Social Security Coverage for State and Local Government Workers: A Reconsideration

Abstract

Since it was created in 1935, Social Security has grown from covering about half of the work force to covering nearly all workers. The largest remaining exempted group is a subset of state and local government workers (SLGWs). As of 2008, Social Security did not cover about 27 percent of the 23.8 million SLGWs (Congressional Research Service 2011). Non-coverage of SLGWs is concentrated in certain states scattered around the country and includes workers in a diverse set of jobs, ranging from administrators to custodial staff. Some police and fire department employees are not covered. About 40 percent of public school teachers are not covered by Social Security (Kan and Alderman 2014).

Under current law, state and local governments that do not offer their own retirement plan must enroll their employees in Social Security. But if it does offer a retirement plan, the state or local government can choose whether to enroll its workers in Social Security.

This paper reviews and extends discussion on whether state and local government workers should face mandatory coverage in Social Security. Relative to earlier work, we focus on links between this issue and recent developments in state and local pensions. Although some of the issues apply equally to both existing and newly hired SLGWs, it is most natural to focus on whether newly hired employees should be brought into Social Security.