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About 5 million state and local workers are outside of the federal retirement program.
There are millions of state and local public employees across the U.S who are not covered by Social Security, and are banking instead on government pensions as a main source of retirement income.
Researchers with the Urban Institute recently highlighted how these workers could face unique vulnerabilities with their financial security in retirement, especially as some states and localities seek to rein in spending on pensions by making benefits less generous.
An analysis the researchers conducted found that employees who are not in the Social Security system and who were hired in 2018 generally saw rules governing their pension plans that were more stringent than those for workers hired in 2008. The result is that the more recently hired employees will see lower retirement benefits.
For example, the amount these “noncovered” employees have to contribute to their plans and the time required to “vest” for their benefits both increased by about 8%, based on the analysis.
Changes like this for the noncovered employees were slightly smaller than the changes seen for public employees overall, according to the report. The researchers say that the reasons for the difference between the two groups are not fully understood.
Debates about the merits of expanding Social Security to cover all newly hired state and local public employees have simmered on and off for years now, with different groups at odds over whether the policy change would be a plus overall for retirees and their families.
When Social Security was created in the 1930s, state and local government employees were excluded from the program. Subsequent changes between the 1950s and early 1990s led to a situation where the program does now cover the majority of state and local workers.
But in 2018, about one-quarter of all state and local government employees, or around 5 million people, were working in positions that were not covered by Social Security, according to the Center for Retirement Research at Boston College.
Among these employees are state agency workers, firefighters, police officers and teachers.
The share of workers not participating in Social Security varies widely from state to state. Estimates cited in a 2011 Congressional Research Service report indicate that, at that time, nearly half of the noncovered employees resided in three states: California, Texas and Ohio.
Under federal law, state and local employees who are not covered by Social Security need to be enrolled in an employer-sponsored pension plan that provides at least equal benefits.
But the Center for Retirement Research, in a 2018 report, raised doubts about whether plans are meeting this standard after accounting for factors like long “vesting periods,” which determine when a person is eligible for benefits, as well as limited cost-of-living adjustments.
Another issue that the Urban Institute researchers bring up is that some employees do not work in government jobs without Social Security for their entire careers.
They point to findings that suggest that with about half of “defined benefit” state and local pension plans, workers have to spend at least 20 years on the job before the value of their pension benefits exceeds the value of their contributions into the system.
“Unlike other state and local government workers who are also covered by Social Security, noncovered workers may face greater risks to their retirement security if they change jobs and spend less than 20 years in the same pension plan,” the Urban Institute researchers note.
“They may also lack valuable protections the Social Security program provides,” they add.
The lack of “portability” with pensions when people switch jobs is an issue that’s come up in prior discussions about whether all public employees should be covered by Social Security.
Supporters of that option have also pointed out that Social Security, compared to pension programs, could also provide steadier cost-of-living adjustments.
But the 2011 CRS report notes that the net effect on retirement benefits under mandatory Social Security, versus the status quo, is hard to know entirely because it would depend to some extent on how state and local governments respond with changes to their pension policies.
Meanwhile, the International Association of Fire Fighters, a labor union, opposes mandatory Social Security, arguing it would jeopardize specialized retirement systems for firefighters, which tend to include earlier retirement ages than other plans.
Social Security itself has financial problems. Reserves in the Old-Age and Survivors Insurance trust fund—the main pot of money to pay benefits to retirees—will be depleted around 2034, according to federal projections from last year.
After that time, the estimates indicate that ongoing Social Security revenues would be adequate to cover about 77% of expected benefits paid out of the account.
Earlier estimates have shown that requiring all state and local government employees to enroll in Social Security would provide a mild boost to the financial health of the program.
More about the Urban Institute analysis can be found here.
Bill Lucia is a Senior Reporter for Route Fifty and is based in Olympia, Washington.