to the coordination of their systems with the Social Security system, even on a voluntary basis.to the coordination of their systems with the Social Security system, even on a voluntary basis.37

~~32 For key dates in the history of coverage for state and local government employees, see also IRS Publication 963, p. 2.~~
3339 The 1954 amendments specified that state and local government employees covered under retirement systems could elect Social Security coverage if a referendum by secret written ballot 35 For state and local government employee coverage data for 1951-1981, see Bert Kestenbaum, “State and Local For state and local government employee coverage data for 1951-1981, see Bert Kestenbaum, “State and Local
Government Employees Covered Under Social Security, 1977-81,” Government Employees Covered Under Social Security, 1977-81,” Social Security Bulletin, vol. 45, no. 12 (December , vol. 45, no. 12 (December
1982), https://www.ssa.gov/policy/docs/ssb/v45n12/v45n12p11.pdf. 1982), https://www.ssa.gov/policy/docs/ssb/v45n12/v45n12p11.pdf.
3436 Those who oppose mandatory Social Security coverage for newly hired state and local government employees Those who oppose mandatory Social Security coverage for newly hired state and local government employees
sometimes argue that it would raise constitutional issues and might be challenged in court. In 1998, the General sometimes argue that it would raise constitutional issues and might be challenged in court. In 1998, the General
Accounting Office (now the Government Accountability Office) wrote, “we believe that mandatory coverage is likely Accounting Office (now the Government Accountability Office) wrote, “we believe that mandatory coverage is likely
to be upheld under current U.S. Supreme Court decisions.” See GAO, to be upheld under current U.S. Supreme Court decisions.” See GAO, Social Security: Implications of Extending
Mandatory Coverage to State and Local Employees, GAO/HEHS-98-196, August 1998, pp. 19-20, , GAO/HEHS-98-196, August 1998, pp. 19-20,
http://www.gao.gov/archive/1998/he98196.pdf. A discussion of any potential legal issues associated with mandatory http://www.gao.gov/archive/1998/he98196.pdf. A discussion of any potential legal issues associated with mandatory
coverage for newly hired state and local government employees is beyond the scope of this CRS report. coverage for newly hired state and local government employees is beyond the scope of this CRS report.
3537 Coverage was extended to the U.S. Virgin Islands on an automatic basis. Puerto Rico had to elect coverage. The Coverage was extended to the U.S. Virgin Islands on an automatic basis. Puerto Rico had to elect coverage. The
1950 amendments permitted coverage to be extended to Puerto Rico provided the governor of Puerto Rico certified to 1950 amendments permitted coverage to be extended to Puerto Rico provided the governor of Puerto Rico certified to
the President of the United States that the legislature of Puerto Rico resolved (via concurrent resolution) to elect the the President of the United States that the legislature of Puerto Rico resolved (via concurrent resolution) to elect the
extension. Social Security coverage became effective in Puerto Rico and the U.S. Virgin Islands on January 1, 1951. extension. Social Security coverage became effective in Puerto Rico and the U.S. Virgin Islands on January 1, 1951.
3638 Social Security Act Amendments of 1950, P.L. 81-734, §106 (Coverage of State and Local Employees). Social Security Act Amendments of 1950, P.L. 81-734, §106 (Coverage of State and Local Employees).
3739 Wilbur J. Cohen, Robert M. Ball, and Robert J. Myers, “Social Security Act Amendments of 1954: A Summary and Wilbur J. Cohen, Robert M. Ball, and Robert J. Myers, “Social Security Act Amendments of 1954: A Summary and
Legislative History,” Legislative History,” Social Security Bulletin, vol. 17, no. 9 (September 1954), p. 4, at https://www.ssa.gov/policy/, vol. 17, no. 9 (September 1954), p. 4, at https://www.ssa.gov/policy/
docs/ssb/v17n9/index.html. docs/ssb/v17n9/index.html.
Congressional Research Service Congressional Research Service

8 8

Social Security Coverage of State and Local Government Employees

~~The 1954 amendments specified that state and local government employees covered under~~
~~retirement systems could elect Social Security coverage if a referendum by secret written ballot~~
was held among the members of the retirement system and a majority of those eligible to vote in was held among the members of the retirement system and a majority of those eligible to vote in
the referendum voted in favor of coverage.the referendum voted in favor of coverage.3840 Coverage became effective January 1, 1955. Coverage became effective January 1, 1955.3941
The 1954 amendments made Social Security coverage available to about 3.5 million state and The 1954 amendments made Social Security coverage available to about 3.5 million state and
local government employees. Social Security coverage was now available to almost all state and local government employees. Social Security coverage was now available to almost all state and
local government employees. The only sizable group not eligible for Social Security coverage local government employees. The only sizable group not eligible for Social Security coverage
was about 200,000 police officers and firefighters who had their own retirement systems.was about 200,000 police officers and firefighters who had their own retirement systems.40
42 • 1956
Among other provisions, the Social Security Amendments of 1956 (P.L. 84-880) allowed certain Among other provisions, the Social Security Amendments of 1956 (P.L. 84-880) allowed certain
states to divide any state or local retirement system into two divisions: one division for the states to divide any state or local retirement system into two divisions: one division for the
positions of employees who want Social Security coverage and one division for the positions of positions of employees who want Social Security coverage and one division for the positions of
employees who do not want Social Security coverage. Each division may be treated as a separate employees who do not want Social Security coverage. Each division may be treated as a separate
retirement system.retirement system.4143 Under the 1956 amendments, eight states (Florida, Georgia, New York, Under the 1956 amendments, eight states (Florida, Georgia, New York,
North Dakota, Pennsylvania, Tennessee, Washington, and Wisconsin), the then-territory of North Dakota, Pennsylvania, Tennessee, Washington, and Wisconsin), the then-territory of
Hawaii, and their political subdivisions were permitted to operate Hawaii, and their political subdivisions were permitted to operate divided retirement systems in in
which some positions are covered by Social Security and some positions are not covered. When a which some positions are covered by Social Security and some positions are not covered. When a
divided retirement group votes to elect Social Security coverage, coverage is extended only to divided retirement group votes to elect Social Security coverage, coverage is extended only to
current employees who choose to participate in the Social Security system. Coverage is not current employees who choose to participate in the Social Security system. Coverage is not
extended to current employees who choose not to participate in Social Security. However, all extended to current employees who choose not to participate in Social Security. However, all
future employees in the group’s positions are covered by Social Security on a mandatory basis. employees in the group’s positions are covered by Social Security on a mandatory basis.
Under current law, 23 states are authorized to operate divided retirement systems.Under current law, 23 states are authorized to operate divided retirement systems.4244
In addition, the 1956 amendments permitted police officers and firefighters covered under In addition, the 1956 amendments permitted police officers and firefighters covered under
retirement systems in five states to elect Social Security coverage (Florida, North Carolina, retirement systems in five states to elect Social Security coverage (Florida, North Carolina,
Oregon, South Carolina, and South Dakota).Oregon, South Carolina, and South Dakota).43
45 • 1983
Before April 1983, states that elected Social Security coverage had the option to withdraw from Before April 1983, states that elected Social Security coverage had the option to withdraw from
the program. A state could terminate coverage for state and local groups provided the coverage the program. A state could terminate coverage for state and local groups provided the coverage
had been in effect for at least five years and written notice was given to the Secretary of Health had been in effect for at least five years and written notice was given to the Secretary of Health

38and Human Services two years in advance.46 There was no requirement in the law that employees be notified when a notice of termination had been filed or when coverage had been terminated.47 40 In a majority vote referendum, a majority of all the eligible employees covered by the retirement system (not a In a majority vote referendum, a majority of all the eligible employees covered by the retirement system (not a
majority of the eligible employees casting votes) must vote in favor of coverage. majority of the eligible employees casting votes) must vote in favor of coverage.
3941 Social Security Amendments of 1954, P.L. 83-761, §101(h) (Employees Covered by State or Local Retirement Social Security Amendments of 1954, P.L. 83-761, §101(h) (Employees Covered by State or Local Retirement
Systems). Systems).
4042 James E. Marquis, “Old-Age and Survivors Insurance: Coverage Under the 1954 Amendments,” James E. Marquis, “Old-Age and Survivors Insurance: Coverage Under the 1954 Amendments,” Social Security
Bulletin, vol. 18, no. 1 (January 1955), p. 7, https://www.ssa.gov/policy/docs/ssb/v18n1/index.html. , vol. 18, no. 1 (January 1955), p. 7, https://www.ssa.gov/policy/docs/ssb/v18n1/index.html.
4143 Social Security Amendments of 1956, P.L. 84-880, §104(e) (Certain State and Local Employees). Social Security Amendments of 1956, P.L. 84-880, §104(e) (Certain State and Local Employees).
4244 Most recently, Kentucky and Louisiana were added to the list of states authorized to operate divided retirement Most recently, Kentucky and Louisiana were added to the list of states authorized to operate divided retirement
systems as part of the Social Security Protection Act of 2004 (P.L. 108-203, §416). The 23 states authorized to hold systems as part of the Social Security Protection Act of 2004 (P.L. 108-203, §416). The 23 states authorized to hold
divided vote referendums are listed in Section 218(d)(6)(C) of the Social Security Act (42 U.S.C. §418(d)(6)(C)). In divided vote referendums are listed in Section 218(d)(6)(C) of the Social Security Act (42 U.S.C. §418(d)(6)(C)). In
addition, under Section 218(g)(2) of the Social Security Act (42 U.S.C. §418(g)(2)), all interstate instrumentalities may addition, under Section 218(g)(2) of the Social Security Act (42 U.S.C. §418(g)(2)), all interstate instrumentalities may
divide a retirement system based on whether the employees in positions under that system want coverage. divide a retirement system based on whether the employees in positions under that system want coverage.
4345 Social Security Amendments of 1956, P.L. 84-880, §104(g) (Policemen and Firemen in the States of Florida, North Social Security Amendments of 1956, P.L. 84-880, §104(g) (Policemen and Firemen in the States of Florida, North
Carolina, Oregon, South Carolina, and South Dakota). Carolina, Oregon, South Carolina, and South Dakota).
~~Congressional Research Service~~

9

~~Social Security Coverage of State and Local Government Employees~~

~~and Human Services two years in advance.44 There was no requirement in the law that employees~~
~~be notified when a notice of termination had been filed or when coverage had been terminated.45~~46 At the time, SSA was part of the U.S. Department of Health and Human Services. The Social Security Independence and Program Improvements Act of 1994 (P.L. 103-296) established SSA as an independent agency. 47 U.S. Congress, House Committee on Ways and Means, Social Security Act Amendments of 1983, report to accompany H.R. 1900, 98th Cong., 1st sess., March 4, 1983, H. Rept. 98-25, Part 1, p. 18. Congressional Research Service 9 Social Security Coverage of State and Local Government Employees
Among other provisions, the Social Security Amendments of 1983 (P.L. 98-21) prohibited states Among other provisions, the Social Security Amendments of 1983 (P.L. 98-21) prohibited states
from terminating coverage for state and local government employees if the termination had not from terminating coverage for state and local government employees if the termination had not
become effective before the date of enactment of the legislation (April 20, 1983).become effective before the date of enactment of the legislation (April 20, 1983).4648 The 1983 The 1983
amendments also allowed state and local groups whose coverage had already been terminated to amendments also allowed state and local groups whose coverage had already been terminated to
elect coverage again. Under prior law, groups whose coverage had been terminated were elect coverage again. Under prior law, groups whose coverage had been terminated were
prohibited from regaining coverage.prohibited from regaining coverage.4749
The House report accompanying the 1983 legislation explains that the provision was in response The House report accompanying the 1983 legislation explains that the provision was in response
to an increase in the number of termination notices, attributed in part to the Social Security to an increase in the number of termination notices, attributed in part to the Social Security
system’s financing problems in the late 1970s and early 1980s. The House report states: system’s financing problems in the late 1970s and early 1980s. The House report states:
The number of governments filing termination notices did increase in conjunction with The number of governments filing termination notices did increase in conjunction with
widespread concern about the financial conditions of social security that preceded the 1977 widespread concern about the financial conditions of social security that preceded the 1977
Amendments. While this rate of filing slowed down after the 1977 Amendments, Amendments. While this rate of filing slowed down after the 1977 Amendments,
considerable acceleration in filing for terminations for State and local governments has considerable acceleration in filing for terminations for State and local governments has
occurred since 1980, again in conjunction with widespread concern about the financial occurred since 1980, again in conjunction with widespread concern about the financial
viability of the trust funds, and about the economy in general. viability of the trust funds, and about the economy in general.
During the five-year period from 1977 through 1981, when termination activity was greater During the five-year period from 1977 through 1981, when termination activity was greater
than in the previous ten years, coverage was terminated for 96,000 State and local than in the previous ten years, coverage was terminated for 96,000 State and local
government employees; as of December, 1982 coverage had been terminated for 595 State government employees; as of December, 1982 coverage had been terminated for 595 State
entities employing 190,000 workers. In contrast, for the two-year period of 1983-84, entities employing 190,000 workers. In contrast, for the two-year period of 1983-84,
terminations are pending for 634 State and local entities employing 227,000 workers. terminations are pending for 634 State and local entities employing 227,000 workers.
[The] Committee strongly feels that the ability to terminate coverage for State and local [The] Committee strongly feels that the ability to terminate coverage for State and local
government employees is inequitable both for thegovernment employees is inequitable both for the employees who lose coverage and for employees who lose coverage and for
the vast majority of the nation’s workforce who continue to pay into the system.the vast majority of the nation’s workforce who continue to pay into the system.4850
In addition, the 1983 amendments mandated Social Security coverage for newly hired In addition, the 1983 amendments mandated Social Security coverage for newly hired federal
employees (i.e., those hired January 1, 1984, or later). employees (i.e., those hired January 1, 1984, or later).
• 1990
Among other provisions, the Omnibus Budget Reconciliation Act of 1990 (P.L. 101-508) made Among other provisions, the Omnibus Budget Reconciliation Act of 1990 (P.L. 101-508) made
Social Security coverage mandatory for most state and local government employees not covered Social Security coverage mandatory for most state and local government employees not covered
under public retirement systems. Students employed by their educational institutions were under public retirement systems. Students employed by their educational institutions were

~~44 At the time, SSA was part of the U.S. Department of Health and Human Services. The~~excluded from mandatory coverage.51 Coverage became effective for service performed after July 1, 1991.52 • 1994 Among other provisions, the Social Security Independence Social Security Independence
and Program Improvements Act of and Program Improvements Act of 1994 (P.L. 103-296) gave all states the authority through their Section 218 Agreements to provide 48~~1994 (P.L. 103-296) established SSA as an independent agency.~~
~~45 U.S. Congress, House Committee on Ways and Means, Social Security Act Amendments of 1983, report to~~
~~accompany H.R. 1900, 98th Cong., 1st sess., March 4, 1983, H. Rept. 98-25, Part 1, p. 18.~~
46 Social Security Amendments of 1983, P.L. 98-21, §103 (Duration of Agreements for Coverage of State and Local Social Security Amendments of 1983, P.L. 98-21, §103 (Duration of Agreements for Coverage of State and Local
Employees). Employees).
4749 The State of California challenged the 1983 law prohibiting the termination of coverage on the basis that it deprived The State of California challenged the 1983 law prohibiting the termination of coverage on the basis that it deprived
states of contractual rights without just compensation, thus violating the Fifth Amendment of the Constitution. The U.S. states of contractual rights without just compensation, thus violating the Fifth Amendment of the Constitution. The U.S.
Supreme Court rejected California’s arguments and, on June 19, 1986, ruled that the provision was constitutional under Supreme Court rejected California’s arguments and, on June 19, 1986, ruled that the provision was constitutional under
the authority of Congress to provide for the general welfare. Bowen v. Pub. Agencies Opposed to Social Security the authority of Congress to provide for the general welfare. Bowen v. Pub. Agencies Opposed to Social Security
Entrapments, 477 U.S. 41 (1986). Entrapments, 477 U.S. 41 (1986).
4850 U.S. Congress, House Committee on Ways and Means, U.S. Congress, House Committee on Ways and Means, Social Security Act Amendments of 1983, report to , report to
accompany H.R. 1900, 98th Cong., 1st sess., March 4, 1983, H. Rept. 98-25, Part 1, pp. 18-19. accompany H.R. 1900, 98th Cong., 1st sess., March 4, 1983, H. Rept. 98-25, Part 1, pp. 18-19.
~~Congressional Research Service~~

10

~~link to page 17 link to page 17~~ 51 Students employed by educational institutions operated by state or local governments may be covered by Social Security under the terms of a state’s Section 218 Agreement with SSA. 52 Omnibus Budget Reconciliation Act of 1990, P.L. 101-508, §11332 (Coverage of Certain State and Local Employees Under Social Security). Congressional Research Service 10 link to page 16 Social Security Coverage of State and Local Government Employees ~~Security Coverage of State and Local Government Employees~~

~~excluded from mandatory coverage.49 Coverage became effective for service performed after July~~
~~1, 1991.50~~
 1994
~~Among other provisions, the Social Security Independence and Program Improvements Act of~~
~~1994 (P.L. 103-296) gave all states the authority through their Section 218 Agreements to provide~~
Social Security and Medicare coverage or Medicare-only coverage for police officer and Social Security and Medicare coverage or Medicare-only coverage for police officer and
firefighter positions already covered under retirement systems (effective August 16, 1994). With firefighter positions already covered under retirement systems (effective August 16, 1994). With
congressional authorization in place, states could begin modifying the language of their Section congressional authorization in place, states could begin modifying the language of their Section
218 Agreements and begin holding referendums to extend coverage to these positions. 218 Agreements and begin holding referendums to extend coverage to these positions.
Social Security Coverage by State
Data from SSA shows that there were Data from SSA shows that there were ~~23.2~~nearly 21.9 million state and local government employees in the million state and local government employees in the
United States in United States in ~~2018~~2021. The majority of these workers had Social Security coverage based on their . The majority of these workers had Social Security coverage based on their
state and local government employment. Specifically, state and local government employment. Specifically, 7273% of state and local government % of state and local government
employees (employees (~~16.6~~about 15.9 million workers) had Social Security coverage. The remaining million workers) had Social Security coverage. The remaining ~~28% (6.6~~27% (about 5.9 million million
workers) did not have Social Security coverage.workers) did not have Social Security coverage.5153 The largest share of noncovered state and local The largest share of noncovered state and local
government employees work at the local level, and most noncovered local government employees government employees work at the local level, and most noncovered local government employees
are police officers, firefighters, and teachers.are police officers, firefighters, and teachers.5254
As shown As shown in Table 1in Figure 2, the share of state and local government employees with Social Security the share of state and local government employees with Social Security
coverage in coverage in ~~2018~~2021 varied widely by state, ranging from 2. varied widely by state, ranging from 2.75% in Massachusetts and Ohio to 97.% in Massachusetts and Ohio to 97.27% %
in Vermont.in Vermont. ~~The following statistics are based on the data shown in Table 1.~~
~~ In 28 states, 90% or more of state and local government employees had Social~~
~~Security coverage.~~
~~ In eight states, fewer than 50~~ Figure 2. Share of State and Local Government Employees Not Covered by Social Security, 2021 Source: Data from the Social Security Administration obtained by CRS in February 2024. 53 These workers did not have Social Security coverage based on their state and local government employment. In some cases, they may have Social Security coverage based on other employment, or they may have a family connection to a Social Security–covered worker that makes them potentially eligible for Social Security spousal benefits, for example. 54 IRS Publication 963, p. 1. Congressional Research Service 11 link to page 17 Social Security Coverage of State and Local Government Employees The following statistics are based on the data shown in Table 1. • In 27 states, 90.0% or more of state and local government employees had Social Security coverage. • In eight states, fewer than 50.0% of state and local government employees had % of state and local government employees had
Social Security coverage (Massachusetts, Ohio, Nevada, Louisiana, Colorado, Social Security coverage (Massachusetts, Ohio, Nevada, Louisiana, Colorado,
California, Texas, and Alaska). California, Texas, and Alaska).
• Eight states accounted for Eight states accounted for ~~almost~~over three-fourths ( three-fourths (7376%) of noncovered state and %) of noncovered state and
local ~~local~~ government employees (government employees (from largest to smallest: California, Texas, Ohio, Massachusetts, Illinois, California, Texas, Ohio, Massachusetts, Illinois,
Colorado, Louisiana, and Georgia). Colorado, Louisiana, and Georgia).
• Three states accounted for almost half ( Three states accounted for almost half (4849%) of noncovered state and local government employees (California, Texas, and Ohio). Table 1. Social Security Coverage of State and Local Government Employees, by State, in 2021 State and Noncovered Workers: State Local Covered~~%) of noncovered state and local~~
~~government employees (California, Texas, and Ohio).~~

~~49 Students employed by educational institutions operated by state or local governments may be covered by Social~~
~~Security under the terms of a state’s Section 218 Agreement with SSA.~~
~~50 Omnibus Budget Reconciliation Act of 1990, P.L. 101-508, §11332 (Coverage of Certain State and Local Employees~~
~~Under Social Security).~~
~~51 These workers did not have Social Security coverage based on their state and local government employment. In some~~
~~cases, they may have Social Security coverage based on other employment, or they may have a family connection to a~~
~~Social Security–covered worker that makes them potentially eligible for Social Security spousal benefits, for example.~~
~~52 IRS Publication 963, p. 1.~~
~~Congressional Research Service~~

11

~~Social Security Coverage of State and Local Government Employees~~

~~Table 1. Social Security Coverage of State and Local Government Employees, by~~
~~State, in 2018~~
~~State and~~
~~Covered Workers: State and~~
~~Noncovered Workers: State~~
~~Local~~
~~Local Government~~ Workers: State and
and Local Government
Government
Employees With ~~Social~~Local Government Employees
Employees Without Social

Employees
With Social Security Coverage
Security Coverage
State
Number
Number
Percentage
Number
Percentage
Alabama Alabama
~~360,900~~357,000
331, 331,~~700~~
~~91.9%~~
~~29,200~~
~~8.0~~400 92.8% 25,600 7.1% %
Alaska Alaska
~~83,300~~
~~39,900~~
~~47.8%~~
~~43,400~~
~~52.1%~~
~~Arizona~~
~~344,600~~
~~327,000~~
~~94.8%~~
~~17,600~~
~~5.1%~~
~~Arkansas~~
~~194,900~~
~~176,100~~
~~90.3%~~
~~18,800~~
~~9.6%~~
~~California~~
~~2,442,300~~
~~1,090,000~~
~~44.6%~~
~~1,352,300~~
~~55.3%~~
~~Colorado~~
~~465,200~~
~~134,200~~
~~28.8%~~
~~331,000~~
~~71.1%~~
~~Connecticut~~
~~268,200~~
~~191,200~~
~~71.2%~~
~~77,000~~
~~28.7%~~
~~Delaware~~
~~67,800~~
~~64,100~~
~~94.5%~~
~~3,700~~
~~5.4~~74,500 33,900 45.5% 40,600 54.4% Arizona 325,900 310,800 95.3% 15,100 4.6% Arkansas 183,400 168,500 91.8% 14,900 8.1% California 2,036,800 933,000 45.8% 1,103,800 54.1% Colorado 458,400 132,800 28.9% 325,600 71.0% Connecticut 247,600 178,200 71.9% 69,400 28.0% Delaware 59,700 57,300 95.9% 2,400 4.0% %
District of District of Columbia 75,000 60,300 80.4% 14,700 19.6% Florida 1,081,200 963,200 89.0% 118,000 10.9% Georgia 639,400 462,800 72.3% 176,600 27.6% Hawaii 103,600 80,000 77.2% 23,600 22.7% Idaho 143,000 137,800 96.3% 5,200 3.6% Il inois 872,000 475,600 54.5% 396,400 45.4% Indiana 461,600 411,800 89.2% 49,800 10.7% Iowa 285,300 261,300 91.5% 24,000 8.4% Kansas 288,300 267,600 92.8% 20,700 7.1% Kentucky 330,700 272,100 82.2% 58,600 17.7% Louisiana 279,700 69,200 24.7% 210,500 75.2% Maine 95,200 51,100 53.6% 44,100 46.3% Maryland 498,500 468,300 93.9% 30,200 6.0% Congressional Research Service 12 link to page 19 Social Security Coverage of State and Local Government Employees State and Noncovered Workers: State Local Covered Workers: State and and Local Government Government Local Government Employees Employees Without Social Employees With Social Security Coverage Security Coverage State Number Number Percentage Number Percentage Massachusetts 482,600 12,500 2.5% 470,100 97.4% Michigan 607,900 545,800 89.7% 62,100 10.2% Minnesota 447,500 417,000 93.1% 30,500 6.8% Mississippi 243,900 229,800 94.2% 14,100 5.7% Missouri 434,900 329,800 75.8% 105,100 24.1% Montana 96,100 85,900 89.3% 10,200 10.6% Nebraska 147,300 140,800 95.5% 6,500 4.4% Nevada 153,900 17,500 11.3% 136,400 88.6% New Hampshire 99,500 88,500 88.9% 11,000 11.0% New Jersey 612,500 560,400 91.4% 52,100 8.5% New Mexico 183,200 164,900 90.0% 18,300 9.9% New York 1,646,200 1,579,000 95.9% 67,200 4.0% North Carolina 628,200 585,000 93.1% 43,200 6.8% North Dakota 81,100 73,200 90.2% 7,900 9.7% Ohio 753,200 18,900 2.5% 734,300 97.4% Oklahoma 235,700 225,200 95.5% 10,500 4.4% Oregon 265,600 258,700 97.4% 6,900 2.5% Pennsylvania 691,100 643,400 93.0% 47,700 6.9% Puerto Rico 173,600 151,700 87.3% 21,900 12.6% Rhode Island 49,800 43,400 87.1% 6,400 12.8% South Carolina 298,900 279,000 93.3% 19,900 6.6% South Dakota 81,200 75,700 93.2% 5,500 6.7% Tennessee 460,500 424,800 92.2% 35,700 7.7% Texas 1,984,200 934,200 47.0% 1,050,000 52.9% Utah 266,700 239,100 89.6% 27,600 10.3% Vermont 40,600 39,700 97.7% 900 2.2% Virginia 671,600 627,100 93.3% 44,500 6.6% Washington 521,900 483,600 92.6% 38,300 7.3% West Virginia 109,700 102,600 93.5% 7,100 6.4% Wisconsin 407,900 366,400 89.8% 41,500 10.1% Wyoming 77,000 71,100 92.3% 5,900 7.6% Othera 7,500 800 10.6% 6,700 89.3% Total 21,858,300 15,942,500 72.9% 5,915,800 27.0% Congressional Research Service 13 Social Security Coverage of State and Local Government Employees Source: Data from the Social Security Administration obtained by CRS in February 2024~~Columbia~~
~~78,300~~
~~65,000~~
~~83.0%~~
~~13,300~~
~~16.9%~~
~~Florida~~
~~1,107,900~~
~~967,700~~
~~87.3%~~
~~140,200~~
~~12.6%~~
~~Georgia~~
~~671,100~~
~~474,500~~
~~70.7%~~
~~196,600~~
~~29.2%~~
~~Hawaii~~
~~114,700~~
~~83,500~~
~~72.7%~~
~~31,200~~
~~27.2%~~
~~Idaho~~
~~142,700~~
~~134,200~~
~~94.0%~~
~~8,500~~
~~5.9%~~
~~Il inois~~
~~927,200~~
~~523,600~~
~~56.4%~~
~~403,600~~
~~43.5%~~
~~Indiana~~
~~480,300~~
~~424,500~~
~~88.3%~~
~~55,800~~
~~11.6%~~
~~Iowa~~
~~300,100~~
~~270,300~~
~~90.0%~~
~~29,800~~
~~9.9%~~
~~Kansas~~
~~298,200~~
~~271,500~~
~~91.0%~~
~~26,700~~
~~8.9%~~
~~Kentucky~~
~~343,900~~
~~256,500~~
~~74.5%~~
~~87,400~~
~~25.4%~~
~~Louisiana~~
~~304,900~~
~~80,000~~
~~26.2%~~
~~224,900~~
~~73.7%~~
~~Maine~~
~~103,900~~
~~55,700~~
~~53.6%~~
~~48,200~~
~~46.3%~~
~~Maryland~~
~~468,900~~
~~426,000~~
~~90.8%~~
~~42,900~~
~~9.1%~~
~~Massachusetts~~
~~497,600~~
~~13,700~~
~~2.7%~~
~~483,900~~
~~97.2%~~
~~Michigan~~
~~775,200~~
~~632,500~~
~~81.5%~~
~~142,700~~
~~18.4%~~
~~Minnesota~~
~~474,200~~
~~438,100~~
~~92.3%~~
~~36,100~~
~~7.6%~~
~~Mississippi~~
~~258,800~~
~~239,500~~
~~92.5%~~
~~19,300~~
~~7.4%~~
~~Missouri~~
~~459,400~~
~~344,300~~
~~74.9%~~
~~115,100~~
~~25.0%~~
~~Montana~~
~~97,700~~
~~89,300~~
~~91.4%~~
~~8,400~~
~~8.5%~~
~~Nebraska~~
~~152,200~~
~~145,300~~
~~95.4%~~
~~6,900~~
~~4.5%~~
~~Nevada~~
~~158,000~~
~~23,200~~
~~14.6%~~
~~134,800~~
~~85.3%~~
~~New Hampshire~~
~~105,600~~
~~93,800~~
~~88.8%~~
~~11,800~~
~~11.1%~~
~~New Jersey~~
~~650,200~~
~~597,300~~
~~91.8%~~
~~52,900~~
~~8.1%~~
~~New Mexico~~
~~194,300~~
~~175,600~~
~~90.3%~~
~~18,700~~
~~9.6%~~
~~Congressional Research Service~~

12

~~link to page 18~~ ~~Social Security Coverage of State and Local Government Employees~~

~~State and~~
~~Covered Workers: State and~~
~~Noncovered Workers: State~~
~~Local~~
~~Local Government~~
~~and Local Government~~
~~Government~~
Employees With Social
Employees Without Social

~~Employees~~
~~Security Coverage~~
~~Security Coverage~~
~~State~~
~~Number~~
~~Number~~
~~Percentage~~
~~Number~~
~~Percentage~~
~~New York~~
~~1,746,900~~
~~1,658,100~~
~~94.9%~~
~~88,800~~
~~5.0%~~
~~North Carolina~~
~~660,600~~
~~607,700~~
~~91.9%~~
~~52,900~~
~~8.0%~~
~~North Dakota~~
~~83,300~~
~~74,400~~
~~89.3%~~
~~8,900~~
~~10.6%~~
~~Ohio~~
~~808,900~~
~~22,200~~
~~2.7%~~
~~786,700~~
~~97.2%~~
~~Oklahoma~~
~~240,300~~
~~227,300~~
~~94.5%~~
~~13,000~~
~~5.4%~~
~~Oregon~~
~~281,100~~
~~271,200~~
~~96.4%~~
~~9,900~~
~~3.5%~~
~~Pennsylvania~~
~~749,900~~
~~689,200~~
~~91.9%~~
~~60,700~~
~~8.0%~~
~~Puerto Rico~~
~~187,300~~
~~157,600~~
~~84.1%~~
~~29,700~~
~~15.8%~~
~~Rhode Island~~
~~52,800~~
~~44,000~~
~~83.3%~~
~~8,800~~
~~16.6%~~
~~South Carolina~~
~~314,800~~
~~290,200~~
~~92.1%~~
~~24,600~~
~~7.8%~~
~~South Dakota~~
~~80,800~~
~~75,100~~
~~92.9%~~
~~5,700~~
~~7.0%~~
~~Tennessee~~
~~485,000~~
~~440,900~~
~~90.9%~~
~~44,100~~
~~9.0%~~
~~Texas~~
~~1,978,800~~
~~912,800~~
~~46.1%~~
~~1,066,000~~
~~53.8%~~
~~Utah~~
~~256,700~~
~~233,000~~
~~90.7%~~
~~23,700~~
~~9.2%~~
~~Vermont~~
~~54,400~~
~~52,900~~
~~97.2%~~
~~1,500~~
~~2.7%~~
~~Virginia~~
~~688,800~~
~~639,600~~
~~92.8%~~
~~49,200~~
~~7.1%~~
~~Washington~~
~~548,800~~
~~494,500~~
~~90.1%~~
~~54,300~~
~~9.8%~~
~~West Virginia~~
~~114,800~~
~~106,400~~
~~92.6%~~
~~8,400~~
~~7.3%~~
~~Wisconsin~~
~~438,700~~
~~377,800~~
~~86.1%~~
~~60,900~~
~~13.8%~~
~~Wyoming~~
~~74,500~~
~~70,900~~
~~95.1%~~
~~3,600~~
~~4.8%~~
~~Other0~~
~~7,400~~
~~500~~
~~6.7%~~
~~6,900~~
~~93.2%~~
~~Total~~
~~23,247,100~~
~~16,626,100~~
~~71.5%~~
~~6,621,000~~
~~28.4%~~
~~Source:~~ ~~Data from the Social Security Administration obtained by CRS in January 2021~~. .
Notes: Percentages may not sum to 100% due to rounding. Percentages may not sum to 100% due to rounding.
a. Includes people employed by American Samoa, Guam, Northern Mariana Islands, and U.S. Virgin Islands. a. Includes people employed by American Samoa, Guam, Northern Mariana Islands, and U.S. Virgin Islands.
Mandatory Coverage Proposals
Over the years, there have been proposals to make Social Security coverage mandatory for newly Over the years, there have been proposals to make Social Security coverage mandatory for newly
hired state and local government employees. Generally, such proposals are consistent with actions hired state and local government employees. Generally, such proposals are consistent with actions
taken by Congress to expand Social Security (and Medicare) coverage. As outlined above, in taken by Congress to expand Social Security (and Medicare) coverage. As outlined above, in
1983, Congress mandated Social Security coverage for newly hired 1983, Congress mandated Social Security coverage for newly hired federal employees, and employees, and
Congress prohibited states from terminating coverage for state and local government employees Congress prohibited states from terminating coverage for state and local government employees
once it had been elected. In 1986, Congress mandated Medicare coverage for newly hired state once it had been elected. In 1986, Congress mandated Medicare coverage for newly hired state
and local government employees. In 1990, Congress mandated Social Security coverage for most and local government employees. In 1990, Congress mandated Social Security coverage for most
state and local government employees who are not covered under public retirement systems. state and local government employees who are not covered under public retirement systems.
~~Congressional Research Service~~

13

~~Social Security Coverage of State and Local Government Employees~~

Mandatory Social Security coverage for newly hired state and local government employees has Mandatory Social Security coverage for newly hired state and local government employees has
been proposed in a variety of contexts, ranging from the recommendations of presidential been proposed in a variety of contexts, ranging from the recommendations of presidential
commissions to legislation introduced by Members of Congress. In 2010, for example, President commissions to legislation introduced by Members of Congress. In 2010, for example, President
Barack Obama established the National Commission on Fiscal Responsibility and Reform.Barack Obama established the National Commission on Fiscal Responsibility and Reform.5355 The The
commission (also known as the “Fiscal Commission” or the “Simpson-Bowles Commission” commission (also known as the “Fiscal Commission” or the “Simpson-Bowles Commission”
after co-chairs Alan Simpson and Erskine Bowles) was directed to make recommendations to after co-chairs Alan Simpson and Erskine Bowles) was directed to make recommendations to
improve the nation’s fiscal outlook. In its final report, the commission included a number of improve the nation’s fiscal outlook. In its final report, the commission included a number of
recommendations that would have had a direct effect on Social Security tax revenues and recommendations that would have had a direct effect on Social Security tax revenues and
benefits. Among other provisions, the commission recommended that newly hired state and local benefits. Among other provisions, the commission recommended that newly hired state and local
government employees be covered under the Social Security system. The commission noted that, government employees be covered under the Social Security system. The commission noted that,
as states face prolonged fiscal challenges and an aging workforce, maintaining separate as states face prolonged fiscal challenges and an aging workforce, maintaining separate
retirement systems outside of Social Security could pose risks for plan sponsors and participants. retirement systems outside of Social Security could pose risks for plan sponsors and participants.
In the commission’s view, mandatory Social Security coverage could mitigate these risks, as well In the commission’s view, mandatory Social Security coverage could mitigate these risks, as well
as a potential future bailout risk for the federal government.as a potential future bailout risk for the federal government.5456
In another example, Senator Bob Corker and Senator Lamar Alexander introduced the Fiscal In another example, Senator Bob Corker and Senator Lamar Alexander introduced the Fiscal
Sustainability Act of 2013 (S. 11, 113th Congress). Among other provisions, the legislation would Sustainability Act of 2013 (S. 11, 113th Congress). Among other provisions, the legislation would
have made Social Security coverage mandatory for newly hired state and local government have made Social Security coverage mandatory for newly hired state and local government
employees starting in 2021. There was no congressional action on the measure. employees starting in 2021. There was no congressional action on the measure.
Issues Surrounding Mandatory Coverage
Proposals to mandate Social Security coverage for newly hired state and local government Proposals to mandate Social Security coverage for newly hired state and local government
employees have been part of the Social Security policy debate for years. Such proposals draw employees have been part of the Social Security policy debate for years. Such proposals draw
strong support and opposition from stakeholders. There are a number of issues to consider with strong support and opposition from stakeholders. There are a number of issues to consider with
respect to mandatory coverage for newly hired state and local government employees. This respect to mandatory coverage for newly hired state and local government employees. This
section highlights some of the major issues: section highlights some of the major issues:
• projected effect on the Social Security trust funds; projected effect on the Social Security trust funds;
• projected effect on federal revenues; projected effect on federal revenues;
~~ comparability of noncovered pensions and Social Security benefits;~~
 55 Executive Order 13531, “National Commission on Fiscal Responsibility and Reform,” 75 Federal Register 7927, February 18, 2010, https://www.federalregister.gov/documents/2010/02/23/2010-3725/national-commission-on-fiscal-responsibility-and-reform. 56 The Moment of Truth: Report of the National Commission on Fiscal Responsibility and Reform, December 1, 2010, p. 52, https://www.ssa.gov/history/reports/ObamaFiscal/TheMomentofTruth12_1_2010.pdf. Congressional Research Service 14 Social Security Coverage of State and Local Government Employees • comparability of noncovered pensions and Social Security benefits; • Social Security Windfall Elimination Provision (WEP) and Government Pension Social Security Windfall Elimination Provision (WEP) and Government Pension
Offset (GPO); Offset (GPO);
• special considerations for certain occupational groups (such as police officers and special considerations for certain occupational groups (such as police officers and
firefighters); firefighters);
• Social Security protections for workers and family members (disability insurance Social Security protections for workers and family members (disability insurance
protection, portability, benefits for dependents and survivors, cost-of-living protection, portability, benefits for dependents and survivors, cost-of-living
adjustments (COLAs), progressive benefit formula); and adjustments (COLAs), progressive benefit formula); and
• effect on state and local plans (administrative and cost issues, funding status of effect on state and local plans (administrative and cost issues, funding status of
state and local plans). state and local plans).

~~53 Executive Order 13531, “National Commission on Fiscal Responsibility and Reform,” 75 Federal Register 7927,~~
~~February 18, 2010, https://www.federalregister.gov/documents/2010/02/23/2010-3725/national-commission-on-fiscal-~~
~~responsibility-and-reform.~~
~~54 The Moment of Truth: Report of the National Commission on Fiscal Responsibility and Reform, December 1, 2010,~~
~~p. 52.~~
~~Congressional Research Service~~

14

~~Social Security Coverage of State and Local Government Employees~~

Projected Effect on the Social Security Trust Funds
Under current law, the Social Security system is facing a projected funding shortfall. The Social Under current law, the Social Security system is facing a projected funding shortfall. The Social
Security trust funds are projected to be unable to pay full scheduled benefits in a timely manner in Security trust funds are projected to be unable to pay full scheduled benefits in a timely manner in
less than two decades. In its less than two decades. In its ~~2021~~2023 Annual Report, the Social Security Board of Trustees projects Annual Report, the Social Security Board of Trustees projects
that, based on its intermediate assumptions, program costs will exceed income by about 26% on that, based on its intermediate assumptions, program costs will exceed income by about 26% on
average over the next 75-year period.average over the next 75-year period.5557
When considering Social Security policy changes, lawmakers take into account many factors, When considering Social Security policy changes, lawmakers take into account many factors,
including the proposal’s projected effect on the Social Security trust funds. SSA’s Office of the including the proposal’s projected effect on the Social Security trust funds. SSA’s Office of the
Chief Actuary (OCACT) projects that mandatory Social Security coverage for newly hired state Chief Actuary (OCACT) projects that mandatory Social Security coverage for newly hired state
and local government employees would have a net positive effect on the Social Security trust and local government employees would have a net positive effect on the Social Security trust
funds on average over the next 75-year period. OCACT projects that the policy change would funds on average over the next 75-year period. OCACT projects that the policy change would
close close 54% of the system’s projected long-range funding shortfall (based on the intermediate % of the system’s projected long-range funding shortfall (based on the intermediate
assumptions of the assumptions of the ~~2020~~2023 Trustees Report).58 ~~Trustees Report). The largest positive effect on the trust funds would~~
~~occur during the initial period following implementation.56~~
Projected Effect on Federal Revenues
Social Security operates with a trust fund financing mechanism. As required by law, the Social Social Security operates with a trust fund financing mechanism. As required by law, the Social
Security payroll taxes paid by covered workers and their employers are (1) Security payroll taxes paid by covered workers and their employers are (1) deposited into the into the
General Fund of the U.S. Treasury, where they are available for spending on general government General Fund of the U.S. Treasury, where they are available for spending on general government
operations, and (2) operations, and (2) credited to the Social Security trust funds in the form of special-issue U.S. to the Social Security trust funds in the form of special-issue U.S.
Treasury securities. The holdings of the Social Security trust funds represent the amount of Treasury securities. The holdings of the Social Security trust funds represent the amount of
money the U.S. Treasury’s General Fund owes to the Social Security trust funds. There is no money the U.S. Treasury’s General Fund owes to the Social Security trust funds. There is no
separate pool of cash set aside for Social Security purposes.separate pool of cash set aside for Social Security purposes.5759
Work that is not covered by Social Security represents foregone payroll tax revenues to the Work that is not covered by Social Security represents foregone payroll tax revenues to the
federal government. A Congressional Budget Office (CBO) report on options for reducing federal federal government. A Congressional Budget Office (CBO) report on options for reducing federal
budget deficits includes the option of making Social Security coverage mandatory for state and budget deficits includes the option of making Social Security coverage mandatory for state and
local government employees hired after December 31, local government employees hired after December 31, ~~2020~~2022. Revenue estimates for this option 57 The 2023~~. Revenue estimates for this option~~
~~show that it would generate $101 billion in revenues over 10 years (2021-2030).58 This option~~
~~would have little effect on Social Security spending in the short-term because most state and local~~
~~government employees who would be hired during this period would not begin receiving benefits~~
~~for many years. Therefore, the estimates do not include any effects on outlays. However, beyond~~
~~the 10-year window, an increase in Social Security spending would partly offset the additional~~
~~revenues generated by newly covered state and local government employees. CBO estimates that~~
~~making Social Security coverage mandatory for newly hired state and local government~~
~~employees would result in a net increase in payroll tax revenues.~~

~~55 The 2021~~ Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal
Disability Insurance Trust FundsDisability Insurance Trust Funds, March 31, 2023~~, August 31, 2021~~, https://www.ssa.gov/oact/TR/, https://www.ssa.gov/oact/TR/~~2021~~2023/index.html. See Table IV.B5 /index.html. See Table IV.B5
(page (page 7472) for the projected difference between the summarized income rate and summarized cost rate for OASDI under ) for the projected difference between the summarized income rate and summarized cost rate for OASDI under
the intermediate assumptions for the period the intermediate assumptions for the period ~~2021-2095~~2023-2097. For more information on the projected financial outlook for the . For more information on the projected financial outlook for the
Social Security program, see CRS In Focus IF10522, Social Security program, see CRS In Focus IF10522, Social Security’s Funding Shortfall. .
5658 OCACT, OCACT, Proposed Provision F1: Starting in ~~2021~~2024, Cover Newly Hired State and Local Government Employees, ,
https://www.ssa.gov/https://www.ssa.gov/~~oact~~OACT/solvency/provisions/charts//solvency/provisions/charts/~~chart_run315~~chart_run186.html. .html.
5759 For more information, see CRS In Focus IF10564, For more information, see CRS In Focus IF10564, Social Security Trust Fund Investment Practices. .
~~58 CBO, Options for Reducing the Deficit: 2021 to 2030, December 2020, p. 76, https://www.cbo.gov/publication/~~
~~56783.~~
~~Congressional Research Service~~

15

~~Social Security Coverage of State and Local Government Employees~~

Congressional Research Service 15 Social Security Coverage of State and Local Government Employees show that it would generate $131.5 billion in revenues over 10 years (FY2023-FY2032).60 This option would have little effect on Social Security spending in the short-term because most state and local government employees who would be hired during this period would not begin receiving benefits for many years. Therefore, the estimates do not include any effects on outlays. However, beyond the 10-year window, an increase in Social Security spending would partly offset the additional revenues generated by newly covered state and local government employees. Comparability of Noncovered Pensions and Social Security
To qualify as an alternative to Social Security, public retirement systems must provide To qualify as an alternative to Social Security, public retirement systems must provide
noncovered workers with a minimum level of benefits. In general, they must provide retirement noncovered workers with a minimum level of benefits. In general, they must provide retirement
benefits that are comparable to Social Security retirement benefits. To help plans determine if benefits that are comparable to Social Security retirement benefits. To help plans determine if
they are in compliance with the minimum standards needed to qualify as an alternative to Social they are in compliance with the minimum standards needed to qualify as an alternative to Social
Security, the IRS has established safe harbor provisions (design parameters) for defined benefit Security, the IRS has established safe harbor provisions (design parameters) for defined benefit
plans and defined contribution plans. Safe harbor designs are outlined in IRS Employment Tax plans and defined contribution plans. Safe harbor designs are outlined in IRS Employment Tax
Regulations and IRS Revenue Procedure 91-40.Regulations and IRS Revenue Procedure 91-40.5961
A recent study by the Center for Retirement Research at Boston College (CRR) looked at whether A recent study by the Center for Retirement Research at Boston College (CRR) looked at whether
state and local pension plans currently satisfy these standards, given that many public pensions state and local pension plans currently satisfy these standards, given that many public pensions
have grown less generous in recent years and a few plans could exhaust their assets.have grown less generous in recent years and a few plans could exhaust their assets.6062 The CRR The CRR
researchers used Social Security coverage data from surveys of plan administrators and benefit researchers used Social Security coverage data from surveys of plan administrators and benefit
data from plan actuarial valuation reports. Based on the 12 states in the sample, the CRR study data from plan actuarial valuation reports. Based on the 12 states in the sample, the CRR study
found that virtually all plans satisfy the safe harbor requirements and that participation in a safe found that virtually all plans satisfy the safe harbor requirements and that participation in a safe
harbor plan produces about the same level of benefits at age 67 as Social Security.harbor plan produces about the same level of benefits at age 67 as Social Security.6163
The CRR researchers also compared the value of The CRR researchers also compared the value of lifetime benefits. They looked at whether state benefits. They looked at whether state
and local pension plans for noncovered employees provide Social Security–equivalent resources and local pension plans for noncovered employees provide Social Security–equivalent resources
throughout retirement, given differences in public pensions and Social Security that affect throughout retirement, given differences in public pensions and Social Security that affect
lifetime retirement resources. For example, the CRR researchers point out that state and local lifetime retirement resources. For example, the CRR researchers point out that state and local
plans often set long vesting plans often set long vesting ~~periods62~~periods64 and are increasingly unlikely to grant full COLAs after and are increasingly unlikely to grant full COLAs after
retirement. On the other hand, they allow members to collect full benefits at much younger ages retirement. On the other hand, they allow members to collect full benefits at much younger ages
than Social Security.than Social Security.6365
Accounting for those differences, the CRR study found that “a significant portion of noncovered Accounting for those differences, the CRR study found that “a significant portion of noncovered
state and local plans fall short of Social Security for some of their members, with the extent of the state and local plans fall short of Social Security for some of their members, with the extent of the
shortfall depending on workers’ characteristics and specific benefit plan designs. Moreover, shortfall depending on workers’ characteristics and specific benefit plan designs. Moreover,
~~underfunding and the possibility of a few plans exhausting their trust fund assets reinforce the~~
~~findings regarding benefit generosity.”64 At the same time, the study acknowledges that Social~~
~~Security also faces projected funding shortfalls, which can complicate comparisons of benefit~~
~~generosity. With respect to ensuring Social Security–equivalent protections for all state and local~~
~~government employees, the CRR researchers note that one option would be to update the safe~~
~~harbor requirements for defined benefit plans to specify “reasonable” vesting periods and provide~~

59 60 CBO, Options for Reducing the Deficit: 2023 to 2032, Volume II: Smaller Reductions, December 2022, https://www.cbo.gov/budget-options/58700. 61 See Section 31.3121(b)(7)-2(e) of the IRS Employment Tax Regulations at https://www.ecfr.gov/current/title-26/ See Section 31.3121(b)(7)-2(e) of the IRS Employment Tax Regulations at https://www.ecfr.gov/current/title-26/
chapter-I/subchapter-C/part-31/subpart-B/subject-group-ECFR996050e2e4c4937/section-31.3121(b)(7)-2#p-chapter-I/subchapter-C/part-31/subpart-B/subject-group-ECFR996050e2e4c4937/section-31.3121(b)(7)-2#p-
31.3121(b)(7)-2(e). See IRS Revenue Procedure 91-40 at https://www.ssa.gov/slge/revenue_procedure_91-40.htm. For 31.3121(b)(7)-2(e). See IRS Revenue Procedure 91-40 at https://www.ssa.gov/slge/revenue_procedure_91-40.htm. For
example, IRS Revenue Procedure 91-40 outlines a set of safe harbor formulas for defined benefit retirement systems. example, IRS Revenue Procedure 91-40 outlines a set of safe harbor formulas for defined benefit retirement systems.
Benefits calculated under one of these formulas are deemed to meet the minimum retirement benefit requirement. In Benefits calculated under one of these formulas are deemed to meet the minimum retirement benefit requirement. In
addition, procedures are set out by which an employer may determine whether retirement benefits calculated under addition, procedures are set out by which an employer may determine whether retirement benefits calculated under
other formulas meet the minimum retirement benefit requirement of the regulations with respect to an employee. other formulas meet the minimum retirement benefit requirement of the regulations with respect to an employee.
6062 Laura D. Quinby, Jean-Pierre Aubry, and Alicia H. Munnell, “Do Public Workers Without Social Security Get Laura D. Quinby, Jean-Pierre Aubry, and Alicia H. Munnell, “Do Public Workers Without Social Security Get
Comparable Benefits?,” Comparable Benefits?,” ~~Center for Retirement Research at Boston College~~CRR, April 2021, https://crr.bc.edu/briefs/do-, April 2021, https://crr.bc.edu/briefs/do-
public-workers-without-social-security-get-comparable-benefits/. The analysis and findings discussed in this CRR brief public-workers-without-social-security-get-comparable-benefits/. The analysis and findings discussed in this CRR brief
are in relation to new hires in defined benefit plans. Most state and local government employees are covered by are in relation to new hires in defined benefit plans. Most state and local government employees are covered by
traditional defined benefit plans. traditional defined benefit plans.
6163 Quinby, Aubry, and Munnell, “Do Public Workers Without Social Security Get Comparable Benefits?,” p. 2. Quinby, Aubry, and Munnell, “Do Public Workers Without Social Security Get Comparable Benefits?,” p. 2.
6264 A vesting period is the minimum period an employee is required to work to be eligible for a future retirement benefit. A vesting period is the minimum period an employee is required to work to be eligible for a future retirement benefit.
~~63 Quinby, Aubry, and Munnell, “Do Public Workers Without Social Security Get Comparable Benefits?,” p. 4.~~
6465 Quinby, Aubry, and Munnell, “Do Public Workers Without Social Security Get Comparable Benefits?,” p. 4. Quinby, Aubry, and Munnell, “Do Public Workers Without Social Security Get Comparable Benefits?,” p. 4.
Congressional Research Service Congressional Research Service

16 16

Social Security Coverage of State and Local Government Employees

underfunding and the possibility of a few plans exhausting their trust fund assets reinforce the findings regarding benefit generosity.”66 At the same time, the study acknowledges that Social Security also faces projected funding shortfalls, which can complicate comparisons of benefit generosity. With respect to ensuring Social Security–equivalent protections for all state and local government employees, the CRR researchers note that one option would be to update the safe harbor requirements for defined benefit plans to specify “reasonable” vesting periods and provide full COLAs. Another option would be to bring all state and local government employees into the full COLAs. Another option would be to bring all state and local government employees into the
Social Security system.Social Security system.6567
Windfall Elimination Provision and Government Pension Offset
The Social Security program includes two provisions that affect beneficiaries who receive The Social Security program includes two provisions that affect beneficiaries who receive
pensions from work that was not covered by Social Security: the Windfall Elimination Provision pensions from work that was not covered by Social Security: the Windfall Elimination Provision
(WEP) and the Government Pension Offset (GPO). These provisions were enacted by Congress (WEP) and the Government Pension Offset (GPO). These provisions were enacted by Congress
to address equity issues created by the exclusion of some state and local government employees to address equity issues created by the exclusion of some state and local government employees
from Social Security coverage. The WEP, which was enacted in 1983, affects the Social Security from Social Security coverage. The WEP, which was enacted in 1983, affects the Social Security
benefits that a person receives based on his or her own work record (as a retired or disabled benefits that a person receives based on his or her own work record (as a retired or disabled
worker) as well as the benefits paid to his or her eligible family members. The GPO, which was worker) as well as the benefits paid to his or her eligible family members. The GPO, which was
enacted in 1977 and modified in 1983, affects the Social Security benefits that a person receives enacted in 1977 and modified in 1983, affects the Social Security benefits that a person receives
as the spouse or surviving spouse of a Social Security–covered worker.as the spouse or surviving spouse of a Social Security–covered worker.6668
Windfall Elimination Provision (WEP)
The WEP affects people who have worked in both covered and noncovered employment. If a The WEP affects people who have worked in both covered and noncovered employment. If a
person is receiving a pension from noncovered employment, his or her Social Security benefits person is receiving a pension from noncovered employment, his or her Social Security benefits
are subject to reduction under the WEP if he or she has fewer than 30 years of substantial are subject to reduction under the WEP if he or she has fewer than 30 years of substantial
earnings in covered employment.earnings in covered employment.6769 Under the WEP, the worker’s Social Security benefits are Under the WEP, the worker’s Social Security benefits are
computed using an alternative benefit formula (the “windfall formula”) rather than the regular computed using an alternative benefit formula (the “windfall formula”) rather than the regular
benefit formula. The windfall formula results in a lower initial monthly benefit. The amount of benefit formula. The windfall formula results in a lower initial monthly benefit. The amount of
the reduction in the initial monthly benefit is limited to one-half the monthly amount of the the reduction in the initial monthly benefit is limited to one-half the monthly amount of the
worker’s noncovered pension. worker’s noncovered pension.
The regular benefit formula has a progressive structure intended to help workers with long careers The regular benefit formula has a progressive structure intended to help workers with long careers
in covered employment at lower wages. That is, compared to higher earners, lower-wage workers in covered employment at lower wages. That is, compared to higher earners, lower-wage workers
receive initial monthly benefits that replace a larger percentage of their career-average earnings.receive initial monthly benefits that replace a larger percentage of their career-average earnings.68
~~The windfall formula is designed to remove an unintended advantage that the regular benefit~~
~~formula would otherwise provide to workers with less than a full career in covered employment~~
~~(sometimes at higher wages) because they also worked in noncovered employment and receive a~~
~~pension based on noncovered work. In December 2020, about 1.9 million Social Security~~
~~beneficiaries (about 3% of beneficiaries) were affected by the WEP.69~~
~~Government Pension Offset (GPO)~~
~~The GPO affects people who have worked in noncovered employment and also qualify for Social~~
~~Security benefits as the spouse or surviving spouse of a Social Security–covered worker. If a~~
~~person is receiving a pension from noncovered employment, his or her Social Security spousal or~~

6570 66 Quinby, Aubry, and Munnell, “Do Public Workers Without Social Security Get Comparable Benefits?,” p. 4. CRR published another two related studies thereafter. One study found that medium-tenure workers (6 to 20 years of tenure) who spent the early part of their career in noncovered government employment were at most risk, representing about 16% of noncovered public workers (or between 750,000 to 1 million annually). See Jean-Pierre Aubry et al., “What Share of Noncovered Public Employees Will Earn Benefits that Fall Short of Social Security?,” CRR, April 2022, https://crr.bc.edu/wp-content/uploads/2022/04/wp_2022-4.pdf. The other study using four different datasets found that around one-third of noncovered workers fell into the medium-tenure group. See Jean-Pierre Aubry et al., “How Many Public Workers Without Social Security Could Fall Short?,” CRR, April 2022, https://crr.bc.edu/wp-content/uploads/2022/03/SLP82.pdf. 67 Quinby, Aubry, and Munnell, “Do Public Workers Without Social Security Get Comparable Benefits?,” p. 5. Quinby, Aubry, and Munnell, “Do Public Workers Without Social Security Get Comparable Benefits?,” p. 5.
6668 The WEP was enacted as part of the Social Security Amendments of 1983 (P.L. 98-21). The GPO was enacted as The WEP was enacted as part of the Social Security Amendments of 1983 (P.L. 98-21). The GPO was enacted as
part of the Social Security Amendments of 1977 (P.L. 95-216) and modified as part of the Social Security Amendments part of the Social Security Amendments of 1977 (P.L. 95-216) and modified as part of the Social Security Amendments
of 1983 (P.L. 98-21). of 1983 (P.L. 98-21).
6769 The reduction under the WEP is phased out for workers with between 21 and 30 years of substantial earnings in The reduction under the WEP is phased out for workers with between 21 and 30 years of substantial earnings in
covered employment. Workers with 30 or more years of substantial earnings in covered employment are exempt from covered employment. Workers with 30 or more years of substantial earnings in covered employment are exempt from
the WEP. the WEP.
6870 For more information, see CRS In Focus IF11747, For more information, see CRS In Focus IF11747, Social Security: Benefit Calculation Overview. .
~~69 For more information on the WEP, see CRS In Focus IF10203,~~ ~~Social Security: The Windfall Elimination Provision~~
~~(WEP) and the Government Pension Offset (GPO)~~.
~~Congressional Research Service~~

17

~~Social Security Coverage of State and Local Government Employees~~

Congressional Research Service 17 Social Security Coverage of State and Local Government Employees The windfall formula is designed to remove an unintended advantage that the regular benefit formula would otherwise provide to workers with less than a full career in covered employment (sometimes at higher wages) because they also worked in noncovered employment and receive a pension based on noncovered work. In December 2023, about 2.1 million Social Security beneficiaries (about 3% of all beneficiaries) were affected by the WEP.71 Government Pension Offset (GPO) The GPO affects people who have worked in noncovered government employment and also qualify for Social Security benefits as the spouse or surviving spouse of a Social Security–covered worker. If a person is receiving a government pension from noncovered employment, his or her Social Security spousal or widow(er) benefits are subject to reduction under the GPO. The person’s Social Security spousal widow(er) benefits are subject to reduction under the GPO. The person’s Social Security spousal
or widow(er) benefits are reduced by an amount equal to two-thirds of his or her noncovered or widow(er) benefits are reduced by an amount equal to two-thirds of his or her noncovered
pension (a two-thirds offset). Depending on the relative amounts of the two benefits, the Social pension (a two-thirds offset). Depending on the relative amounts of the two benefits, the Social
Security spousal or widow(er) benefits may be reduced to zero. In December Security spousal or widow(er) benefits may be reduced to zero. In December ~~2020, about 717,000~~
2023, 745,679 Social Security beneficiaries (about 1% of Social Security beneficiaries (about 1% of all beneficiaries) were affected by the GPO.beneficiaries) were affected by the GPO.7072
The GPO is intended to replicate the Social Security dual entitlement rule, which affects people The GPO is intended to replicate the Social Security dual entitlement rule, which affects people
who have worked in who have worked in covered employment and also qualify for Social Security benefits as the employment and also qualify for Social Security benefits as the
spouse or surviving spouse of a Social Security–covered worker. Under the dual entitlement rule, spouse or surviving spouse of a Social Security–covered worker. Under the dual entitlement rule,
the person’s Social Security spousal or widow(er) benefits are reduced by the full amount of his the person’s Social Security spousal or widow(er) benefits are reduced by the full amount of his
or her own Social Security worker benefits (a 100% offset). Depending on the relative amounts of or her own Social Security worker benefits (a 100% offset). Depending on the relative amounts of
the two benefits, the Social Security spousal or widow(er) benefits may be reduced to zero. the two benefits, the Social Security spousal or widow(er) benefits may be reduced to zero.
Issues Related to the WEP and the GPO
Approximately two-thirds of WEP and GPO cases involve former state and local government Approximately two-thirds of WEP and GPO cases involve former state and local government
employees.employees.7173 A person who is applying for benefits, or a person who is already receiving benefits, A person who is applying for benefits, or a person who is already receiving benefits,
must inform SSA that he or she is receiving a pension from noncovered employment and the must inform SSA that he or she is receiving a pension from noncovered employment and the
amount of the pension so that the WEP and the GPO can be applied to the Social Security benefit amount of the pension so that the WEP and the GPO can be applied to the Social Security benefit
computation. (One or both provisions may apply depending on the circumstances.) SSA must computation. (One or both provisions may apply depending on the circumstances.) SSA must
generally rely on self-reported data to administer the WEP and the GPO for state and local generally rely on self-reported data to administer the WEP and the GPO for state and local
government employees, which can make enforcement of the provisions difficult and can result in government employees, which can make enforcement of the provisions difficult and can result in
overpayments.overpayments.7274 In addition, inconsistent reporting by individuals can raise equity issues. If In addition, inconsistent reporting by individuals can raise equity issues. If
individuals do not accurately report their noncovered pension information to SSA, they may individuals do not accurately report their noncovered pension information to SSA, they may
receive higher Social Security benefits than they are due under current law. A recent study found receive higher Social Security benefits than they are due under current law. A recent study found
that the number of state and local government employees in jobs not covered by Social Security that the number of state and local government employees in jobs not covered by Social Security
increased from 4.2 million in the 1994-1998 period to 4.7 million in the 2014-2018 period. This increased from 4.2 million in the 1994-1998 period to 4.7 million in the 2014-2018 period. This
trend suggests an increase in SSA workloads in the future to administer the WEP and the GPO.trend suggests an increase in SSA workloads in the future to administer the WEP and the GPO.73
~~In addition, critics point out that these provisions are not well understood by the people who are~~
~~affected by them.74 They further point out that affected individuals consider the provisions to be~~
~~unfair and somewhat arbitrary with respect to how the benefit reductions are computed.~~
~~Lawmakers regularly introduce legislation that would repeal or modify these provisions.~~
~~Mandatory Social Security coverage for newly hired state and local government employees would~~
~~eventually eliminate the need for the WEP and GPO provisions.~~

7075 71 For more information on the WEP, see CRS In Focus IF10203, Social Security: The Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). 72 For more information on the GPO, see CRS In Focus IF10203, For more information on the GPO, see CRS In Focus IF10203, Social Security: The Windfall Elimination Provision
(WEP) and the Government Pension Offset (GPO). .
7173 Glenn R. Springstead, “The Social Security Windfall Elimination Provision: Issues and Replacement Alternatives,” Glenn R. Springstead, “The Social Security Windfall Elimination Provision: Issues and Replacement Alternatives,”
Social Security Bulletin, vol. 79, no. 3 (August 2019), pp. 1-19, https://www.ssa.gov/policy/docs/ssb/v79n3/. , vol. 79, no. 3 (August 2019), pp. 1-19, https://www.ssa.gov/policy/docs/ssb/v79n3/.
7274 SSA has a data matching agreement with the U.S. Office of Personnel Management to use CSRS data for purposes of SSA has a data matching agreement with the U.S. Office of Personnel Management to use CSRS data for purposes of
administering the WEP and the GPO for affected federal employees. administering the WEP and the GPO for affected federal employees.
7375 Patrick Purcell, “Trends in Noncovered Employment and Earnings Among Employees of State and Local Patrick Purcell, “Trends in Noncovered Employment and Earnings Among Employees of State and Local
~~Governments, 1994 to 2018,” SSA Briefing Paper No. 2021-01, August 2021, https://www.ssa.gov/policy/docs/~~
~~briefing-papers/bp2021-01.html.~~
~~74 The Social Security Protection Act of 2004 (P.L. 108-203) requires state and local government employers to disclose~~
~~the effect of the WEP and the GPO to employees hired on or after January 1, 2005, in jobs that are not covered by~~
~~Social Security (see Section 419(c) of P.L. 108-203). The law requires newly hired employees to sign a statement~~
~~acknowledging that they are aware of a possible reduction in their future Social Security benefit entitlement. For more~~
~~information, see SSA, State and Local Government Employers—Information, https://www.ssa.gov/slge/.~~
~~Congressional Research Service~~

18

~~Social Security Coverage of State and Local Government Employees~~
(continued...) Congressional Research Service 18 Social Security Coverage of State and Local Government Employees In addition, critics point out that these provisions are not well understood by the people who are affected by them.76 They further point out that affected individuals consider the provisions to be unfair and somewhat arbitrary with respect to how the benefit reductions are computed. Lawmakers regularly introduce legislation that would repeal or modify these provisions. Mandatory Social Security coverage for newly hired state and local government employees would eventually eliminate the need for the WEP and GPO provisions.
Special Considerations for Certain Occupational Groups
Under the Social Security program, reduced retirement benefits are first payable at age 62. Full Under the Social Security program, reduced retirement benefits are first payable at age 62. Full
(unreduced) retirement benefits are first payable at the full retirement age (age 67 for most (unreduced) retirement benefits are first payable at the full retirement age (age 67 for most
current workers). In addition, Social Security current workers). In addition, Social Security retirement benefits are computed using the worker’s highest 35 benefits are computed using the worker’s highest 35
years of wage-indexed earnings in covered employment. If a worker has fewer than 35 years in years of wage-indexed earnings in covered employment. If a worker has fewer than 35 years in
covered employment, zero earnings are counted in the benefit computation for the “missing” covered employment, zero earnings are counted in the benefit computation for the “missing”
years, resulting in lower initial monthly benefits.years, resulting in lower initial monthly benefits.7577
Unlike Social Security, some public pension plans have eligibility rules and other design features Unlike Social Security, some public pension plans have eligibility rules and other design features
that are tailored to workers in certain occupations—such as police officers and firefighters—to that are tailored to workers in certain occupations—such as police officers and firefighters—to
reflect the circumstances of those occupations, including rigorous physical demands and higher reflect the circumstances of those occupations, including rigorous physical demands and higher
disability rates. Public pension plans for police officers and firefighters, for example, typically disability rates. Public pension plans for police officers and firefighters, for example, typically
provide full pension benefits at younger ages and with fewer years of service compared to other provide full pension benefits at younger ages and with fewer years of service compared to other
public pension plans and Social Security. public pension plans and Social Security.
Critics of mandatory coverage for newly hired state and local government employees maintain Critics of mandatory coverage for newly hired state and local government employees maintain
that such differences could present challenges with respect to integrating public pensions with that such differences could present challenges with respect to integrating public pensions with
Social Security. They point out that, while Social Security may provide enhanced benefit Social Security. They point out that, while Social Security may provide enhanced benefit
protections for some state and local government employees, certain groups may be better off in protections for some state and local government employees, certain groups may be better off in
separate retirement systems (i.e., outside of Social Security). separate retirement systems (i.e., outside of Social Security).
This view was reflected in the 1950s when Congress extended voluntary coverage to state and This view was reflected in the 1950s when Congress extended voluntary coverage to state and
local government employees already covered under retirement systems as part of the Social local government employees already covered under retirement systems as part of the Social
Security Amendments of 1954 (P.L. 83-761). In 1954, police officers and firefighters covered Security Amendments of 1954 (P.L. 83-761). In 1954, police officers and firefighters covered
under retirement systems were explicitly excluded from voluntary Social Security coverage at the under retirement systems were explicitly excluded from voluntary Social Security coverage at the
request of various police and firefighter organizations throughout the country. The 1954 Senate request of various police and firefighter organizations throughout the country. The 1954 Senate
report on the legislation states: report on the legislation states:
The bill continues the present exclusion of policemen and firemen who are covered by a The bill continues the present exclusion of policemen and firemen who are covered by a
State or local retirement system. Policemen and firemen, because of the special demands State or local retirement system. Policemen and firemen, because of the special demands
made by their work, usually have special provisions in their retirement systems (retirement made by their work, usually have special provisions in their retirement systems (retirement
at age 50 or 55, for example) and most of them believe that it would be unwise to attempt at age 50 or 55, for example) and most of them believe that it would be unwise to attempt
to coordinate these provisions with the provisions of the old-age and survivors insurance to coordinate these provisions with the provisions of the old-age and survivors insurance
system.system.7678 Governments, 1994 to 2018,” SSA Briefing Paper No. 2021-01, August 2021, https://www.ssa.gov/policy/docs/briefing-papers/bp2021-01.html. 76 The Social Security Protection Act of 2004 (P.L. 108-203) requires state and local government employers to disclose the effect of the WEP and the GPO to employees hired on or after January 1, 2005, in jobs that are not covered by Social Security (see Section 419(c) of P.L. 108-203). The law requires newly hired employees to sign a statement acknowledging that they are aware of a possible reduction in their future Social Security benefit entitlement. For more information, see SSA, State and Local Government Employers—Information, https://www.ssa.gov/slge/. 77 For more information, see CRS Report R42035, Social Security Primer. 78 U.S. Congress, Senate Committee on Finance, Social Security Amendments of 1954, report to accompany H.R. 9366, 83rd Cong., 2nd sess., July 27, 1954, S. Rept. 1987, p. 6. Congressional Research Service 19 Social Security Coverage of State and Local Government Employees
Similarly, during House floor debate on the legislation, Representative Jere Cooper addressed a Similarly, during House floor debate on the legislation, Representative Jere Cooper addressed a
question about why police officers and firefighters were excluded from voluntary Social Security question about why police officers and firefighters were excluded from voluntary Social Security
coverage by the House Ways and Means Committee. Representative Cooper replied: coverage by the House Ways and Means Committee. Representative Cooper replied:
The firemen and policemen requested to be left out.... The very nature of their employment The firemen and policemen requested to be left out.... The very nature of their employment
is such that they do not continue as firemen and policemen until they are 65 in many cases is such that they do not continue as firemen and policemen until they are 65 in many cases
and in many instances it was pointed out that they have retirement systems of their own and in many instances it was pointed out that they have retirement systems of their own
which they prefer and they requested to be left out.which they prefer and they requested to be left out.7779
With respect to occupational groups that may require special considerations, the integration of With respect to occupational groups that may require special considerations, the integration of
newly hired newly hired federal employees into Social Security in the 1980s can provide a relevant example. employees into Social Security in the 1980s can provide a relevant example.

~~75 For more information, see CRS Report R42035, Social Security Primer.~~
~~76 U.S. Congress, Senate Committee on Finance, Social Security Amendments of 1954, report to accompany H.R. 9366,~~
~~83rd Cong., 2nd sess., July 27, 1954, S. Rept. 1987, p. 6.~~
~~77 Congressional Record, June 1, 1954, House, p. 7433.~~
~~Congressional Research Service~~

19

~~Social Security Coverage of State and Local Government Employees~~

FERS Accommodations for Certain Occupational Groups
The Federal Employees’ Retirement System (FERS) can serve as an example of how to integrate The Federal Employees’ Retirement System (FERS) can serve as an example of how to integrate
an existing public pension plan tailored to workers in certain occupations with Social Security, an existing public pension plan tailored to workers in certain occupations with Social Security,
given differences in eligibility requirements (such as retirement age and years of service) and given differences in eligibility requirements (such as retirement age and years of service) and
other plan features. other plan features.
In 1983, Congress mandated Social Security coverage for federal employees hired January 1, In 1983, Congress mandated Social Security coverage for federal employees hired January 1,
1984, or later. At the time, federal employees were covered under CSRS, which does not have a 1984, or later. At the time, federal employees were covered under CSRS, which does not have a
Social Security component. FERS was created as a separate retirement system for federal Social Security component. FERS was created as a separate retirement system for federal
employees hired in 1984 or later, and it includes Social Security as one of three components: the employees hired in 1984 or later, and it includes Social Security as one of three components: the
FERS basic retirement annuity and the FERS supplement; Social Security; and the Thrift Savings FERS basic retirement annuity and the FERS supplement; Social Security; and the Thrift Savings
Plan.Plan.7880
Under FERS, certain categories of workers—including federal law enforcement officers, federal Under FERS, certain categories of workers—including federal law enforcement officers, federal
firefighters, and air traffic controllers—are permitted to retire earlier and accrue pension benefits firefighters, and air traffic controllers—are permitted to retire earlier and accrue pension benefits
at higher rates than regular civilian federal employees.at higher rates than regular civilian federal employees.7981 Law enforcement personnel, for Law enforcement personnel, for
example, can retire at age 50 with 20 years of service or at any age with 25 years of service.example, can retire at age 50 with 20 years of service or at any age with 25 years of service.8082
FERS also provides a temporary supplemental benefit (the FERS supplement) for workers who FERS also provides a temporary supplemental benefit (the FERS supplement) for workers who
retire from federal service before age 62 (i.e., before they become eligible for permanently retire from federal service before age 62 (i.e., before they become eligible for permanently
reduced Social Security retirement benefits). The FERS supplement is available to regular reduced Social Security retirement benefits). The FERS supplement is available to regular
civilian federal employees who retire at (1) age 55 or older with 30 or more years of service, or civilian federal employees who retire at (1) age 55 or older with 30 or more years of service, or
(2) age 60 with 20 or more years of service. Workers in certain occupational groups are eligible (2) age 60 with 20 or more years of service. Workers in certain occupational groups are eligible
for the supplement at earlier ages. The supplement is available to federal law enforcement for the supplement at earlier ages. The supplement is available to federal law enforcement
officers, federal firefighters, and air traffic controllers who retire at age 50 or older with 20 or officers, federal firefighters, and air traffic controllers who retire at age 50 or older with 20 or
more years of service. The FERS supplement is equal to the worker’s estimated Social Security more years of service. The FERS supplement is equal to the worker’s estimated Social Security
benefit based on his or her federal government employment. It is payable only up to age 62, benefit based on his or her federal government employment. It is payable only up to age 62,
regardless of whether the person claims Social Security benefits.regardless of whether the person claims Social Security benefits.8183
The accommodations under FERS for federal employees in certain occupational groups can The accommodations under FERS for federal employees in certain occupational groups can
provide an provide an example of how state and local pension plans tailored to certain occupational groups of how state and local pension plans tailored to certain occupational groups
could be integrated with Social Security. For any given coverage group, the effect on participants could be integrated with Social Security. For any given coverage group, the effect on participants
~~would depend on the design features of the new or modified plan that incorporates a Social~~
~~Security component relative to the design features of the existing plan.~~
~~Protections for Workers and Family Members~~
~~Mandatory Social Security coverage for newly hired state and local government employees could~~
~~simplify retirement planning and benefit coordination for workers who divide their careers~~
~~between covered and noncovered employment. In addition, it would prevent gaps in Social~~
~~Security or pension coverage, resulting in better retirement, survivor, and disability insurance~~
~~protections for workers who move between covered and noncovered positions. The following~~

78 79 House debate, Congressional Record, vol. 100, part 6 (June 1, 1954), p. 7433. 80 For more information, see CRS Report 98-810, For more information, see CRS Report 98-810, Federal Employees’ Retirement System: Benefits and Financing. .
7981 CSRS also incorporates special rules for certain categories of workers, including federal law enforcement personnel. CSRS also incorporates special rules for certain categories of workers, including federal law enforcement personnel.
8082 Law enforcement personnel are subject to mandatory retirement at age 57 or as soon as 20 years of service have been Law enforcement personnel are subject to mandatory retirement at age 57 or as soon as 20 years of service have been
completed after age 57. See 5 U.S.C. §8335(b) for CSRS and 5 U.S.C. §8425(b) for FERS. completed after age 57. See 5 U.S.C. §8335(b) for CSRS and 5 U.S.C. §8425(b) for FERS.
8183 For more information on special rules that apply to federal law enforcement officers, federal firefighters, and air For more information on special rules that apply to federal law enforcement officers, federal firefighters, and air
traffic controllers under CSRS and FERS, see CRS Report R42631, traffic controllers under CSRS and FERS, see CRS Report R42631, Retirement Benefits for Federal Law Enforcement
Personnel. .
Congressional Research Service Congressional Research Service

20 20

Social Security Coverage of State and Local Government Employees

would depend on the design features of the new or modified plan that incorporates a Social Security component relative to the design features of the existing plan. Protections for Workers and Family Members Mandatory Social Security coverage for newly hired state and local government employees could simplify retirement planning and benefit coordination for workers who divide their careers between covered and noncovered employment. In addition, it would prevent gaps in Social Security or pension coverage, resulting in better retirement, survivor, and disability insurance protections for workers who move between covered and noncovered positions. The following sections highlight some of the protections provided by Social Security for workers and family sections highlight some of the protections provided by Social Security for workers and family
members that are generally not available under state and local pension plans. members that are generally not available under state and local pension plans.
Disability Insurance Protection
Workers who move between jobs covered by Social Security and noncovered positions can Workers who move between jobs covered by Social Security and noncovered positions can
experience gaps in disability protection. To be eligible for Social Security disability benefits, experience gaps in disability protection. To be eligible for Social Security disability benefits,
among other requirements, a worker must meet a among other requirements, a worker must meet a duration work test (to show a sufficient (to show a sufficient
connection to covered employment for fully insured status) and a connection to covered employment for fully insured status) and a recent work test (to show a (to show a
recent connection to covered employment). Under both tests, the requirements vary depending on recent connection to covered employment). Under both tests, the requirements vary depending on
the worker’s age.the worker’s age.8284 Under the duration work test, for example, workers who become disabled at Under the duration work test, for example, workers who become disabled at
age 42 or later generally need five years or more of covered employment. Under the recent work age 42 or later generally need five years or more of covered employment. Under the recent work
test, for example, workers aged 31 or older must generally have worked in covered employment test, for example, workers aged 31 or older must generally have worked in covered employment
for at least five years in the 10-year period immediately before becoming disabled. for at least five years in the 10-year period immediately before becoming disabled.
When a young worker leaves covered employment and moves to a noncovered state or local When a young worker leaves covered employment and moves to a noncovered state or local
government position, his or her insured status under Social Security may lapse. It may take five government position, his or her insured status under Social Security may lapse. It may take five
years or more to become insured under the public pension plan, resulting in a period with no years or more to become insured under the public pension plan, resulting in a period with no
disability insurance protection. Similarly, when a worker leaves a noncovered state or local disability insurance protection. Similarly, when a worker leaves a noncovered state or local
government position and moves to a job covered by Social Security, he or she may have to wait government position and moves to a job covered by Social Security, he or she may have to wait
five years or more before gaining insured status under the Social Security program.five years or more before gaining insured status under the Social Security program.8385
Portability
Most jobs in the United States are covered by Social Security. When a worker moves from one Most jobs in the United States are covered by Social Security. When a worker moves from one
covered job to another, he or she continues (1) to accrue Social Security quarters of coverage covered job to another, he or she continues (1) to accrue Social Security quarters of coverage
needed to gain insured status under the program and (2) to build upon an earnings record that needed to gain insured status under the program and (2) to build upon an earnings record that
determines the amount of future benefits. The portability of Social Security allows workers to determines the amount of future benefits. The portability of Social Security allows workers to
maintain coverage under the system as they switch jobs throughout their careers. In addition, a maintain coverage under the system as they switch jobs throughout their careers. In addition, a
worker’s earnings (up to age 60) are indexed to wage growth as part of the benefit computation worker’s earnings (up to age 60) are indexed to wage growth as part of the benefit computation
process. Indexing past earnings to wage growth allows Social Security benefits to reflect the process. Indexing past earnings to wage growth allows Social Security benefits to reflect the
general rise in the standard of living that occurred during the person’s working years. general rise in the standard of living that occurred during the person’s working years.
By contrast, the portability of state and local defined benefit plans is usually limited to positions By contrast, the portability of state and local defined benefit plans is usually limited to positions
within the same public pension system. Benefits are generally based on some measure of final within the same public pension system. Benefits are generally based on some measure of final
salary and years of service. A worker who changes jobs frequently may not stay in a state or local salary and years of service. A worker who changes jobs frequently may not stay in a state or local
government position long enough to become vested in the pension plan. For workers who do stay government position long enough to become vested in the pension plan. For workers who do stay
long enough to qualify for benefits in the future, benefits are generally based on the worker’s long enough to qualify for benefits in the future, benefits are generally based on the worker’s
84 SSA, Number of Credits Needed for Disability Benefits, https://www.ssa.gov/benefits/retirement/planner/credits.html#h3. For more information, see CRS In Focus IF10506, Social Security Disability Insurance (SSDI). 85 Munnell, Aubry, and Belbase, “The Impact of Mandatory Coverage on State and Local Budgets,” pp. 7-8. Congressional Research Service 21 Social Security Coverage of State and Local Government Employees earnings when he or she left the job. Many plans do not index earnings as part of the benefit earnings when he or she left the job. Many plans do not index earnings as part of the benefit
computation process (i.e., earnings are counted at face value). This can result in substantially computation process (i.e., earnings are counted at face value). This can result in substantially
lower benefits for a worker who leaves the job years before claiming benefits.lower benefits for a worker who leaves the job years before claiming benefits.8486
Benefits for Dependents and Survivors
Generally, Social Security provides better benefit protections for the worker’s dependents and Generally, Social Security provides better benefit protections for the worker’s dependents and
survivors (including children and spouses) compared to state and local pension plans. For survivors (including children and spouses) compared to state and local pension plans. For
example, Social Security provides a spousal benefit equal to 50% of the worker’s basic monthly example, Social Security provides a spousal benefit equal to 50% of the worker’s basic monthly

~~82 SSA, Number of Credits Needed for Disability Benefits, https://www.ssa.gov/benefits/retirement/planner/~~
~~credits.html#h3. For more information, see CRS In Focus IF10506, Social Security Disability Insurance (SSDI).~~
~~83 Munnell, Aubry, and Belbase, “The Impact of Mandatory Coverage on State and Local Budgets,” pp. 7-8.~~
~~84 Munnell, Aubry, and Belbase, “The Impact of Mandatory Coverage on State and Local Budgets,” p. 8.~~
~~Congressional Research Service~~

21

~~Social Security Coverage of State and Local Government Employees~~

benefit (the worker’s PIA), subject to adjustment based on the spouse’s age when claiming benefit (the worker’s PIA), subject to adjustment based on the spouse’s age when claiming
benefits and other applicable factors. Spousal benefits are payable to the worker’s current spouse benefits and other applicable factors. Spousal benefits are payable to the worker’s current spouse
and to any former (divorced) spouses who meet the eligibility requirements. Benefits paid to and to any former (divorced) spouses who meet the eligibility requirements. Benefits paid to
current and/or former spouses do not affect the worker’s monthly benefit amount. In addition, current and/or former spouses do not affect the worker’s monthly benefit amount. In addition,
Social Security provides a widow(er) benefit equal to 100% of the deceased worker’s PIA, Social Security provides a widow(er) benefit equal to 100% of the deceased worker’s PIA,
subject to any applicable adjustments. Widow(er) benefits are payable to the deceased worker’s subject to any applicable adjustments. Widow(er) benefits are payable to the deceased worker’s
surviving spouse and to any former surviving spouses who meet the eligibility requirements.surviving spouse and to any former surviving spouses who meet the eligibility requirements.8587
State and local pension plans generally do not provide comparable benefits for dependents and State and local pension plans generally do not provide comparable benefits for dependents and
survivors. For example, most state and local pension plans do not provide benefits for the spouse survivors. For example, most state and local pension plans do not provide benefits for the spouse
of a retired worker while the worker is alive. In addition, most plans provide only modest benefits of a retired worker while the worker is alive. In addition, most plans provide only modest benefits
to a surviving spouse when the worker dies before retirement (such as a refund of the worker’s to a surviving spouse when the worker dies before retirement (such as a refund of the worker’s
contributions or a lump sum, whichever is greater). When the worker dies after retirement, contributions or a lump sum, whichever is greater). When the worker dies after retirement,
benefits are provided for a surviving spouse only if the worker chooses a joint-and-survivor benefits are provided for a surviving spouse only if the worker chooses a joint-and-survivor
annuity option. A joint-and-survivor annuity is payable for the lifetime of the worker or the annuity option. A joint-and-survivor annuity is payable for the lifetime of the worker or the
worker’s spouse, whichever is longer. Generally, the worker accepts lower payments under this worker’s spouse, whichever is longer. Generally, the worker accepts lower payments under this
option because payments continue for a longer period.option because payments continue for a longer period.8688
Cost-of-Living Adjustments (COLAs)
Generally, Social Security provides better inflation protection compared to state and local pension Generally, Social Security provides better inflation protection compared to state and local pension
plans. Social Security provides an automatic, annual COLA based on the change in prices plans. Social Security provides an automatic, annual COLA based on the change in prices
measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
COLAs are based on a formula specified in the Social Security Act and are not subject to a cap. COLAs are based on a formula specified in the Social Security Act and are not subject to a cap.
Automatic annual COLAs help Social Security benefits maintain their purchasing power over Automatic annual COLAs help Social Security benefits maintain their purchasing power over
time.time.8789
State and local pension plans generally provide some cost-of-living adjustments, and plans that State and local pension plans generally provide some cost-of-living adjustments, and plans that
operate outside of the Social Security system tend to have greater inflation protection. In some operate outside of the Social Security system tend to have greater inflation protection. In some
cases, however, COLAs may be provided on an ad hoc basis or they may be subject to a cap.cases, however, COLAs may be provided on an ad hoc basis or they may be subject to a cap.88
~~Progressive Benefit Formula~~
~~The Social Security benefit formula has a progressive structure in which lower-wage workers~~
~~receive a higher replacement rate from Social Security compared to higher-wage workers,~~
~~meaning that their initial monthly Social Security benefits replace a higher percentage of their~~
~~pre-retirement earnings. For higher-wage workers, initial monthly Social Security benefits replace~~
~~a lower percentage of their pre-retirement earnings. With its progressive benefit structure, Social~~
~~Security redistributes income from workers with higher career-average earnings to workers with~~
~~lower career-average earnings.89~~

8590 86 Munnell, Aubry, and Belbase, “The Impact of Mandatory Coverage on State and Local Budgets,” p. 8. 87 For more information on Social Security benefits for the worker’s dependents and survivors, including basic For more information on Social Security benefits for the worker’s dependents and survivors, including basic
eligibility requirements, see Table 3 (Social Security Benefits for the Worker’s Family Members) in CRS Report eligibility requirements, see Table 3 (Social Security Benefits for the Worker’s Family Members) in CRS Report
R42035, R42035, Social Security Primer. .
8688 Munnell, Aubry, and Belbase, “The Impact of Mandatory Coverage on State and Local Budgets,” p. 8. Munnell, Aubry, and Belbase, “The Impact of Mandatory Coverage on State and Local Budgets,” p. 8.
8789 For more information, see CRS Report 94-803, For more information, see CRS Report 94-803, Social Security: Cost-of-Living Adjustments. .
8890 Munnell, Aubry, and Belbase, “The Impact of Mandatory Coverage on State and Local Budgets,” pp. 8-9. There is Munnell, Aubry, and Belbase, “The Impact of Mandatory Coverage on State and Local Budgets,” pp. 8-9. There is
wide variation in the design of COLA provisions in state and local pension plans. For more information, including a wide variation in the design of COLA provisions in state and local pension plans. For more information, including a
description of COLA provisions in selected state retirement plans, see National Association of State Retirement description of COLA provisions in selected state retirement plans, see National Association of State Retirement
Administrators, “Cost-of-Living Adjustments,” June 2021, https://www.nasra.org/files/Issue%20Briefs/Administrators, “Cost-of-Living Adjustments,” June 2021, https://www.nasra.org/files/Issue%20Briefs/
NASRACOLA%20Brief.pdf. NASRACOLA%20Brief.pdf.
~~89 For more information, see CRS In Focus IF11747, Social Security: Benefit Calculation Overview.~~
Congressional Research Service Congressional Research Service

22 22

Social Security Coverage of State and Local Government Employees
Progressive Benefit Formula The Social Security benefit formula has a progressive structure in which lower-wage workers receive a higher replacement rate from Social Security compared to higher-wage workers, meaning that their initial monthly Social Security benefits replace a higher percentage of their pre-retirement earnings. For higher-wage workers, initial monthly Social Security benefits replace a lower percentage of their pre-retirement earnings. With its progressive benefit structure, Social Security redistributes income from workers with higher career-average earnings to workers with lower career-average earnings.91
Most state and local government employees are covered by traditional defined benefit plans. Most state and local government employees are covered by traditional defined benefit plans.
Under defined benefit plans, an employee’s benefits are based on a formula that generally takes Under defined benefit plans, an employee’s benefits are based on a formula that generally takes
into account the employee’s salary, years of service, and an accrual rate (benefit multiplier). into account the employee’s salary, years of service, and an accrual rate (benefit multiplier).
While the specific benefit formula will vary by plan, the benefit formula in traditional defined While the specific benefit formula will vary by plan, the benefit formula in traditional defined
benefit plans does not have redistributive features. benefit plans does not have redistributive features.
An individual’s earning level could be considered an additional factor in the degree to which An individual’s earning level could be considered an additional factor in the degree to which
mandatory Social Security coverage could provide enhanced benefit protections for noncovered mandatory Social Security coverage could provide enhanced benefit protections for noncovered
workers and their family members. With its progressive benefit structure, Social Security could workers and their family members. With its progressive benefit structure, Social Security could
be particularly advantageous for noncovered workers with lower earnings. be particularly advantageous for noncovered workers with lower earnings.
~~Other Considerations~~
~~Coverage under Social Security may be a factor in determining eligibility for other future~~
~~benefits. For example, the Family and Medical Insurance Leave Act (FAMILY Act; S. 248 and~~
~~H.R. 804, 117th Congress) proposes to use a worker’s insured status for Social Security Disability~~
~~Insurance (SSDI) as an eligibility criterion for a new paid family and medical leave benefit. If~~
~~such a proposal were to be enacted, workers who are not covered under Social Security (i.e.,~~
~~those who are not subject to the Social Security payroll tax and any new related tax) would not be~~
~~able to obtain SSDI insured status and thus would not be eligible for the new paid family and~~
~~medical leave benefit.~~
Net Effect on Total Benefits
Mandatory Social Security coverage for newly hired state and local government employees could Mandatory Social Security coverage for newly hired state and local government employees could
improve protections for workers and their family members. Specific outcomes would depend on a improve protections for workers and their family members. Specific outcomes would depend on a
variety of factors, including how state and local governments would modify existing public variety of factors, including how state and local governments would modify existing public
pension plans in response to the mandate. For example, state and local governments could reduce pension plans in response to the mandate. For example, state and local governments could reduce
some pension benefits that are currently available under state and local plans to keep overall some pension benefits that are currently available under state and local plans to keep overall
pension costs down. Workers could also be required to pay higher contributions under a new or pension costs down. Workers could also be required to pay higher contributions under a new or
modified plan that incorporates a Social Security component. In addition, Congress could enact modified plan that incorporates a Social Security component. In addition, Congress could enact
changes to Social Security’s contribution and benefit structure to address the system’s projected changes to Social Security’s contribution and benefit structure to address the system’s projected
funding shortfall and other policy objectives. Such changes could result in higher payroll taxes funding shortfall and other policy objectives. Such changes could result in higher payroll taxes
and lower benefits for Social Security–covered workers compared to current law. The net effect and lower benefits for Social Security–covered workers compared to current law. The net effect
on a worker’s total benefits would depend on a variety of factors, many of which remain to be on a worker’s total benefits would depend on a variety of factors, many of which remain to be
determined, and specific outcomes would vary across state and local plans depending on the determined, and specific outcomes would vary across state and local plans depending on the
response of plan sponsors. response of plan sponsors.
Effect on State and Local Plans
Most state and local governments offer a traditional defined benefit plan for their employees. If Most state and local governments offer a traditional defined benefit plan for their employees. If
Congress were to mandate Social Security coverage for newly hired state and local government Congress were to mandate Social Security coverage for newly hired state and local government
employees, it is not clear how plan sponsors would respond to the mandate. For example, state employees, it is not clear how plan sponsors would respond to the mandate. For example, state
and local governments could move away from defined benefit plans toward defined contribution and local governments could move away from defined benefit plans toward defined contribution
plans, thereby shifting the financial risk from the employer to the employee.plans, thereby shifting the financial risk from the employer to the employee.9092 When newly hired When newly hired
federal employees were mandatorily covered by Social Security in the 1980s, the federal federal employees were mandatorily covered by Social Security in the 1980s, the federal
government closed the existing federal retirement system (CSRS, a defined benefit plan) to new government closed the existing federal retirement system (CSRS, a defined benefit plan) to new

90 91 For more information, see CRS In Focus IF11747, Social Security: Benefit Calculation Overview. 92 Defined benefit plans guarantee a monthly benefit in retirement for life. In defined contribution plans, employees use Defined benefit plans guarantee a monthly benefit in retirement for life. In defined contribution plans, employees use
the funds in their accounts as a source of income in retirement. Defined contribution plans do not provide guarantees of the funds in their accounts as a source of income in retirement. Defined contribution plans do not provide guarantees of
lifetime income unless participants purchase an annuity. In any case, these plans do not guarantee a certain level of lifetime income unless participants purchase an annuity. In any case, these plans do not guarantee a certain level of
account assets or monthly annuity payable from the account. account assets or monthly annuity payable from the account.
Congressional Research Service Congressional Research Service

23 23

Social Security Coverage of State and Local Government Employees

participants and created a new federal retirement system (FERS) that has both defined benefit and participants and created a new federal retirement system (FERS) that has both defined benefit and
defined contribution components. FERS has three elements: (1) the FERS basic retirement defined contribution components. FERS has three elements: (1) the FERS basic retirement
annuity and the FERS supplement; (2) Social Security; and (3) the Thrift Savings Plan. annuity and the FERS supplement; (2) Social Security; and (3) the Thrift Savings Plan.
If Congress were to mandate Social Security coverage for newly hired state and local government If Congress were to mandate Social Security coverage for newly hired state and local government
employees, the basic options for state and local governments would include (1) maintaining the employees, the basic options for state and local governments would include (1) maintaining the
current pension structure for newly hired employees, (2) providing a different (presumably lower) current pension structure for newly hired employees, (2) providing a different (presumably lower)
benefit structure for newly hired employees within an existing pension plan, (3) closing the benefit structure for newly hired employees within an existing pension plan, (3) closing the
existing pension plan to new participants (making it a “closed system”) and creating a new existing pension plan to new participants (making it a “closed system”) and creating a new
pension plan for newly hired employees with a different (presumably lower) benefit structure, and pension plan for newly hired employees with a different (presumably lower) benefit structure, and
(4) eliminating pension benefits (apart from Social Security) for newly hired employees. (4) eliminating pension benefits (apart from Social Security) for newly hired employees.
State and local governments would have to decide what pension benefits to offer newly hired State and local governments would have to decide what pension benefits to offer newly hired
employees who would be covered by Social Security. Generally, some of the changes that states employees who would be covered by Social Security. Generally, some of the changes that states
and localities might consider include changes to the defined benefit formula (such as counting and localities might consider include changes to the defined benefit formula (such as counting
more years in the calculation of the worker’s final average salary and lowering the accrual rate), more years in the calculation of the worker’s final average salary and lowering the accrual rate),
altering early retirement benefits, creating defined contribution plans, or creating hybrid plans altering early retirement benefits, creating defined contribution plans, or creating hybrid plans
that offer a combination of defined benefit and defined contribution pension benefits. The amount that offer a combination of defined benefit and defined contribution pension benefits. The amount
of contributions that employers and employees would be required to pay under the new of contributions that employers and employees would be required to pay under the new
arrangements would have to be determined. It could take several years to determine and fully arrangements would have to be determined. It could take several years to determine and fully
implement the changes. implement the changes.
“Closed System” Option
The “closed system” option referenced above—closing the existing pension plan to new The “closed system” option referenced above—closing the existing pension plan to new
participants (i.e., contributors) and creating a new pension plan for newly hired employees—may participants (i.e., contributors) and creating a new pension plan for newly hired employees—may
raise funding concerns for the existing pension plan. The resulting decrease in contributions could raise funding concerns for the existing pension plan. The resulting decrease in contributions could
add financial strain to pension systems that are currently underfunded and do not have sufficient add financial strain to pension systems that are currently underfunded and do not have sufficient
assets on hand. For example, a plan that is underfunded and ceases to have new participants will assets on hand. For example, a plan that is underfunded and ceases to have new participants will
find that plan assets will have been used up and that some benefits for some participants do not find that plan assets will have been used up and that some benefits for some participants do not
have a funding source. Sponsors of pension plans that are not fully funded would have to have a funding source. Sponsors of pension plans that are not fully funded would have to
eventually make up for the funding shortfalls that exist within their plans. eventually make up for the funding shortfalls that exist within their plans.
Potential sources of funding to make up for shortfalls include state or local general revenues, Potential sources of funding to make up for shortfalls include state or local general revenues,
increased contributions from current employees, and greater returns on pension plan investments. increased contributions from current employees, and greater returns on pension plan investments.
Currently, many states and localities are facing revenue shortfalls and may be reluctant to set Currently, many states and localities are facing revenue shortfalls and may be reluctant to set
aside funds to cover pension benefits payable several years in the future. It may be difficult or aside funds to cover pension benefits payable several years in the future. It may be difficult or
impossible to require increased employee contributions from current employees. Pension plan impossible to require increased employee contributions from current employees. Pension plan
sponsors may be tempted to increase the riskiness of their investments to capture market gains. sponsors may be tempted to increase the riskiness of their investments to capture market gains.
However, in the event of a market downturn, riskier pension fund investments would lose value, However, in the event of a market downturn, riskier pension fund investments would lose value,
worsening the situation. worsening the situation.
As an example from the federal government, CSRS is a closed system, and FERS is open to new As an example from the federal government, CSRS is a closed system, and FERS is open to new
participants. FERS annuities are fully funded by the sum of employee and employer contributions participants. FERS annuities are fully funded by the sum of employee and employer contributions
and interest earned by the Treasury bonds held by the Civil Service Retirement and Disability and interest earned by the Treasury bonds held by the Civil Service Retirement and Disability
Fund (CSRDF). The federal government makes supplemental payments into the CSRDF on Fund (CSRDF). The federal government makes supplemental payments into the CSRDF on
behalf of employees covered by CSRS, because employee and agency contributions and interest behalf of employees covered by CSRS, because employee and agency contributions and interest
earnings do not meet the full cost of the benefits earned by employees covered by that system.earnings do not meet the full cost of the benefits earned by employees covered by that system.91

9193 93 For more information, see CRS Report RL30023, For more information, see CRS Report RL30023, Federal Employees’ Retirement System: Budget and Trust Fund
Issues. .
Congressional Research Service Congressional Research Service

24 24

Social Security Coverage of State and Local Government Employees

Administrative and Cost Issues
State and local governments would have to negotiate with employee representatives and State and local governments would have to negotiate with employee representatives and
legislatures on the redesign of existing retirement systems in response to a Social Security legislatures on the redesign of existing retirement systems in response to a Social Security
coverage mandate. When Congress mandated Social Security coverage for newly hired federal coverage mandate. When Congress mandated Social Security coverage for newly hired federal
employees in the 1980s, it took three years to establish a new federal retirement system (FERS) employees in the 1980s, it took three years to establish a new federal retirement system (FERS)
for affected employees.for affected employees.9294 The General Accounting Office (now the Government Accountability The General Accounting Office (now the Government Accountability
Office) has suggested that four years might be required to complete negotiations among employee Office) has suggested that four years might be required to complete negotiations among employee
representatives and legislatures on adapting existing plans to Social Security coverage.representatives and legislatures on adapting existing plans to Social Security coverage.9395
Some argue that a Social Security coverage mandate would impose ongoing administrative Some argue that a Social Security coverage mandate would impose ongoing administrative
burdens and costs on state and local governments. For example, state and local governments burdens and costs on state and local governments. For example, state and local governments
would potentially have to administer existing retirement systems that operate outside of Social would potentially have to administer existing retirement systems that operate outside of Social
Security alongside new retirement systems for employees required to participate in the program. Security alongside new retirement systems for employees required to participate in the program.
For example, when Social Security coverage was mandated for federal employees hired in 1984 For example, when Social Security coverage was mandated for federal employees hired in 1984
or later, Congress created a new retirement system (FERS). The federal government administers or later, Congress created a new retirement system (FERS). The federal government administers
the existing retirement system (CSRS) and the related CSRS offset program alongside FERS. The the existing retirement system (CSRS) and the related CSRS offset program alongside FERS. The
federal government will continue to operate CSRS and the CSRS offset program until the death federal government will continue to operate CSRS and the CSRS offset program until the death
of the last worker or survivor covered under the program, which the U.S. Office of Personnel of the last worker or survivor covered under the program, which the U.S. Office of Personnel
Management estimates will occur around 2090.Management estimates will occur around 2090.9496
The congressional mandate to make Social Security coverage mandatory for newly hired The congressional mandate to make Social Security coverage mandatory for newly hired federal
employees affected one major pension system. By comparison, a coverage mandate for newly employees affected one major pension system. By comparison, a coverage mandate for newly
hired state and local government employees could affect many public pension plans within a hired state and local government employees could affect many public pension plans within a
state. The number of public pension plans in a state can vary considerably, as does the extent of state. The number of public pension plans in a state can vary considerably, as does the extent of
Social Security coverage among state and local government employees under current law. Among Social Security coverage among state and local government employees under current law. Among
the states, the share of state and local government employees the states, the share of state and local government employees with Social Security coverage Social Security coverage
ranged from 3% to ranged from 3% to 9798% in % in ~~2018~~2021. In . In 2827 states, 90 states, 90.0% or more of state and local government % or more of state and local government
employees had Social Security coverage. In eight states, fewer than 50employees had Social Security coverage. In eight states, fewer than 50.0% of state and local % of state and local
government employees had Social Security coverage. In some states, a coverage mandate could government employees had Social Security coverage. In some states, a coverage mandate could
affect many public pension plans with different plan sponsors and different plan features. affect many public pension plans with different plan sponsors and different plan features.
In addition, state and local governments could experience higher costs associated with employer In addition, state and local governments could experience higher costs associated with employer
contributions under the new pension plans integrated with Social Security. Overall costs to state contributions under the new pension plans integrated with Social Security. Overall costs to state
and local governments and their employees could increase, decrease, or remain the same and local governments and their employees could increase, decrease, or remain the same
depending on the type of pension benefit structure states and localities adopt in response to depending on the type of pension benefit structure states and localities adopt in response to
mandatory participation in Social Security. Factors affecting potential costs include the 6.2% mandatory participation in Social Security. Factors affecting potential costs include the 6.2%
Social Security payroll tax that employers and employees would each be required to pay (for a Social Security payroll tax that employers and employees would each be required to pay (for a
combined 12.4% Social Security payroll tax) and the amount of other employer and employee combined 12.4% Social Security payroll tax) and the amount of other employer and employee
contributions required under the plans. contributions required under the plans.
One study on the impact of mandatory Social Security coverage on state and local budgets points One study on the impact of mandatory Social Security coverage on state and local budgets points
out that cost is the main reason public employers and employees oppose mandatory coverage. out that cost is the main reason public employers and employees oppose mandatory coverage.
The study states: The study states:

92 While virtually all recent proposals to extend coverage apply only to new hires, opponents recognize that once the transition is complete state and local governments would face the 94 Congress enacted the mandatory coverage provision in April 1983, effective for federal employees hired January 1, Congress enacted the mandatory coverage provision in April 1983, effective for federal employees hired January 1,
1984, or later. Congress enacted the Federal Employees’ Retirement System Act of 1986 (P.L. 99-335) in June 1986. 1984, or later. Congress enacted the Federal Employees’ Retirement System Act of 1986 (P.L. 99-335) in June 1986.
9395 GAO, GAO, Social Security: Implications of Extending Mandatory Coverage to State and Local Employees, GAO/HEHS , GAO/HEHS
98-196, August 1998, http://www.gao.gov/archive/1998/he98196.pdf. 98-196, August 1998, http://www.gao.gov/archive/1998/he98196.pdf.
9496 For more information, see CRS Report 98-810, For more information, see CRS Report 98-810, Federal Employees’ Retirement System: Benefits and Financing. .
Congressional Research Service Congressional Research Service

25 25

Social Security Coverage of State and Local Government Employees

~~While virtually all recent proposals to extend coverage apply only to new hires, opponents~~
~~recognize that once the transition is complete state and local governments would face the~~
full impact of the cost. Lost in the fervor is the notion that any increase in ultimate cost of full impact of the cost. Lost in the fervor is the notion that any increase in ultimate cost of
the combined Social Security/public pension system depends crucially on how plan the combined Social Security/public pension system depends crucially on how plan
sponsors respond to the introduction of Social Security.sponsors respond to the introduction of Social Security.9597
Funding Status of State and Local Plans
Many state and local government employers and employees oppose mandatory Social Security Many state and local government employers and employees oppose mandatory Social Security
coverage based on concerns that mandatory coverage could increase pension system costs coverage based on concerns that mandatory coverage could increase pension system costs
significantly at a time when many state and local pension systems are underfunded. When a plan significantly at a time when many state and local pension systems are underfunded. When a plan
is underfunded, the value of the plan’s assets is less than accrued pension liabilities for current is underfunded, the value of the plan’s assets is less than accrued pension liabilities for current
workers and retirees. Recent analysis by workers and retirees. Recent analysis by ~~the Center for Retirement Research at Boston College~~
~~(CRR)~~CRR on the current funded status of public pension plans found that the aggregate actuarial on the current funded status of public pension plans found that the aggregate actuarial
funded ratio increased by 2 percentage points from 73% in FY2020 to 75% in FY2021 (based on funded ratio increased by 2 percentage points from 73% in FY2020 to 75% in FY2021 (based on
their projections). The aggregate actuarial funded ratio is the aggregate ratio of assets to liabilities their projections). The aggregate actuarial funded ratio is the aggregate ratio of assets to liabilities
for all public pension plans analyzed in the study. Despite the projected improvement, the CRR for all public pension plans analyzed in the study. Despite the projected improvement, the CRR
researchers point out that the funded ratio in 2021 is still about 1 percentage point below levels researchers point out that the funded ratio in 2021 is still about 1 percentage point below levels
reported more than a decade ago in 2010.reported more than a decade ago in 2010.9698
Another recent study on state and local government pension plans describes the funding status of Another recent study on state and local government pension plans describes the funding status of
state and local plans as follows: state and local plans as follows:
Before 2001, nearly all public-sector pension plans were fully funded, according to the Before 2001, nearly all public-sector pension plans were fully funded, according to the
Governmental Accounting Standards Board (GASB). Specifically, nearly allGovernmental Accounting Standards Board (GASB). Specifically, nearly all plans were plans were
projected to have sufficient assets to cover plan liabilities, assuming an 8 percent projected to have sufficient assets to cover plan liabilities, assuming an 8 percent
investment return. By 2013, however, almost every plan reported significant underfunding. investment return. By 2013, however, almost every plan reported significant underfunding.
Two key factors drove the underfunding. The first affected the economy as a whole: Two key factors drove the underfunding. The first affected the economy as a whole:
financial crises occurred in 2001 and from 2007 to 2009, with the latter especially financial crises occurred in 2001 and from 2007 to 2009, with the latter especially
significant. The second factor was intrinsic to the plans themselves: insufficient significant. The second factor was intrinsic to the plans themselves: insufficient
contributions and overly optimistic actuarial assumptions.contributions and overly optimistic actuarial assumptions.9799
The study looked at recent pension reforms aimed at reducing pension costs. It focused on The study looked at recent pension reforms aimed at reducing pension costs. It focused on
traditional defined benefit pensions in 14 states that employ a majority of noncovered state and traditional defined benefit pensions in 14 states that employ a majority of noncovered state and
local government employees. Specifically, the study looked at three design parameters commonly local government employees. Specifically, the study looked at three design parameters commonly
featured in pension reforms in recent years: the vesting period, the period used to calculate the featured in pension reforms in recent years: the vesting period, the period used to calculate the
worker’s final average salary (the FAS period), and the accrual rate (benefit multiplier). The study worker’s final average salary (the FAS period), and the accrual rate (benefit multiplier). The study
found that as states have sought to reduce pension expenses, they have (1) tightened eligibility found that as states have sought to reduce pension expenses, they have (1) tightened eligibility
requirements by increasing vesting periods and (2) lowered benefits by increasing the FAS period requirements by increasing vesting periods and (2) lowered benefits by increasing the FAS period
and reducing the accrual rate used in the benefit formula. In addition, it found that the changes and reducing the accrual rate used in the benefit formula. In addition, it found that the changes
did not affect all categories of state and local government employees equally. For example, did not affect all categories of state and local government employees equally. For example,
changes in the FAS period affected public safety workers and general government employees at changes in the FAS period affected public safety workers and general government employees at
the local level more than teachers.the local level more than teachers.98

95100 In the context of state and local plan underfunding, mandatory Social Security coverage for newly hired state and local government employees could be viewed unfavorably on the basis that it would place added administrative and cost burdens on state and local governments and their employees. Alternatively, as noted by the 2010 Fiscal Commission, it could be viewed as a way to 97 Munnell, Aubry, and Belbase, “The Impact of Mandatory Coverage on State and Local Budgets,” p. 9. Munnell, Aubry, and Belbase, “The Impact of Mandatory Coverage on State and Local Budgets,” p. 9.
9698 Jean-Pierre Aubry and Kevin Wandrei, “2021 Update: Public Plan Funding Improves as Workforce Declines,” Jean-Pierre Aubry and Kevin Wandrei, “2021 Update: Public Plan Funding Improves as Workforce Declines,”
~~Center for Retirement Research at Boston College,~~ CRR, June 2021, https://crr.bc.edu/briefs/2021-update-public-plan-June 2021, https://crr.bc.edu/briefs/2021-update-public-plan-
funding-improves-as-workforce-declines/. funding-improves-as-workforce-declines/.
9799 Glenn R. Springstead, “Vesting Requirements and Key Benefit-Formula Features of State and Local Government Glenn R. Springstead, “Vesting Requirements and Key Benefit-Formula Features of State and Local Government
Pension Plans,” Pension Plans,” Social Security Bulletin, vol. 81, no. 1 (February 2021), p. 5, https://www.ssa.gov/policy/docs/ssb/, vol. 81, no. 1 (February 2021), p. 5, https://www.ssa.gov/policy/docs/ssb/
v81n1/index.html. v81n1/index.html.
98100 Springstead, “Vesting Requirements and Key Benefit-Formula Features,” p. 21. Springstead, “Vesting Requirements and Key Benefit-Formula Features,” p. 21.
Congressional Research Service Congressional Research Service

26 26

Social Security Coverage of State and Local Government Employees

~~In the context of state and local plan underfunding, mandatory Social Security coverage for newly~~
~~hired state and local government employees could be viewed unfavorably on the basis that it~~
~~would place added administrative and cost burdens on state and local governments and their~~
~~employees. Alternatively, as noted by the 2010 Fiscal Commission, it could be viewed as a way to~~
mitigate risks for plan sponsors and employees. The commission further noted that it could mitigate risks for plan sponsors and employees. The commission further noted that it could
mitigate potential future bailout risks for the federal government.mitigate potential future bailout risks for the federal government.99101
From the worker’s perspective, mandatory Social Security coverage could be viewed as providing From the worker’s perspective, mandatory Social Security coverage could be viewed as providing
an added level of benefit protection for people whose future noncovered pensions may be at risk. an added level of benefit protection for people whose future noncovered pensions may be at risk.
Unlike private-sector employers, state and local pension plans do not participate in a pension Unlike private-sector employers, state and local pension plans do not participate in a pension
insurance system. Most private-sector employers participate in the Pension Benefit Guaranty insurance system. Most private-sector employers participate in the Pension Benefit Guaranty
Corporation (PBGC), which is a government-run insurance company that pays pension benefits to Corporation (PBGC), which is a government-run insurance company that pays pension benefits to
retirees in bankrupt private-sector pension plans.retirees in bankrupt private-sector pension plans.~~100~~102 State and local pension plans cannot transfer State and local pension plans cannot transfer
pension plan liabilities to a PBGC-like entity if they cannot pay benefits. Unlike private-sector pension plan liabilities to a PBGC-like entity if they cannot pay benefits. Unlike private-sector
employers, however, state and local governments can raise taxes or reduce spending in other employers, however, state and local governments can raise taxes or reduce spending in other
areas to fund state and local pensions. areas to fund state and local pensions.
Overall Impact on State and Local Plans
If Congress were to mandate Social Security coverage for newly hired state and local government If Congress were to mandate Social Security coverage for newly hired state and local government
employees, the overall impact on state and local plans would depend on a variety of factors, many employees, the overall impact on state and local plans would depend on a variety of factors, many
of which remain to be determined. For example, the specific design features of a new or modified of which remain to be determined. For example, the specific design features of a new or modified
pension plan with a Social Security component would affect costs. In addition, any future pension plan with a Social Security component would affect costs. In addition, any future
increases in Social Security payroll taxes enacted by Congress to address the system’s projected increases in Social Security payroll taxes enacted by Congress to address the system’s projected
funding shortfall would be a factor. The impact of mandatory Social Security coverage on state funding shortfall would be a factor. The impact of mandatory Social Security coverage on state
and local plans would vary depending on how plan sponsors would respond to the mandate. and local plans would vary depending on how plan sponsors would respond to the mandate.
Key Points (Part II): Recap
Proposals to mandate Social Security coverage for newly hired state and local government employees are generally Proposals to mandate Social Security coverage for newly hired state and local government employees are generally
consistent with actions taken by Congress over the years to expand coverage. Some states would be more consistent with actions taken by Congress over the years to expand coverage. Some states would be more
affected than others, as only three states accounted for almost half of all noncovered state and local government affected than others, as only three states accounted for almost half of all noncovered state and local government
employees. Arguments on both sides of the debate include: employees. Arguments on both sides of the debate include:
•
Supporters maintain that mandatory coverage would prevent gaps in Social Security or pension coverage, Supporters maintain that mandatory coverage would prevent gaps in Social Security or pension coverage,
resulting in better retirement, survivor, and disability insurance protections for workers who move between resulting in better retirement, survivor, and disability insurance protections for workers who move between
covered and noncovered positions. In addition, compared to state and local pension plans in general, Social covered and noncovered positions. In addition, compared to state and local pension plans in general, Social
Security has features that are advantageous for the worker and eligible family members, such as better Security has features that are advantageous for the worker and eligible family members, such as better
inflation protection, disability benefits, benefits for dependents and survivors, and a progressive benefit inflation protection, disability benefits, benefits for dependents and survivors, and a progressive benefit
formula. Benefit protections provided by Social Security could be particularly important for noncovered formula. Benefit protections provided by Social Security could be particularly important for noncovered
workers in states and localities with underfunded pension plans and whose future pensions may be at risk. workers in states and localities with underfunded pension plans and whose future pensions may be at risk.
•
Opponents maintain that mandatory coverage could pose administrative and cost burdens on state and local Opponents maintain that mandatory coverage could pose administrative and cost burdens on state and local
governments and their employees at a time when many state and local pension systems are underfunded. governments and their employees at a time when many state and local pension systems are underfunded.
Moreover, it could threaten or undermine existing retirement systems, particularly those tailored to workers Moreover, it could threaten or undermine existing retirement systems, particularly those tailored to workers
in certain occupations. For example, public pension plans for police officers and firefighters typically provide in certain occupations. For example, public pension plans for police officers and firefighters typically provide
ful pension benefits at younger ages and with fewer years of service compared to other public pension plans ful pension benefits at younger ages and with fewer years of service compared to other public pension plans
and Social Security. In addition, plan sponsors could shift away from defined benefit plans toward defined and Social Security. In addition, plan sponsors could shift away from defined benefit plans toward defined
contribution plans, thereby shifting risk from the employer to the employee. contribution plans, thereby shifting risk from the employer to the employee.
The overall impact on state and local plans and the net effect on total benefits would vary across plans and across The overall impact on state and local plans and the net effect on total benefits would vary across plans and across
individuals depending on a variety of factors, such as how state and local governments would respond to a individuals depending on a variety of factors, such as how state and local governments would respond to a
coverage mandate and any future legislative changes to Social Security. coverage mandate and any future legislative changes to Social Security.

99 101 The Moment of Truth: Report of the National Commission on Fiscal Responsibility and Reform, p. 52. , p. 52.
~~100~~102 For more information, see CRS In Focus IF10492, For more information, see CRS In Focus IF10492, An Overview of the Pension Benefit Guaranty Corporation
(PBGC). .
Congressional Research Service Congressional Research Service

27 27

Social Security Coverage of State and Local Government Employees

Conclusion
Over the years, Congress has expanded Social Security coverage to include most workers in the Over the years, Congress has expanded Social Security coverage to include most workers in the
United States, creating a nearly universal system. Unlike most employers, state and local United States, creating a nearly universal system. Unlike most employers, state and local
governments are not required to participate in Social Security if they offer public retirement governments are not required to participate in Social Security if they offer public retirement
systems that meet certain requirements. For these workers, Social Security coverage is an option, systems that meet certain requirements. For these workers, Social Security coverage is an option,
not a requirement. While a majority of state and local government employees participate in Social not a requirement. While a majority of state and local government employees participate in Social
Security (Security (7273% in % in ~~2018~~2021), a sizable segment of these workers are not covered by Social Security ), a sizable segment of these workers are not covered by Social Security
through their government employment (through their government employment (2827% in % in ~~2018~~2021). Proposals to mandate coverage for newly ). Proposals to mandate coverage for newly
hired state and local government employees have been part of the Social Security policy debate hired state and local government employees have been part of the Social Security policy debate
for years. There is strong support and opposition to such proposals for a variety of reasons. for years. There is strong support and opposition to such proposals for a variety of reasons.
For some, mandatory coverage of newly hired state and local government employees is a question For some, mandatory coverage of newly hired state and local government employees is a question
of equity—in their view, noncovered state and local government employees should participate in of equity—in their view, noncovered state and local government employees should participate in
Social Security given the program’s role in keeping members of society out of poverty and the Social Security given the program’s role in keeping members of society out of poverty and the
system’s legacy costs. Some supporters argue that mandatory coverage would improve the system’s legacy costs. Some supporters argue that mandatory coverage would improve the
financial status of the Social Security trust funds, have a net positive effect on federal revenues, financial status of the Social Security trust funds, have a net positive effect on federal revenues,
and provide better benefit protections for workers and their family members. The benefit and provide better benefit protections for workers and their family members. The benefit
protections provided by Social Security could be particularly important for noncovered workers protections provided by Social Security could be particularly important for noncovered workers
in states and localities with underfunded pension plans and whose future pensions may be at risk. in states and localities with underfunded pension plans and whose future pensions may be at risk.
Opponents of mandatory coverage for newly hired state and local government employees Opponents of mandatory coverage for newly hired state and local government employees
maintain that it could pose administrative and cost burdens on state and local governments at a maintain that it could pose administrative and cost burdens on state and local governments at a
time when many state and local pension plans face funding issues. They maintain that a Social time when many state and local pension plans face funding issues. They maintain that a Social
Security coverage mandate could threaten or undermine existing retirement systems, particularly Security coverage mandate could threaten or undermine existing retirement systems, particularly
those that are tailored to workers in certain occupations such as police officers and firefighters. those that are tailored to workers in certain occupations such as police officers and firefighters.
The overall impact on state and local plans and the net effect on total benefits would vary across The overall impact on state and local plans and the net effect on total benefits would vary across
plans and across individuals, depending on how state and local governments would respond to a plans and across individuals, depending on how state and local governments would respond to a
coverage mandate and the relative differences between existing plans and new or modified plans coverage mandate and the relative differences between existing plans and new or modified plans
incorporating Social Security, among other factors. Any future legislative changes to Social incorporating Social Security, among other factors. Any future legislative changes to Social
Security payroll taxes and benefits would also be a factor. Security payroll taxes and benefits would also be a factor.
Every state has a mix of state and local government employees with and without Social Security Every state has a mix of state and local government employees with and without Social Security
coverage, so every state would be affected by a Social Security coverage mandate. Some states coverage, so every state would be affected by a Social Security coverage mandate. Some states
would be affected to a larger degree than others given the variation in coverage rates among the would be affected to a larger degree than others given the variation in coverage rates among the
states under current law. In states under current law. In ~~2018~~2021, the share of state and local government employees , the share of state and local government employees with Social Social
Security coverage ranged from 3% to Security coverage ranged from 3% to 9798% among the states. Overall, eight states accounted for % among the states. Overall, eight states accounted for
~~almost~~over three-fourths ( three-fourths (7376%) of noncovered state and local government employees, and three states %) of noncovered state and local government employees, and three states
accounted for almost half (accounted for almost half (4849%) of noncovered state and local government employees. %) of noncovered state and local government employees.
Additional Resources
The following resources are available on the website of the Social Security Administration: The following resources are available on the website of the Social Security Administration:
• State and Local Government Employers—Information
https://www.ssa.gov/slge/index.htm https://www.ssa.gov/slge/index.htm
• Introduction to State and Local Coverage Handbook in the Program Operations in the Program Operations
Manual System Manual System
https://secure.ssa.gov/apps10/poms.nsf/lnx/1910000000 https://secure.ssa.gov/apps10/poms.nsf/lnx/1910000000
The following resources are available on the website of the Internal Revenue Service: The following resources are available on the website of the Internal Revenue Service:
Congressional Research Service Congressional Research Service

28 28

Social Security Coverage of State and Local Government Employees

• State and Local Government Employees Social Security and Medicare Coverage
https://www.irs.gov/government-entities/federal-state-local-governments/state- https://www.irs.gov/government-entities/federal-state-local-governments/state-
and-local-government-employees-social-security-and-medicare-coverage and-local-government-employees-social-security-and-medicare-coverage
• IRS Publication 963, IRS Publication 963, Federal-State Reference Guide
https://www.irs.gov/pub/irs-pdf/p963.pdf https://www.irs.gov/pub/irs-pdf/p963.pdf

Author Information

~~Dawn Nuschler~~Zhe Li

~~Specialist in Income Security~~

Analyst in Social Policy Acknowledgments The original report was authored by former CRS Specialist Dawn Nuschler.
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in than public understanding of information that has been provided by CRS to Members of Congress in
connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not
subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in
its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or
material from a third party, you may need to obtain the permission of the copyright holder if you wish to material from a third party, you may need to obtain the permission of the copyright holder if you wish to
copy or otherwise use copyrighted material. copy or otherwise use copyrighted material.

Congressional Research Service Congressional Research Service
R46961 R46961 · VERSION ~~1 · NEW~~4 · UPDATED
29 29