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

Abstract

This article examines whether state and local government workers (SLGWs) who are not currently covered by social security should be brought into the system. In the past, the arguments for expanded coverage focused on the effects on social security finances, the enhanced equity from requiring those workers to pay legacy costs, and improvements in retirement security. Recent developments concerning the underfunding of state and local government pensions have raised the issue of mandatory coverage in a new light. The authors find that states with greater underfunding in governmental pension plans tend also to have a smaller proportion of SLGW workers who are covered by Social Security. This raises concerns about retirement security that are only partially offset by the fact that states with lower rates of Social Security coverage for SLGWs tend to have somewhat higher pension benefit levels. However, the same pension funding problems imply that any policy that adds newly hired workers to Social Security, and thus requires the state to pay its share of those contributions, would create added overall costs for state and local governments at a time when pension promises are already hard to meet.