Under current law, public employees who have a pension plan, but who are not covered by Social Security, may hold a referendum on whether to elect Social Security coverage. Legislative History

The 1935 Social Security Act did not extend Social Security coverage to state and local government workers. In 1990, Congress made Social Security coverage mandatory, starting in July 1991, for most state and local government employees who are not covered by an alternative public pension plan. Social Security Coverage by State

Across the United States, about 27.5% of state and local government employees (about 6.6 million persons) work in positions that are not covered by Social Security. SSA's Office of the Chief Actuary estimates that, if mandatory coverage were implemented in 2011, it would close 9% of the system's projected long-range funding shortfall and extend the projected trust fund exhaustion date to 2040. Although mandatory coverage is projected to have a net positive effect on the Social Security Trust Funds on average over the 75-year projection period , the greatest positive effect with respect to Social Security's finances would occur during the initial period following implementation. This option is projected to increase revenues by about $24 billion over 5 years (2012 to 2016) and $96 billion over 10 years (2012 to 2021). In addition, they maintain that mandatory Social Security coverage of newly hired state and local government employees would prevent gaps in pension or Social Security coverage, resulting in better retirement, survivor, and disability insurance protections for workers who move between state and local government positions and other positions. Supporters of mandatory coverage also point out that it could result in better benefit protections for workers and their families through the provision of dependents' and survivors' benefits under Social Security. The net effect on a worker's total benefits, however, would depend in part on how state and local governments modify their existing non-covered pension plans in response to mandatory coverage. Opponents argue that mandatory Social Security coverage would not necessarily result in better benefit protections for workers because state and local governments could reduce some pension benefits currently available under non-covered pension plans to keep overall pension costs down. Moreover, Congress could enact changes to the Social Security contribution and benefit structure that result in higher payroll taxes and lower benefits for current workers (compared with current law) in response to Social Security's projected long-range funding shortfall. Some believe that the eligibility requirements under public pension plans for certain categories of workers (e.g., fire fighters and police officers) reflect the circumstances of these occupations, such as physical demands and higher disability rates. Potential Impact on State and Local Pension Plans

Some state and local government pension plans could be affected if newly hired state and local government employees were required to participate in Social Security. In response to mandatory Social Security coverage, employers might change the pension benefits of newly hired public employees to reflect the added Social Security coverage. Equity Considerations

Some argue that non-covered state and local government workers should share in providing the poverty reduction that occurs through the Social Security system, which offers disability benefits, dependents' benefits and survivors' benefits, in addition to retirement benefits. The remaining 27% was paid to disabled workers and their dependents (16% of total benefits paid) and to the survivors of deceased workers (11% of total benefits paid). Opponents argue that Social Security coverage has been available to state and local governments since the early 1950s.
Social Security covers about 94% of all workers in the United States. Most of the remaining 6% of non-covered workers are public employees. About one-fourth of state and local government employees are not covered by Social Security for various historical and other reasons. The 1935 Social Security Act did not extend coverage to state and local government workers. Since the 1950s, Congress has passed laws to allow state and local government employees who have public pensions to elect Social Security coverage through employee referendums. In 1990, Congress made Social Security coverage mandatory, starting in July 1991, for most state and local government employees who are not covered by an alternative public pension plan.
Some have proposed extending mandatory Social Security coverage to all newly hired public employees. Recently, this proposal was included in the recommendations of the Bipartisan Policy Center's Debt Reduction Task Force and the National Commission on Fiscal Responsibility and Reform. According to the Social Security Administration (SSA), mandatory Social Security coverage of newly hired state and local government workers would close an estimated 8% to 9% of Social Security's projected average 75-year funding shortfall (the greatest positive financial effect would occur during the initial period following implementation) and extend Social Security trust fund solvency by 2 to 3 years. The Congressional Budget Office estimates that the proposal would increase net federal revenues by $24 billion over 5 years and $96 billion over 10 years.
Supporters of mandatory Social Security coverage maintain that it would result in better benefit protections for workers and their families through the provision of dependents' and survivors' benefits and full cost-of-living adjustments under Social Security. Opponents argue that mandatory coverage would not necessarily provide better benefit protections compared with existing non-covered pension plans; the net effect on a worker's total benefits would depend in part on how state and local governments modify their existing pension plans in response to mandatory coverage. Moreover, Congress could enact changes to the Social Security contribution and benefit structure that result in higher payroll taxes and lower benefits for current workers in response to Social Security's projected long-range funding shortfall. Supporters point out that, unlike state and local pension plan coverage, Social Security coverage is portable (i.e., coverage is transferrable as a worker moves from job to job). Mandatory Social Security coverage would prevent gaps in coverage that can adversely affect workers, especially those who become disabled. Some supporters of mandatory coverage argue that Social Security reduces poverty among retired and disabled workers, spouses, dependent children, and the survivors of deceased workers. They argue that all workers should share in providing this poverty reduction, which has national benefits.
Many state and local government employers and employees oppose mandatory Social Security coverage, even if it were extended only to newly hired employees. State and local governments are concerned that mandatory coverage could increase pension system costs significantly at a time when many state and local pension systems are struggling financially. The extent of cost increases would depend on how states and localities adjust their existing pension plans in response to mandatory Social Security coverage. Some state and local government employees and advocacy groups express concern that existing non-covered pension plans, including those designed for specific categories of workers such as fire fighters and police officers, could be "undermined" if Social Security coverage were mandated.