Mandatory Social Security Coverage of State and Local Workers: A Perennial Hot Button

Alicia H. Munnell
Publication Date: 
June 2005

Not all public sector workers participate in Social Security, and today over 6 million state and local workers remain uncovered. Numerous government commissions have proposed extending coverage to public sector workers. In this Center for Retirement Research report, Alicia Munnell examines the arguments for and against extending Social Security coverage to all state and local workers. She finds that the strongest arguments for coverage rests on equity and gains for the individual worker, while the strongest argument against coverage are the cost of the benefits themselves (5 to 6 percent of payroll).  

Opponents of coverage often cite the costs of benefits and administration. Munnell explains that state costs will increase depending on what changes in their existing retirement system. A plan that reduces existing state benefits, and preserves a worker's first year in benefits, can expect a 5 to 6 percent increase in payroll. Munnell, however, explains that administrative costs would be minimal since most states already withhold money from workers for other personal income and federal tax reasons. States could likely complete the transition within four years, according to a Government Accountability Office report.   

Advocates for coverage cite gains to the Social Security program itself as well as individuals. On the federal level, mandatory coverage would lower the Social Security's 75-year deficit by about 10 percent and extend the trust fund's solvency by 2 years, according to Social Security's actuaries. Covering all workers would better distribute the burden of the program's initial start-up cost or legacy debt (the first recipients of Social Security received far more in benefits than what they paid in, resulting in costs that have carried over throughout the program's history). Extending coverage to all workers would reduce the program's costs because workers would begin to pay into the system immediately while collecting benefits later in retirement.  

Munnell asserts, however, that the strongest argument for coverage is equity. Individual workers would receive portable, inflation-protected Social Security benefits, and any gaps in disability and/or survivor benefits would be eliminated.