NCPERS | Mandatory Social Security Coverage

Background

The Social Security system provides coverage for virtually all segments of American society including most, but not all, state and local government employees. When the system was established in 1935, state and local government employees were initially excluded. Some of these employees subsequently made a decision not to be included, instead developing their own retirement and benefit programs tailored to their occupational needs. In many instances, these retirement programs predate the Social Security system. These state and local government retirement systems are solvent and require a contribution by both the employer and employee, in most cases.

Legislative History

No mandatory Social Security coverage legislation was introduced in the 107th Congress (2001-2002). The President's Commission to Strengthen Social Security did not include mandatory coverage in its recommendations sent to President Bush on December 12, 2001.

NCPERS Position

NCPERS opposes expanding Social Security coverage to non-covered state and local government employees. Public sector employers were required to create separate pension plans for their employees when they were excluded from Social Security. Requiring Social Security coverage would undermine these plans and place unnecessary financial burdens on state and local government employers and employees.
NCPERS supports making the Social Security system solvent for future generations. Social Security is an important income component for many citizens, some of whom have no retirement income other than Social Security.
Making Social Security mandatory would have little impact on the projected funding shortfalls of Social Security. However, such a move would greatly affect public employees. Public employees not covered would be required to pay an additional 6.2% in payroll taxes in addition to what they are now required to contribute to their public pension plan. The same would be true for the employer.
It would be costly to states and localities. As employers, states and localities would also be required to pay an additional 6.2% in payroll taxes on top of what they already contribute to the pension fund on behalf of employees. This would cost California over $2.3 billion in additional expenditures annually, Ohio $1 billion annually, and hundreds of millions to Texas, Illinois, Colorado, Massachusetts and Louisiana.
It would be disruptive to existing retirement programs. Many public employers would be unable to absorb the higher costs. They would be required to continue funding their respective retirement plans, in addition to the Social Security tax. Many of these plans are established constitutionally and to make such a change would require legislative action and/or constitutional amendments.