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.
Resolution 1998-03- Social Security Resolution
2018 OASDI Trustees Report, Office of the Chief Actuary, June 2018
Social Security Policy Options, Congressional Budget Office, December 2015
Federal-State Reference Guide - Social Security and Medicare coverage for state and local governments, IRS/SSA
Social Security: Mandatory Coverage of New State and Local Government Employees, Congressional Research Service, July 25, 2011
The Cost of Universal Social Security Coverage of State and Local Workers, Coalition to Preserve Retirement Security, 2011
The Government Pension Offset, Congressional Research Service, July 2018