Social Security Coverage of State and Local Government Employees

November 10, 2021 – March 19, 2024 R46961

Social Security Coverage of State and Local
March 19, 2024
Government Employees
Zhe Li
Social Security is the single largest federal program in terms of the number of beneficiaries as
Analyst in Social Policy
well as budget. It pays cash benefits to over 67 million beneficiaries each month, and total benefit

payments are almost $119 billion on a monthly basis. Beneficiaries include retired or disabled
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
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 under the program, and an
estimated 182 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 2024, 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 of $168,600. 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 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,
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
certain noncovered workers should share in the ongoing costs associated with the startup of the program (the legacy costs). In
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,
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
are not covered by Social Security through their government employment. Social Security coverage is voluntary for state and
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.
Coverage is elected through referendums held at the option of the state. Social Security coverage is mandatory only for state
and local government employees who are not covered under alternative retirement systems. Most state and local government
employees participate in Social Security. In 2021, there were nearly 21.9 million state and local government employees, and
about 15.9 million (73%) had Social Security coverage. The other 5.9 million (27%) 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 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
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
Social Security trust funds and on federal revenues. Estimates show that the policy change would close 4% of the Social
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
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
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
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
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
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
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
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
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.
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
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
be a factor.
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
the variation in coverage rates among the states under current law. In 2021, the share of state and local government
employees with Social Security coverage ranged from 3% to 98% among the states. Overall, eight states accounted for almost
three-fourths (76%) of noncovered state and local government employees (from largest to smallest: California, Texas, Ohio,
Massachusetts, Illinois, Colorado, Louisiana, and Georgia). Three states accounted for almost half (49%) of noncovered state
and local government 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

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
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
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
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
and local government employees who have not elected coverage (27% in 2021).2 It briefly
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 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
well as budget. It pays monthly cash benefits to over 67 million people, with almost $119 billion
in 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
deceased workers.
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
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
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 2024, workers pay 6.2% of
earnings in covered employment, up to a maximum earnings level of $168,600. The maximum
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.)
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.
To become eligible for benefits, a worker must have a sufficient connection to covered
employment, which is measured in terms of Quarters of Coverage (QCs). In 2024, a worker earns
one QC for every $1,730 in covered earnings up to a maximum of four QCs for the year (i.e.,
covered earnings of $6,920 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
number of QCs, he or she is 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
QCs to a maximum of 40 QCs. Insured status allows a worker to establish eligibility for retired-

1 Generally, mandatory coverage proposals affect newly hired state and local government employees, not current
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
system.
3 Social Security Administration (SSA), Monthly Statistical Snapshot, January 2024, Table 2, https://www.ssa.gov/
policy/docs/quickfacts/stat_snapshot/index.html.
4 Social Security coverage is tied to positions, not to individuals.
Congressional Research Service

1

Social Security Coverage of State and Local Government Employees

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
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
under the Social Security program and that an estimated 182 million people will work in covered
employment in 2024.6
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
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
computation of benefits.
Nearly Universal System
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
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
56% of the workforce at the time).7 Initially, the program provided monthly “old-age benefits” for
insured workers aged 65 or older.
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
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
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
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
program. For example, Congress extended benefits to a worker’s dependents and survivors in
1939 and to disabled workers in 1956.
Major Categories of Work Not Covered
The rules surrounding Social Security coverage and exceptions are extensive.10 The major
categories of work/workers that are not covered by Social Security include

5 For more information, see CRS Report R42035, Social Security Primer.
6 SSA, Office of the Chief Actuary (OCACT), Fact Sheet on the Old-Age, Survivors, and Disability Insurance
Program, January 29, 2024, https://www.ssa.gov/oact/FACTS/index.html.
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.
8 The term United States 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
Islands.
9 See Internal Revenue Service (IRS), Social Security Tax Consequences of Working Abroad, https://www.irs.gov/
individuals/international-taxpayers/social-security-tax-consequences-of-working-abroad.
10 For more information on the definition of employment 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

2

Social Security Coverage of State and Local Government Employees

• Most civilian federal employees hired before 1984 (federal employees covered
under the Civil Service Retirement System [CSRS]),11
• Segment of state and local government employees who have not elected coverage
(28% of state and local government employees in 2018),
• Railroad workers (the Railroad Retirement System and Social Security are
separate but coordinated systems),
• Certain family employment,
• Certain work performed by students,
• Certain members of the clergy and others, and
• Certain work performed by noncitizens.
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
categories are
• Farm work,
• Self-employed workers,
• Election officials and election workers, and
• Household employees.
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
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 insurance system that is primarily self-financing with payroll taxes paid
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
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,
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.13 Given Social
Security’s role in reducing poverty, which benefits the nation as a whole, some argue that Social
Security should be a more fully universal system.14 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.
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
period received benefits far in excess of their contributions. The inherited unfunded liability

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, 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 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
individuals who have limited income and resources. For more information, see CRS In Focus IF10482, Supplemental
Security Income (SSI).
Congressional Research Service

3

Social Security Coverage of State and Local Government Employees

associated with the startup of the program is referred to as the legacy costs.15 It is estimated that
about 3 percentage points of the current 12.4% Social Security payroll tax goes toward covering
these costs.16 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
equity, some argue that certain noncovered workers should be brought into the system to share in
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
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
required to participate in Social Security if they participate in public retirement systems through
their employers that meet certain requirements.17 However, they may elect coverage as a group
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
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
shows that there were nearly 21.9 million state and local government employees in 2021.18 Of
those, about 15.9 million (73%) were covered by Social Security. The other approximately 5.9
million state and local government employees (27%) were not covered by Social Security through
their government employment. Over the years, there have been proposals to make Social Security
coverage mandatory for newly hired state and local government employees.
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
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.
Key Points (Part I): Recap
•
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.
•
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.
•
Participation in Social Security is voluntary for state and local government employees who are covered by
alternative public retirement systems that meet certain requirements. Participation is mandatory only for
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
Security coverage via referendums held at the option of the state.
•
In 2021, there were 21.9 mil ion state and local government employees. Based on data from SSA, 73% of
these workers were covered by Social Security. The other 27% of workers were not covered by Social
Security through their government employment.

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
Budgets,” Center for Retirement Research at Boston College, CRR WP 2014-9, May 2014, pp. 6-7, available at
https://crr.bc.edu/the-impact-of-mandatory-coverage-on-state-and-local-budgets/.
17 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.
18 Data from SSA obtained by CRS in February 2024.
Congressional Research Service

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
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.
State and Local Coverage Under Current Law
Unlike most employers, state and local governments are not required to participate in Social
Security. Social Security coverage is voluntary for state and local government employees who are
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
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
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.19
Social Security coverage is mandatory for state and local government employees who are not
covered under alternative public retirement systems, with some exceptions.20 Every state has a
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,
Medicare coverage is mandatory for state and local government employees.21
Alternative Public Retirement Systems
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
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
comparable to the benefit provided under the old-age component of the Old-Age, Survivors, and
Disability Insurance (Social Security) program.
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.
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).22 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
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).
20 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
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, Federal-State Reference Guide,
Revised July 2020, Chapter 5: Social Security and Medicare Coverage, pp. 44-45, https://www.irs.gov/pub/irs-pdf/
p963.pdf.
21 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
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.
22 A traditional defined benefit formula would be: annual benefit = an accrual rate X the number of years of service X
the average of the worker’s final years of salary. The accrual rate is a percentage factor typically ranging from 2% to
3% in most traditional defined benefit plans.
Congressional Research Service

5

Social Security Coverage of State and Local Government Employees

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
account, which is the sum of all the contributions that have been made plus interest, dividends,
and capital gains (or losses), minus 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
a lump sum. In a defined benefit plan, the employer bears the financial risk. In a defined
contribution plan, the employee bears the financial risk. Most state and local government
employees are covered by traditional defined benefit plans.23
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
Service (IRS) Publication 963 (Federal-State Reference Guide).24 A defined benefit retirement
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.25 The
benefit must start on or before the employee attains the Social Security full retirement age
(FRA),26 which is 67 for most current workers.27 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
of employment, multiplied by the employee’s years of service, would generally meet the
requirement of providing a retirement benefit comparable to Social Security.28
Section 218 Agreements
Social Security coverage is extended to state and local government employees through voluntary
agreements between the states and SSA, known as Section 218 Agreements.29 All states have a
Section 218 Agreement with SSA. However, the extent of coverage under these agreements varies
from state to state.30 A majority of state and local government employees may be covered by

23 For data on how pension plan access and participation rates compare among public- and private-sector employees,
see CRS Report R43439, Worker Participation in Employer-Sponsored Pensions: Data in Brief.
24 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/
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
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.
25 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.
26 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
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.”
27 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-
31.3121(b)(7)-2(e)(2).
28 IRS Publication 963, p. 54.
29 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
“Introduction to State and Local Coverage Handbook” at https://secure.ssa.gov/apps10/poms.nsf/lnx/1910000000.
30 The term state 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
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

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.
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.
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
Section 218 Agreement, generally any current or future employee who fills that position is subject
to Social Security payroll taxes.31 A state’s Section 218 Agreement specifies which state and local
government positions are covered by Social Security.
Under Section 218 Agreements, Social Security coverage is extended to groups of employee
positions known as coverage groups. Coverage is not extended on an individual basis. Various
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
retirement system. All states are authorized to use a majority vote referendum process. Twenty-
three states are also authorized to use a divided vote referendum process (discussed below).
Typically, states allow their political subdivisions (such as a school board) to decide whether to
hold a referendum on coverage.
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
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
Security administrator (state administrator). The state administrator is a designated state
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
terms of the state’s Section 218 Agreement.32 Among other duties, the state administrator
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.33
Legislative History Highlights
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
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
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
and 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.
32 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
Specialists” at https://www.ssa.gov/slge/specialists.htm.
33 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), 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.
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

7

Social Security Coverage of State and Local Government Employees

employees first became eligible for Social Security coverage.35 Before 1991, Social Security
coverage was generally optional for state and local government employees. In 1991, Social
Security coverage became mandatory for most state and local government employees who were
not covered under public retirement systems.36
• 1950
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
U.S. Virgin Islands (i.e., those in the general workforce).37
It also extended voluntary coverage to state and local government employees not covered under
retirement systems (an estimated 1.5 million people at the time).38 State and local government
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
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
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 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.
• 1954
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
retirement systems (except police officers and firefighters).
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
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.39
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
Government Employees Covered Under Social Security, 1977-81,” Social Security Bulletin, vol. 45, no. 12 (December
1982), https://www.ssa.gov/policy/docs/ssb/v45n12/v45n12p11.pdf.
36 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
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, Social Security: Implications of Extending
Mandatory Coverage to State and Local Employees, 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
coverage for newly hired state and local government employees is beyond the scope of this CRS report.
37 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
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.
38 Social Security Act Amendments of 1950, P.L. 81-734, §106 (Coverage of State and Local Employees).
39 Wilbur J. Cohen, Robert M. Ball, and Robert J. Myers, “Social Security Act Amendments of 1954: A Summary and
Legislative History,” Social Security Bulletin, vol. 17, no. 9 (September 1954), p. 4, at https://www.ssa.gov/policy/
docs/ssb/v17n9/index.html.
Congressional Research Service

8

Social Security Coverage of State and Local Government Employees

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.40 Coverage became effective January 1, 1955.41
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. The only sizable group not eligible for Social Security coverage
was about 200,000 police officers and firefighters who had their own retirement systems.42
• 1956
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
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
retirement system.43 Under the 1956 amendments, eight states (Florida, Georgia, New York,
North Dakota, Pennsylvania, Tennessee, Washington, and Wisconsin), the then-territory of
Hawaii, and their political subdivisions were permitted to operate divided retirement systems in
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
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
future 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.44
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,
Oregon, South Carolina, and South Dakota).45
• 1983
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
had been in effect for at least five years and written notice was given to the Secretary of Health
and 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
majority of the eligible employees casting votes) must vote in favor of coverage.
41 Social Security Amendments of 1954, P.L. 83-761, §101(h) (Employees Covered by State or Local Retirement
Systems).
42 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.
43 Social Security Amendments of 1956, P.L. 84-880, §104(e) (Certain State and Local Employees).
44 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
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
divide a retirement system based on whether the employees in positions under that system want coverage.
45 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).
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
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).48 The 1983
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
prohibited from regaining coverage.49
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
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
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,
considerable acceleration in filing for terminations for State and local governments has
occurred since 1980, again in conjunction with widespread concern about the financial
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
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
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.
[The] Committee strongly feels that the ability to terminate coverage for State and local
government employees is inequitable both for the employees who lose coverage and for
the vast majority of the nation’s workforce who continue to pay into the system.50
In addition, the 1983 amendments mandated Social Security coverage for newly hired federal
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
Social Security coverage mandatory for most state and local government employees not covered
under public retirement systems. Students employed by their educational institutions were
excluded from mandatory coverage.51 Coverage became effective for service performed after July
1, 1991.52
• 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

48 Social Security Amendments of 1983, P.L. 98-21, §103 (Duration of Agreements for Coverage of State and Local
Employees).
49 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.
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
Entrapments, 477 U.S. 41 (1986).
50 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, pp. 18-19.
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

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
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.
Social Security Coverage by State
Data from SSA shows that there were nearly 21.9 million state and local government employees
in the United States in 2021. The majority of these workers had Social Security coverage based
on their state and local government employment. Specifically, 73% of state and local government
employees (about 15.9 million workers) had Social Security coverage. The remaining 27% (about
5.9 million workers) did not have Social Security coverage.53 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.54
As shown in Figure 2, the share of state and local government employees with Social Security
coverage in 2021 varied widely by state, ranging from 2.5% in Massachusetts and Ohio to 97.7%
in Vermont.
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
Social Security coverage (Massachusetts, Ohio, Nevada, Louisiana, Colorado,
California, Texas, and Alaska).
• Eight states accounted for over three-fourths (76%) of noncovered state and local
government employees (from largest to smallest: California, Texas, Ohio,
Massachusetts, Illinois, Colorado, Louisiana, and Georgia).
• Three states accounted for almost half (49%) 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 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
Alabama
357,000
331,400
92.8%
25,600
7.1%
Alaska
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
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.
Notes: 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.
Mandatory Coverage Proposals
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
taken by Congress to expand Social Security (and Medicare) coverage. As outlined above, in
1983, Congress mandated Social Security coverage for newly hired federal employees, and
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
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.
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
commissions to legislation introduced by Members of Congress. In 2010, for example, President
Barack Obama established the National Commission on Fiscal Responsibility and Reform.55 The
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
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
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,
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.
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.56
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
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.
Issues Surrounding Mandatory Coverage
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
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
section highlights some of the major issues:
• projected effect on the Social Security trust funds;
• projected effect on federal revenues;

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
Offset (GPO);
• special considerations for certain occupational groups (such as police officers and
firefighters);
• Social Security protections for workers and family members (disability insurance
protection, portability, benefits for dependents and survivors, cost-of-living
adjustments (COLAs), progressive benefit formula); and
• effect on state and local plans (administrative and cost issues, funding status of
state and local plans).
Projected Effect on the Social Security Trust Funds
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
less than two decades. In its 2023 Annual Report, the Social Security Board of Trustees projects
that, based on its intermediate assumptions, program costs will exceed income by about 26% on
average over the next 75-year period.57
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
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
funds on average over the next 75-year period. OCACT projects that the policy change would
close 4% of the system’s projected long-range funding shortfall (based on the intermediate
assumptions of the 2023 Trustees Report).58
Projected Effect on Federal Revenues
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) deposited into the
General Fund of the U.S. Treasury, where they are available for spending on general government
operations, and (2) credited 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
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.59
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
budget deficits includes the option of making Social Security coverage mandatory for state and
local government employees hired after December 31, 2022. Revenue estimates for this option

57 The 2023 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal
Disability Insurance Trust Funds, March 31, 2023, https://www.ssa.gov/oact/TR/2023/index.html. See Table IV.B5
(page 72) for the projected difference between the summarized income rate and summarized cost rate for OASDI under
the intermediate assumptions for the period 2023-2097. For more information on the projected financial outlook for the
Social Security program, see CRS In Focus IF10522, Social Security’s Funding Shortfall.
58 OCACT, Proposed Provision F1: Starting in 2024, Cover Newly Hired State and Local Government Employees,
https://www.ssa.gov/OACT/solvency/provisions/charts/chart_run186.html.
59 For more information, see CRS In Focus IF10564, Social Security Trust Fund Investment Practices.
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
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
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
plans and defined contribution plans. Safe harbor designs are outlined in IRS Employment Tax
Regulations and IRS Revenue Procedure 91-40.61
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
have grown less generous in recent years and a few plans could exhaust their assets.62 The CRR
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
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.63
The CRR researchers also compared the value of lifetime benefits. They looked at whether state
and local pension plans for noncovered employees provide Social Security–equivalent resources
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
plans often set long vesting periods64 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
than Social Security.65
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
shortfall depending on workers’ characteristics and specific benefit plan designs. Moreover,

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/
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
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
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.
62 Laura D. Quinby, Jean-Pierre Aubry, and Alicia H. Munnell, “Do Public Workers Without Social Security Get
Comparable Benefits?,” CRR, 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 are in relation to new hires in defined
benefit plans. Most state and local government employees are covered by traditional defined benefit plans.
63 Quinby, Aubry, and Munnell, “Do Public Workers Without Social Security Get Comparable Benefits?,” p. 2.
64 A vesting period is the minimum period an employee is required to work to be eligible for a future retirement benefit.
65 Quinby, Aubry, and Munnell, “Do Public Workers Without Social Security Get Comparable Benefits?,” p. 4.
Congressional Research Service

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
Social Security system.67
Windfall Elimination Provision and Government Pension Offset
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
(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
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
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
as the spouse or surviving spouse of a Social Security–covered worker.68
Windfall Elimination Provision (WEP)
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
are subject to reduction under the WEP if he or she has fewer than 30 years of substantial
earnings in covered employment.69 Under the WEP, the worker’s Social Security benefits are
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
the reduction in the initial monthly benefit is limited to one-half the monthly amount of the
worker’s noncovered pension.
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
receive initial monthly benefits that replace a larger percentage of their career-average earnings.70

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.
68 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
of 1983 (P.L. 98-21).
69 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
the WEP.
70 For more information, see CRS In Focus IF11747, Social Security: Benefit Calculation Overview.
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 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 Security spousal or widow(er) benefits may be reduced to zero. In
December 2023, 745,679 Social Security beneficiaries (about 1% of all beneficiaries) were
affected by the GPO.72
The GPO is intended to replicate the Social Security dual entitlement rule, which affects people
who have worked in covered 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,
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
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
employees.73 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
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
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
overpayments.74 In addition, inconsistent reporting by individuals can raise equity issues. If
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
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
trend suggests an increase in SSA workloads in the future to administer the WEP and the GPO.75

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, Social Security: The Windfall Elimination Provision
(WEP) and the Government Pension Offset (GPO).
73 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/.
74 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.
75 Patrick Purcell, “Trends in Noncovered Employment and Earnings Among Employees of State and Local
(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
(unreduced) retirement benefits are first payable at the full retirement age (age 67 for most
current workers). In addition, Social Security retirement 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 covered employment, zero earnings are counted in the benefit computation for the
“missing” years, resulting in lower initial monthly benefits.77
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
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
provide full pension benefits at younger ages and with fewer years of service compared to other
public pension plans and Social Security.
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
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
separate retirement systems (i.e., outside of Social Security).
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
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
request of various police and firefighter organizations throughout the country. The 1954 Senate
report on the legislation states:
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
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
to coordinate these provisions with the provisions of the old-age and survivors insurance
system.78

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
question about why police officers and firefighters were excluded from voluntary Social Security
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
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
which they prefer and they requested to be left out.79
With respect to occupational groups that may require special considerations, the integration of
newly hired federal employees into Social Security in the 1980s can provide a relevant example.
FERS Accommodations for Certain Occupational Groups
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,
given differences in eligibility requirements (such as retirement age and years of service) and
other plan features.
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
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
FERS basic retirement annuity and the FERS supplement; Social Security; and the Thrift Savings
Plan.80
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
at higher rates than regular civilian federal employees.81 Law enforcement personnel, for
example, can retire at age 50 with 20 years of service or at any age with 25 years of service.82
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
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
(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
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
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.83
The accommodations under FERS for federal employees in certain occupational groups can
provide an example 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

79 House debate, Congressional Record, vol. 100, part 6 (June 1, 1954), p. 7433.
80 For more information, see CRS Report 98-810, Federal Employees’ Retirement System: Benefits and Financing.
81 CSRS also incorporates special rules for certain categories of workers, including federal law enforcement personnel.
82 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.
83 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, Retirement Benefits for Federal Law Enforcement
Personnel.
Congressional Research Service

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
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
experience gaps in disability protection. To be eligible for Social Security disability benefits,
among other requirements, a worker must meet a duration work test (to show a sufficient
connection to covered employment for fully insured status) and a recent work test (to show a
recent connection to covered employment). Under both tests, the requirements vary depending on
the worker’s age.84 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
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.
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
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
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.85
Portability
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
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
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
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.
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
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
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
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.86
Benefits for Dependents and Survivors
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
example, Social Security provides a spousal benefit equal to 50% of the worker’s basic monthly
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
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,
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
surviving spouse and to any former surviving spouses who meet the eligibility requirements.87
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
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
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
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
option because payments continue for a longer period.88
Cost-of-Living Adjustments (COLAs)
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
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.
Automatic annual COLAs help Social Security benefits maintain their purchasing power over
time.89
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
cases, however, COLAs may be provided on an ad hoc basis or they may be subject to a cap.90

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
eligibility requirements, see Table 3 (Social Security Benefits for the Worker’s Family Members) in CRS Report
R42035, Social Security Primer.
88 Munnell, Aubry, and Belbase, “The Impact of Mandatory Coverage on State and Local Budgets,” p. 8.
89 For more information, see CRS Report 94-803, Social Security: Cost-of-Living Adjustments.
90 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
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/
NASRACOLA%20Brief.pdf.
Congressional Research Service

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.
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).
While the specific benefit formula will vary by plan, the benefit formula in traditional defined
benefit plans does not have redistributive features.
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
workers and their family members. With its progressive benefit structure, Social Security could
be particularly advantageous for noncovered workers with lower earnings.
Net Effect on Total Benefits
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
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
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
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
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
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
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
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
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.92 When newly hired
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

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
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
account assets or monthly annuity payable from the account.
Congressional Research Service

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
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.
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
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
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
(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
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
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
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
arrangements would have to be determined. It could take several years to determine and fully
implement the changes.
“Closed System” Option
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
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
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
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.
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.
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
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.
However, in the event of a market downturn, riskier pension fund investments would lose value,
worsening the situation.
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
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
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.93

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

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
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
employees in the 1980s, it took three years to establish a new federal retirement system (FERS)
for affected employees.94 The General Accounting Office (now the Government Accountability
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.95
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
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.
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
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
of the last worker or survivor covered under the program, which the U.S. Office of Personnel
Management estimates will occur around 2090.96
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
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
Social Security coverage among state and local government employees under current law. Among
the states, the share of state and local government employees with Social Security coverage
ranged from 3% to 98% in 2021. 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 Social Security coverage. In some states, a coverage mandate could
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
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
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%
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
contributions required under the plans.
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.
The study states:
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,
1984, or later. Congress enacted the Federal Employees’ Retirement System Act of 1986 (P.L. 99-335) in June 1986.
95 GAO, Social Security: Implications of Extending Mandatory Coverage to State and Local Employees, GAO/HEHS
98-196, August 1998, http://www.gao.gov/archive/1998/he98196.pdf.
96 For more information, see CRS Report 98-810, Federal Employees’ Retirement System: Benefits and Financing.
Congressional Research Service

25

Social Security Coverage of State and Local Government Employees

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
sponsors respond to the introduction of Social Security.97
Funding Status of State and Local Plans
Many state and local government employers and employees oppose mandatory Social Security
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
is underfunded, the value of the plan’s assets is less than accrued pension liabilities for current
workers and retirees. Recent analysis by CRR 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 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 researchers point out that the funded ratio in 2021 is
still about 1 percentage point below levels reported more than a decade ago in 2010.98
Another recent study on state and local government pension plans describes the funding status of
state and local plans as follows:
Before 2001, nearly all public-sector pension plans were fully funded, according to the
Governmental Accounting Standards Board (GASB). Specifically, nearly all plans were
projected to have sufficient assets to cover plan liabilities, assuming an 8 percent
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:
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
contributions and overly optimistic actuarial assumptions.99
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
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
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
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
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
the local level more than teachers.100
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.
98 Jean-Pierre Aubry and Kevin Wandrei, “2021 Update: Public Plan Funding Improves as Workforce Declines,” CRR,
June 2021, https://crr.bc.edu/briefs/2021-update-public-plan-funding-improves-as-workforce-declines/.
99 Glenn R. Springstead, “Vesting Requirements and Key Benefit-Formula Features of State and Local Government
Pension Plans,” Social Security Bulletin, vol. 81, no. 1 (February 2021), p. 5, https://www.ssa.gov/policy/docs/ssb/
v81n1/index.html.
100 Springstead, “Vesting Requirements and Key Benefit-Formula Features,” p. 21.
Congressional Research Service

26

Social Security Coverage of State and Local Government Employees

mitigate risks for plan sponsors and employees. The commission further noted that it could
mitigate potential future bailout risks for the federal government.101
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.
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
Corporation (PBGC), which is a government-run insurance company that pays pension benefits to
retirees in bankrupt private-sector pension plans.102 State and local pension plans cannot transfer
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
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
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
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
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.
Key Points (Part II): Recap
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
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:
•
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
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
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
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
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
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
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.
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
coverage mandate and any future legislative changes to Social Security.

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

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
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
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
Security (73% in 2021), a sizable segment of these workers are not covered by Social Security
through their government employment (27% in 2021). Proposals to mandate coverage for newly
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 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
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
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
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.
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
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
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
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
incorporating Social Security, among other factors. Any future legislative changes to Social
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
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
states under current law. In 2021, the share of state and local government employees with Social
Security coverage ranged from 3% to 98% among the states. Overall, eight states accounted for
over three-fourths (76%) of noncovered state and local government employees, and three states
accounted for almost half (49%) of noncovered state and local government employees.
Additional Resources
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
• Introduction to State and Local Coverage Handbook in the Program Operations
Manual System
https://secure.ssa.gov/apps10/poms.nsf/lnx/1910000000
The following resources are available on the website of the Internal Revenue Service:
Congressional Research Service

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-
and-local-government-employees-social-security-and-medicare-coverage
• IRS Publication 963, Federal-State Reference Guide
https://www.irs.gov/pub/irs-pdf/p963.pdf

Author Information

Zhe Li

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
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
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
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
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.

Congressional Research Service
R46961 · VERSION 4 · UPDATED
29

Download PDF

Revision History

Mar. 19, 2024

HTML · PDF

47% changed

Nov. 10, 2021

HTML · PDF

Metadata

Topic areas

Domestic Social Policy

Report Type: CRS Report

Source: CRSReports.Congress.gov

Raw Metadata: JSON