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Security: Who’s In and Who’s Out
Every time I write a column about various offsets that impact Social Security
benefits payable to folks who spend the bulk of their working lives in jobs not
covered by Social Security, as I did about a month ago, I obviously get lots
of follow-up questions about those offsets. But I also get questions from other
readers who wonder why some workers are not required to pay into Social Security.
I’ve addressed this issue before, but I guess it’s time to go over
The last time I checked, about 93 percent of all workers in this country were
mandatorily covered by Social Security. The other seven percent is made up mostly
of railroad workers and some state and local government employees who have separate
retirement pension plans. Here is the story behind that.
When Social Security first started in the 1930s, most people in this country
didn’t have pensions, so a government-sponsored retirement program like
Social Security was a welcome relief for them. Just about everyone who worked
for wages was covered by Social Security from day one. (Self-employed people
came under Social Security’s umbrella a decade or so later.)
But some groups of employees already had pension plans in place. The two largest
were railroad workers, who were covered by the railroad retirement system, and
federal government employees (including the president, members of Congress, etc.),
who were covered by the civil service retirement system. Both of those pension
plans had been around long before Social Security started. So it was decided
to exclude these two large groups from Social Security — simply because
they didn’t need it.
In addition, Congress felt that it would be unconstitutional to force a federal
government pension plan (Social Security) on state and local governments. So,
employees of state and local government entities were given the option of joining
Social Security or not. Most did. About 80 percent of all such public employees
became part of Social Security.
So that’s what happened when Social Security started in the 1930s. Nobody
thought twice about any of these decisions because they made sense. Over the
years, people started griping about the fact that members of Congress and other
high-level government officials were not covered by Social Security. Stories
began to spread that Congress had specifically excluded itself from Social Security
in order to set up its members with a better pension system. Eventually, there
was simply too much political pressure on Congress to remain outside of Social
So in 1983, as part of a package of major Social Security reform legislation,
they passed a law mandating that all members of Congress, the president and vice
president, all other government leaders, as well as all federal employees hired
after 1983, would be covered by Social Security.
Today, that leaves railroad workers as the only major nationwide group of employees
still not covered by Social Security. Even though many aspects of railroad and
Social Security pensions overlap, people who spend at least 10 years working
for a railroad will have all of their benefits (including Social Security payments)
managed by the Railroad Retirement Board, not by the Social Security Administration.
And at the state and local level, there are thousands of groups around the country
still not under the Social Security umbrella. They could be anything from a small
sewer district in Washington state of maybe 10 employees to a large group of
thousands of employees like California teachers. In fact, the largest groups
of non-Social Security covered workers tend to be teachers — in states
like California, Texas and Ohio. Also many law enforcement agencies and firefighters
in these same (and some other) states are not in Social Security.
So that is why some jobs in this country are not covered by Social Security.
But will that last? Whenever there is talk about Social Security reform, one
proposal often mentioned is universal coverage. That means mandating Social Security
coverage for everyone, including all those teachers and firefighters mentioned
Such a proposal is a relatively easy political fix because it would only impact
a small percentage of the population, i.e., voters. But it really isn’t
all that much of a practical fix for Social Security, because it would wipe out
only about 10 percent of the program’s long-range debt.
Also, such a fix obviously could have a huge impact on the people who currently
work in these non-Social Security-covered jobs. Although if it were to happen,
current non-covered workers would likely be grandfathered into their employer’s
pension plan and only newly hired workers would be covered by Social Security.
There is precedent for this. When newly hired federal government workers were
mandatorily covered by Social Security in 1983, they set up a plan for the new
federal employees to replace the old civil service retirement system. It is called
the Federal Employees Retirement System. I know several former colleagues who
have retired with the new FERS/Social Security pension, and they love it. In
fact, because of the extra benefits they can accrue through something called
the Thrift Savings Plan, many of them are doing better than me, an old goat federal
retiree who is getting the old-fashioned civil service pension.
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