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 in Alaska, 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.
Resolution 1998-03- Social Security Resolution
The Cost of Mandating Social Security Coverage on the Public Sector, CPRS/Segal 2021
Safe Harbor Regulations for FICA Replacement Plans (Rev. Proc. 91-40)
Federal-State Reference Guide - Social Security and Medicare coverage for state and local governments, IRS/SSA
Mandatory Social Security of State and Local Public Employees: Establishing the Facts, Coalition to Preserve Retirement Security, September 2011
Social Security: Mandatory Coverage of New State and Local Government Employees, Congressional Research Service, July 2011
The Government Pension Offset, Congressional Research Service, February 2023
Recent Changes in Pension Benefits for State and Local Workers Not Covered by Social Security, Urban Institute, November 2019