Last year, the idea of mandatory Social Security for all newly-hired public employees was included in the recommendations of two major Commissions tasked with examining the Federal deficit and ways in which to reduce it. This year, as Congress struggles to come up with a plan to achieve major reductions in the Federal deficit as part of the debt-ceiling increase, some are concerned that the idea of mandatory Social Security may resurface. In response to this potential threat, the Committee to Preserve Retirement Security (CPRS) has been increasing its engagement with Congress, and held a bipartisan Congressional staff briefing in early June. Later that month, CPRS also participated in a hearing by the House Committee on Ways and Means on “Social Security’s Finances,” testifying in opposition to mandatory coverage.
The idea of mandatory Social Security coverage for all new hires of State and local government is an idea that has often been discussed on Capitol Hill over the years. However, it has always eventually been abandoned as too disruptive and costly for State and local governments, with too little benefit to overall Social Security reform. Indeed, it has always been assumed that such an effort would not be considered separate and apart from an overall discussion of Social Security reform.
Now, however, this linkage appears to no longer be a given. Late last year, both the President’s Deficit Commission and the Domenici-Rivlin Budget Task Force proposed that all newly-hired employees of state and local governments after 2020 be covered under Social Security, and the reasons for this had more to do with retirement security for public employees and the desire to avoid a federal bailout of public pension plans than it did the solvency of Social Security.
For example, the Deficit Commission said that excluding some public employees from Social Security and instead maintaining separate retirement systems “has become riskier for both government sponsors and for program participants and a potential future bailout risk for the federal government” due to prolonged fiscal challenges and an aging workforce. The Commission argued that mandatory coverage is necessary to mitigate these risks. “Full coverage will simplify retirement planning and benefit coordination for workers who spend part of their career working in state and local governments,” the deficit Commission argued, “ and will ensure that all workers, regardless of employer, will retire with a secure and predictable benefit check.”
The Domenici-Rivlin Task Force took a somewhat similar tack, explaining that including these new government employees in Social Security would “provide better disability and survivor insurance protection for many workers who move between government employment and other jobs.”
Furthermore, the Task Force explained the delayed effective date of 2020 as an acknowledgement of the “poor fiscal condition of state and local governments” as well as what they referred to as “the significant underfunding of public employee pensions.” According to the Task Force, this “grace period” was intended to provide governments the time to “shore up and reform their pension systems.” The Task Force concluded that “Over the long run, covering all of their employees under Social Security could help states and localities get their fiscal houses in order through transitioning to more sustainable pension programs.”
With public pensions under the microscope in the new Congress, with fears of a potential Federal bailout being raised as the rationale for Federal regulation of state and local governmental pension accounting, the recommendations and reasons for mandatory coverage, offered by the two deficit reduction panels, are increasingly worrisome.
Accordingly, CPRS held a Congressional Staff Briefing on June 6th. The briefing was a bipartisan event designed to educate Congressional staff from the 13 states that would be most significantly impacted by mandatory coverage for new State and local public employees regarding the history of Social Security as it relates to state and local employees, the retirement plans that currently protect the financial futures of public employees, and the unintended consequences that would result from Congress mandating coverage for future hires.
(The Coalition to Preserve Retirement Security (CPRS) is composed of individuals and organizations having an interest in maintaining a Social Security system which does not impose mandatory participation on state and local governmental units and their employees. Its purpose is to support continued voluntary participation of state and local government employers and employees in the Social Security program and oppose legislation to compel program participation. NCTR and NASRA are both National Partners of CPRS.)
Speaker of the Ohio House of Representatives, William Batchelder, addressed the group through a previously recorded video. He stressed the importance of the issue for both Ohio public employees and taxpayers, explaining the long-term pension security that Ohio's public retirement systems currently provide their participants. He also discussed the fact that Ohio is currently addressing ways to make sure the systems remain secure in the future.
Kevin O'Connor, assistant to the general president for Governmental Affairs for the International Association of Fire Fighters (IAFF), then discussed the unique impacts such a mandate would have on uniformed public employees. He explained that an estimated 70 percent of all fire fighters are covered by pension plans that are independent of Social Security, and that these comprehensive plans are tailored to meet the unique needs of fire fighters by taking into consideration the early retirement ages and high rates of disability retirement that are characteristic of public safety occupations.
Finally, Tom Lussier, administrator for CPRS, discussed the myths and facts surrounding the debate over mandatory Social Security. Approximately 70 staffers attend the event, and according to Tom, “we’ve had very favorable feedback.” CPRS helped orchestrate bipartisan “Dear Colleague” letters in both the House and Senate prior to the briefing supporting the CPRS message and urging attendance. “Regardless of whether an office actually attended, we know that every Member of Congress within our targeted population received our message from a bipartisan group of their colleagues,” Tom underscored.
CPRS also participated in a June 23rd hearing before the House Committee on Ways and Means’ Subcommittee on Social Security. The focus of the hearing was on the sources of Social Security’s revenues, how those sources have changed over time, options for change and their impacts.
After consultation with the Committee and with its Chairman, Congressman Sam Johnson (R-TX), Tim Lee, a CPRS Board Member and the Executive Director of the Texas Retired Teachers Association, was selected to testify on behalf of CPRS. Mr. Lee told the Subcommittee that mandatory coverage would only add two years of solvency to the 75-year projection for the Social Security program, but it would cost public employees, their employers and ultimately taxpayers nationwide more than $44 billion over the first five years, according to a 2005 update of a study conducted by the Segal Company. (Segal is once again updating this study that they originally performed in 1999, and a final version is expected in July.)
Mr. Lee also stressed that public pension plans were not in crisis. “Contrary to the premise upon which the most recent Debt Commission based its recommendation, most state and local government employee retirement systems have substantial assets to weather the recent economic crisis; those that are underfunded are taking steps to strengthen funding,” he told Subcommittee members.
There are currently no vocal supporters of mandatory Social Security coverage for state and local government new hires pushing for such on Capitol Hill. However, the increasingly heated discussion of the need for entitlement reforms is creating a possible environment in which Social Security changes could finally be in the making. The recent report by the Wall Street Journal that AARP is “dropping its long-standing opposition to cutting Social Security benefits” -- despite AARP’s subsequent denial that they have altered their position – has also helped to increase speculation that change is inevitable.
Whether or not Social Security reforms could actually be accomplished before the 2012 elections remains to be seen, but the cost impacts on a number of states will likely continue to make mandatory coverage for new public employees as hard a sell as it has always been, particularly given the current financial challenges confronting state and local governments.
However, it is clear that a new rhetoric supporting mandatory coverage suggests a new approach for its advocates: it is necessary as a means of reforming State and local pension systems to make them “more sustainable” and to avoid the need for a Federal bailout. If this idea takes root, it could well play beautifully into the hands of those who are anxious to appear to be helping address the “impending” financial threat that underfunded public plans pose to their sponsors, their participants, and eventually to the Federal government.
Should Congress becomes convinced that it must “do something” to address a perceived public pension crisis, mandatory coverage could surface as one piece of some larger, overall package (a Nunes/Burr super bill?) designed to make State and local governments “reform” their pensions to become more sustainable. If mandatory coverage is effectively removed from the context of overall Social Security reform, where it has always been able to be argued as providing too little relief at too great a cost, it could change the entire tenor of the discussion.
• Ways and Means Testimony of Tim Lee
