Archived Insight | August 17, 2021

The Cost of Mandating Social Security on the Public Sector

State and local governments that offer a retirement plan can decide whether to enroll their employees in Social Security. Many have opted for Social Security coverage for at least part of their workforce. Yet a large number of public sector workers — primarily public safety officials and teachers — do not participate in Social Security.

To improve the solvency of the Social Security program, some federal policymakers argue that the U.S. should make coverage in Social Security mandatory for all public sector workers. In this report, prepared for the Coalition to Preserve Retirement Security, we explore the negative and unintended consequences that mandate would have for state and local employees and their employers.

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Projected financial impact

Mandatory Social Security coverage would be costly for states, localities and public workers. The estimated cost of this unfunded federal mandate over the first five years is at least $35 billion and could be considerably higher.

The report includes state-specific data in tables and a map that illustrates the relative impact on each state.

Every state would experience increased cost in payroll taxes.

Effect on public retirement plans and workers

For public retirement plans, the impact would be significant. A mandate would likely:

  • Raise the cost of maintaining current benefit levels
  • Result in reduced benefits
  • Limit the ability of employers to replace retiring baby boomers
  • Affect current workers

Moreover, mandatory Social Security coverage ignores the diverse workforce requirements of the public sector.

Do you have questions about how your state might be affected by a Social Security mandate?

We have answers.

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This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.