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

William G. Gale, Sarah E. Holmes, and David C. John
Publication Date: 
June 2015

The largest exempted group from Social Security is comprised of state and local government workers (SLGWs) who participate in retirement plans offered by their state and local governments.  In light of findings regarding the significant underfunding of some state and local retirement plans, this paper revisits the discussion of whether all new SLGWs should be enrolled in mandatory coverage.  First, it shows that the most underfunded states have the lowest proportion of SLGWs participating in Social Security, leading to retirement vulnerability for SLGWs.  Second, states with low Social Security participation promise high retirement benefits to career workers, perhaps explaining some political resistance to Social Security coverage.  Social Security coverage for newly hired SLGWs is supported at the federal level because it would improve retirement security for covered SLGWs, improve Social Security's finances and make the buy-in to benefits more equitable. State and local governments object to coverage because of the short-term cost to employers and workers and because of the lower promised benefits.