Urban InstituteRetirement Policy Center

Covering Newly Hired State and Local Workers

Bringing newly hired state and local workers into Social Security, some of whom are not now covered, would improve the system’s short-term financial problems, but would not help much in the long run.


Background

Social Security currently excludes certain workers. Some proposals would expand coverage by bringing all newly hired state and local employees into the system (but previously hired employees would remain outside Social Security).

  • Some federal employees hired prior to 1984, many state and local employees, railroad employees, and certain students do not pay Social Security payroll taxes or accumulate credit toward Social Security benefits.
    • States with relatively high shares of uncovered state and local workers include Ohio, Massachusetts, Louisiana, California, and Colorado. 
    • Many of these workers outside of Social Security are covered by alternative federal or state pension plans that offer protections similar to Social Security.
  • Social Security coverage has increased substantially over time, from 82.5 percent of civilian workers in 1955 to 96.0 percent in 2002 (Committee on Ways and Means 2004).   


Why Cover State and Local Workers?

  • Increasing the number of workers that contribute to Social Security would reduce the system’s short-term cash flow problems. 
  • Boosting the share of the labor force invested in the program raises its universality and may augment Social Security’s political support.


Why Retain Current Non-coverage of State and Local Workers?

  • Additional mandates about how states insure their public-sector workers for retirement and disability runs counter to the nation’s federalist tradition, with the central government deferring to the state governments on these matters.  
  • States depend on new employees to keep their pension plans financially sound.


What Would Be the Impact on Social Security’s Long Term Fiscal Deficit?

  • Extending Social Security coverage to all state and local workers hired in 2009 and later would have decreased the 75-year Social Security deficit by about 0.22 percent of payroll, about 13 percent of the total deficit (OCACT 2008). 
  • The financial effects are modest 75 years from now, because most newly covered workers eventually claim Social Security benefits.


Who Has Proposed Covering Newly Hired State and Local Workers?

Many proposals aimed at improving Social Security’s long-term fiscal position have suggested extending Social Security coverage to state and local workers, including the following: 

  • Aaron and Reischauer (1998);
  • All three plans advanced by the Advisory Council on Social Security 1994-96;
  • The National Commission on Retirement Policy (1998), which inspired numerous congressional bills;
  • The National Commission on Fiscal Responsibility and Reform.

References:

Favreault, Melissa M. and Nadia S. Karamcheva. 2011. "How Would the President’s Fiscal Commission’s Social Security Proposals Affect Future Beneficiaries?" Washington, DC: The Urban Institute.

Aaron, Henry J. and Robert D. Reischauer. 1998. Countdown to Reform: The Great Social Security Debate. New York: Century Foundation.

Advisory Council on Social Security [1994-1996]. 1997. Report of the 1994-1996 Advisory Council on Social Security. Volume 1: Findings and Recommendations. Volume 2: Reports of the Technical Panel on Trends and Issues in Retirement Savings Technical Panel on Assumptions and Methods and Presentations to the Council. Washington, DC: Author.

Office of the Chief Actuary, Social Security Administration (OCACT). 2008. Provisions that Could Change the Social Security Program. http://www.ssa.gov/OACT/solvency/provisions/index.html

Committee on Ways and Means, United States House of Representatives. 2004. Overview of Entitlement Programs: 2004 Green Book Background Material and Data on Programs Within the Jurisdiction of the Committee on Ways and Means. Washington, DC: U.S. Government Printing Office.

National Commission on Retirement Policy. 1998. The 21st Century Retirement Security Plan. Washington, DC: Center for Strategic and International Studies.

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