Mandatory Social Security
Background:
Approximately 5 million state and local government employees (about 30% of the state and local government workforce) are not covered by Social Security. In 1935, when the Social Security system was established, state and local government employees were excluded from participation because they had their own retirement systems. At the time, there was concern over the power of the federal government to impose the Social Security tax on state and local governments. Congress later opened the Social Security system, allowing state and local governments to opt-in. Since 1983, state and local governments have not been allowed to opt-out once they are covered. According to a study conducted by the General Accounting Office (GAO), seven states, California, Colorado, Illinois, Louisiana, Massachusetts, Ohio, and Texas, account for more than 75% of the non-covered employees. These employees are most likely to be police, firefighters, and teachers.
In 1999, with insolvency of the Social Security system looming in the not-too distant future, (about 2034 by recent estimates), mandatory coverage for all newly hired state and local government workers has been proposed. Those in favor of covering all workers point to a study conducted by the Social Security Administration showing that such coverage would increase the system's solvency for an additional two years. Others believe that it is a matter of fairness, that all workers should participate in the Social Security system.
However, IPMA, along with many other organizations representing state and local government employees are opposed to mandatory coverage for the following reasons:
State and local government employees who are not covered under Social Security are already covered under public pension plans that are required by federal law to meet minimum contribution and funding limits.
Mandatory coverage would be expensive for state and local governments. The GAO estimates that in the first five years alone, states and localities with non-covered workers would incur additional costs of about $9.1 BILLION. This money would have to come from somewhere, either by reducing benefits to current and future retirees or by reducing public services.
Existing state and local pension plans may be tailored to fit localized needs. Social Security cannot be modified for particular groups. In the long run, mandatory coverage only puts more people into a system that is not working. It is a short-term and short-sighted solution.
Legislation in the 106th Congress:
Last year, mandatory coverage of newly hired state and local government employees was in almost every proposal to shore up the Social Security system. This year, IPMA, national organizations and public retirement systems working to oppose mandatory coverage have been successful in keeping the proposal out of the President's fiscal year 2000 budget and most of the reform proposals in Congress; however, mandatory coverage remains on the table and few lawmakers are willing to rule it out as a possibility.
Copies of the GAO's May 21, 1998 report, "Social Security: Mandating coverage for State and Local Employees" are available on the GAO's home page by searching the 1998 reports by date or title.
Resources:
Joint Letters on Mandatory Social Security from National Public Sector Organizations - 1/99
Mandatory Social Security Coverage
WHEREAS: The United States Congress proposes to mandate Social Security for all newly hired state and local government employees, not covered under the Social Security system, to help fund the Social Security System; and
WHEREAS: If approved, this would constitute an unfunded mandate; and
WHEREAS: The General Accounting Office (GAO) representatives reported that this proposal would extend the solvency of the Social Security Trust Fund no more than two additional years; and
WHEREAS: Mandatory coverage would cost state and local governments and their workers billions of dollars annually when fully phased in; and
WHEREAS: Many current public employees and retirees of state and local governments are relying on current systems that may be negatively impacted by a lack of new participants; now therefore, be it
RESOLVED: That the membership of the International Personnel Management Association vigorously opposes any effort to mandate Social Security coverage for all newly hired public employees of those various states and local governments not currently participating in the Social Security system.