Mandatory Coverage Would Benefit the Social Security Program

Extending mandatory Social Security coverage to states and localities with noncovered workers would reduce the trust funds’ long-term financial shortfall, increase program participation, and simplify program administration. Impact of Mandatory Coverage on Employers, Employees, and Their Pension Plans Would Vary

If all newly hired public employees were to receive mandated Social Security coverage, they would have the income protection afforded by Social Security. From discussions with state and local representatives, however, we believe states and localities with noncovered workers would likely adjust their pension plans to reflect Social Security’s costs and benefits. This response would also likely increase costs and benefits for newly hired employees. Maintaining Level Benefits Would Likely Increase Costs

States and localities with noncovered workers could opt to provide newly hired employees with Social Security and pension benefits that, in total, approximate the pension benefits of current employees. If coverage is mandated, states and localities with noncovered employees could decide to provide newly hired employees with pension plan benefits similar to those provided to currently covered employees. Concluding Observations

In deciding whether to extend mandatory Social Security coverage to all newly hired state and local employees, the Congress will need to weigh several factors. First, the Social Security program would benefit from mandatory coverage. The long-term actuarial deficit would be reduced, and the trust funds’ solvency would be extended for about 2 years. Mandatory coverage would also increase participation in an important national program and simplify program administration. At the same time, Social Security would provide newly hired employees with benefits that are not available, or are available to a lesser extent, under current state and local pension plans. In addition, mandatory coverage would present legal and administrative issues. States and localities might attempt to halt mandatory Social Security coverage in court, although such a challenge is unlikely to be upheld. Finally, states and localities could require up to 4 years to implement mandatory coverage.
Why GAO Did This Study

Pursuant to a congressional request, GAO discussed extending mandatory Social Security coverage to all newly hired state and local government employees, focusing on: (1) the implications of mandating such coverage for the Social Security program, public employers, newly hired employees, and the affected pension plans; and (2) potential legal and administrative issues associated with implementing mandatory coverage.

What GAO Found

GAO noted that: (1) mandating coverage for all newly hired public employees would reduce Social Security's long-term financial shortfall by about 10 percent, increase participation in an important national program, and simplify program administration; (2) the impact on public employers, employees, and pension plans would depend on how states and localities with noncovered employees would react to these new coverage provisions; (3) one often-discussed option would be for public employers to modify their pension plans in response to mandatory Social Security coverage; (4) costs would likely increase for those states and localities that wanted to keep their enhanced benefits for newly hired employees; (5) alternatively, states and localities that wanted to maintain level spending for retirement would likely need to reduce some pension benefits; (6) regardless, mandating coverage for public employees would present legal and administrative issues that would need to be resolved; (7) in deciding whether to extend mandatory Social Security coverage to all newly hired state and local employees, Congress would need to weigh several factors: (a) the Social Security program would benefit from mandatory coverage; (b) the long-term actuarial deficit would be reduced; and (c) the trust funds' solvency would be extended for about 2 years; (8) states and localities with noncovered workers would likely need to increase total retirement spending to provide future workers with pension benefits that, when combined with Social Security benefits, approximate the benefits provided to current workers; (9) at the same time, Social Security would provide newly hired employees with benefits that are not available, or are available to a lesser extent, under current state and local pension plans; (10) states and localities might attempt to halt mandatory Social Security coverage in court, although such a challenge is unlikely to be upheld; and (11) states and localities could require up to 4 years to implement mandatory coverage.