| Lacking Social Security coverage |
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According to the U.S. Government Accountability Office, 27 percent of state and local public workers are exempt from Social Security. While all states have some workers who are not covered, the bulk of uncovered public sector employees reside in these 14 states: |
Overall, 27 percent of state and local public workers are exempt from Social Security, according to GAO. The bulk of uncovered public sector employees reside in 14 states — including Maine (see sidebar).
In practical terms, this means that a state like Maine does not contribute the usual 6.2 percent of payroll that constitutes an employer’s share of Social Security taxes. It also means that state workers and teachers in Maine do not contribute 6.2 percent of their salaries to Social Security. Nor do they earn Social Security credits used to calculate benefits, at least for as long as they continue in their jobs as state employees or teachers.
The question of whether to extend Social Security coverage to all public sector workers in the future is not new. For workers, there are pros and cons either way.
On the plus side, unlike many state pension plans, Social Security is portable. That means benefits cannot be lost be lost because of a job change. Also, Social Security always includes coverage for dependents, something state and local pension plans often lack.
On the down side, public sector unions often argue that their pension programs are tailored to meet specific needs that Social Security fails to address. For example, firefighters and police officers tend to retire earlier than other workers because of the hazardous nature of their jobs. Cops who retire in their early 50s would have to wait a decade or more to begin collecting Social Security, whereas their current pension packages are designed to take an earlier retirement age into account.
Incremental costs
From the states’ perspective, providing Social Security coverage is costly. In Maine, the task force studying the issue concluded that any new plan based on Social Security would cost more because Social Security alone costs 6.2 percent for every employee — currently, the state contributes 5.5 percent of payroll. Switching to Social Security, the task force estimated, would cost the state an additional $1.8 million within five years.
And moving new hires to Social Security would do nothing to tackle Maine’s $4.4 billion unfunded pension liability. Maine has a unique constitutional requirement to fully fund the pension system by 2028. The requirement was approved by voters in the 1990s. To meet that requirement, J. Scott Moody, the chief economist at the conservative Maine Heritage Policy Center, estimates that Maine’s annual pension payments will balloon from $250 million this year to $1 billion within six years. “A billion dollars is a lot of money in Maine,” he says.
Moody’s group supports a pension proposal put forward by Republican Governor Paul LePage. That plan would increase the retirement age for state workers and require them to contribute more toward their pensions. It also would freeze cost of living increases to benefits for three years, after which a cap on that allowance would drop from 4 percent to 2 percent. The governor’s plan doesn’t address the Social Security issue.
Union officials like Crouse call the governor’s pension proposal "offensive," particularly the changes to cost of living allowances. "The impact on the long-term purchasing power for seniors and retirees would be devastating," Crouse says.
— Contact Pamela M. Prah at pprah@stateline.org
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