Social Security Coverage of State and Local Government Employees

Social Security is the single largest federal program in terms of the number of beneficiaries as well as budget. It pays cash benefits to over 70 million beneficiaries each month, and total benefit payments are more than $136 billion on a monthly basis. Beneficiaries include retired or disabled workers and their eligible family members and eligible family members of deceased workers. People become eligible for Social Security benefits for themselves and their family members by working in jobs that are covered by Social Security. Most jobs in the United States are mandatorily covered by Social Security. An estimated 93% of workers in paid employment and self-employment are covered under the program, and an estimated 186 million people work in covered jobs. Workers in covered jobs and their employers are required to pay Social Security payroll taxes that are the primary source of funding for the program. In 2026, workers and their employers each contribute 6.2% (for a total tax rate of 12.4%) of the worker’s earnings up to a maximum earnings level of $184,500. Current payroll tax collections are used to fund current benefit payments. People who work in jobs that are not covered by Social Security (noncovered workers) do not pay Social Security payroll taxes based on those earnings (nor do their employers), and they do not receive Social Security benefits based on those earnings. Over the years, Congress expanded coverage under the program, making it a nearly universal system. On the basis of equity, some argue that certain noncovered workers should be brought into the system to share in the program’s broader social goals. Social Security keeps many beneficiaries out of poverty, which benefits the nation as a whole. In addition, some argue that certain noncovered workers should share in the ongoing costs associated with the startup of the program (the legacy costs). In the early years, workers who had paid into the system for a short period received benefits far in excess of their contributions. Because the family members of noncovered workers (e.g., grandparents) likely benefitted from the program in its early years, they argue that noncovered workers should share in the system’s legacy costs. The largest and most high-profile group of noncovered workers is the segment of state and local government employees who are not covered by Social Security through their government employment. Social Security coverage is voluntary for state and local government employees covered under public retirement systems that meet certain requirements. These employees may elect Social Security coverage through Section 218 Agreements between the states and the Social Security Administration. Coverage is elected through referendums held at the option of the state. Social Security coverage is mandatory only for state and local government employees who are not covered under alternative retirement systems. Most state and local government employees participate in Social Security. In 2023, there were approximately 22.9 million state and local government employees, and about 16.7 million (73%) had Social Security coverage. The other 6.3 million (27%) did not have Social Security coverage through their government employment. The largest share of noncovered state and local government employees work at the local level, and most noncovered local government employees are police officers, firefighters, and teachers. Proposals to make Social Security coverage mandatory for newly hired state and local government employees have been part of the policy debate for years. These proposals have drawn strong support and opposition for a variety of reasons. Supporters argue that mandatory coverage for newly hired state and local government employees would have a net positive effect on the Social Security trust funds and on federal revenues. Estimates show that the policy change would close 4% of the Social Security system’s projected long-range funding shortfall. Supporters also maintain that mandatory Social Security coverage would eliminate gaps in Social Security and pension coverage for workers who move between covered and noncovered positions during their careers. Compared to state and local pension plans in general, Social Security provides better inflation protection, disability benefits, benefits for dependents and survivors, and a progressive benefit formula intended to help workers with lower career-average earnings. Benefit protections provided by Social Security could be particularly important for noncovered workers in states and localities with underfunded pension plans and whose future pensions may be at risk. Opponents maintain that mandatory coverage could pose administrative and cost burdens on state and local governments and their employees at a time when many state and local pension systems are underfunded. State and local governments would have to negotiate with employee representatives and legislatures on the redesign of existing retirement systems in response to a Social Security coverage mandate, a process that could take years, and could have to administer existing retirement systems alongside new retirement systems for many decades. Opponent also say mandatory coverage could threaten or undermine existing retirement systems, particularly those tailored to workers in certain occupations such as police officers and firefighters. The cost impact to state and local governments and their employees would depend on the type of pension benefit structure states and localities adopt in response to a Social Security coverage mandate, among other factors. Overall, the impact on state and local plans and the net effect on total benefits would vary across plans and across individuals, depending on how states and localities would respond to a coverage mandate, the relative differences between existing pension plans and new or modified plans incorporating Social Security, and other factors. Any future legislative changes to Social Security to address the system’s projected funding shortfall and achieve other policy objectives would also be a factor. Every state has a mix of state and local government employees with and without Social Security coverage, so every state would be affected by a Social Security coverage mandate. Some states would be affected to a larger degree than others given the variation in coverage rates among the states under current law. In 2023, the share of state and local government employees with Social Security coverage ranged from 2% to 98% among the states. Overall, eight states accounted for almost three-fourths (75%) of noncovered state and local government employees (from largest to smallest: California, Texas, Ohio, Massachusetts, Illinois, Colorado, Louisiana, and Georgia). Three states accounted for almost half (49%) of noncovered state and local government employees (California, Texas, and Ohio). Figure 1.Share of State and Local Government Employees Not Covered by Social Security, 2023 / Source: Data from the Social Security Administration obtained by CRS in February 2026.