Social Security Coverage

Approximately one-fourth of employees of state and local government participate in a public retirement system in lieu of Social Security. This includes approximately 40 percent of public school teachers and over two-thirds of firefighters, police officers, and other first responders. Every state has groups of public employees that do not participate in Social Security. Most to substantially all of the public employees iAlaska, Colorado, Louisiana, Maine, Massachusetts, Nevada, and Ohio are not in Social Security.

Employers and employees who do not participate in Social Security do not pay the Social Security portion of the FICA tax, (6.2 percent of payroll each). Thus, public pension benefits for non-Social Security-eligible employees usually are higher than those of other public employees, to compensate for the absence of Social Security benefits.

Non-participation in Social Security dates to the origins of the Old Age, Survivors, and Disability Insurance program in 1935, when coverage was limited to private sector workers due to constitutional concerns regarding the authority of the federal government to impose taxes on states and political subdivisions. After the Social Security Amendments of 1950, states were allowed to enter into voluntary agreements with the Federal government to provide Social Security coverage to public employees. 


Many state and local government pension have elected to complement their own pension programs through coverage under Social Security. Other governments decided not to participate in Social Security but rather provide their own independent programs of retirement benefits.

The Omnibus Budget Reconciliation Act of 1990 generally extended Social Security coverage to include state or local government employees unless they are covered by a retirement system that provides certain minimum retirement benefits (aka a FICA Replacement Plan). IRS Revenue Procedure 91-40 outlines safe harbor formulas deemed to meet the minimum retirement benefit requirement. Further information on Social Security coverage of state and local government employees can be found in the Federal-State Reference Guide, on the Social Security Administration’s web page for state and local government employers, and on the National Conference of State Social Security Administrators’ webpage


Become A Member

Becoming a member of NASRA offers a unique opportunity to join a community committed to the sound, efficient, and innovative stewardship of public retirement systems. Membership connects you with a network of professionals and experts, providing valuable insights into managing public retirement systems with a focus on sustainability and risk-averse strategies.

By joining NASRA, you gain the tools and resources to enhance the management of public retirement systems, ensuring their long-term success and reliability for generations to come.


 

What's New at NASRA: Latest Update on Employee Contributions to Public Pensions

NASRA updates six key briefs annually on public pension management. The latest focuses on employee contributions to public pensions. Unlike private sector pensions, state and local government employees contribute to their retirement benefits, a crucial practice for stable pension funding. Post-2008 financial downturn, many plans increased these contributions. This brief examines the contribution plans’ design, policies, and trends, underlining their importance in pension sustainability.