The Issue of Mandatory Social Security Coverage

The question of mandatory coverage – as opposed to voluntary coverage – has surfaced from time to time since the early 1960s. Most recently, the idea of forcing Social Security coverage on State and local governments and their new employees has been advanced by organizations with an apparent bias against public employee retirement benefits – many funded by the Laura and John Arnold Foundation. Among other things, these reports have suggested that current plans don’t work for most teachers; that Social Security offers better protection against inflation; and that expanding Social Security would lessen reliance on state pension plans.

Inherent in most of these reports, is the idea that State and local governments should abandon their defined benefit retirement plans and replace them with a combination of Social Security and a defined contribution plan that shifts all of the risk to individual public employees. Despite the fact that most employees will ultimately be left with a less secure retirement, these reports frequently argue their recommendations are offered to benefit public safety workers, teachers, and other dedicated public employees. They tend to gloss over the true impact on State and local budgets and the inevitable confusion and instability that would result for current and future public employees.

These reports often suggest the Federal government is in a better position to decide how State and local government officials can best manage their public workforce and provide compensation, including disability, retirement, and survivor benefits. However, while the Federal government has struggled to find a way to reform Social Security to preserve its long-term sustainability while meeting the increasing retirement security needs of millions of Americans, most State and local governments have enacted responsible reforms that balance the interests of public workers and the taxpayers who fund the pension promises. Since State and local governments may choose to participate in Social Security, it’s not at all clear why a Federally mandated, one-size-fits-all option would be good public policy.

One report actually suggested the cost of mandatory coverage on State and local budgets “would be trivial.” While we can certainly debate the definition of trivial, a series of independent studies done by The Segal Company – most recently in March of 2021 – shows the cost to the 50 states would be in excess of $35 billion over the first five years of mandatory coverage. To better understand the impact of mandatory Social Security coverage on one pension system, we’ve highlighted the impact on the California Teachers Retirement System (CalSTRS), the Nation’s largest teachers’ retirement system.

Finally, reports frequently tout the impact that mandatory coverage would have on the long-term sustainability of Social Security; however, a closer look suggests otherwise. In 2013, the Social Security actuaries estimated that extending coverage to all new State and local workers would reduce the deficit by 0.15 percent of taxable payroll over the next 75 years and would extend the life of the trust fund by only one year.

Notwithstanding a series of agenda-driven studies, there are consequences associated with a massive Federal mandate on State and local government. While many may be unintentional, they will have a profound impact on the retirement security of millions of working Americans.