NCSL Letter to Archer on Social Security Reform

November 19, 1998

The Honorable William Archer, Chairman

Dear Chairman Archer:

[1] The National Conference of State Legislatures (NCSL) commends you and the Committee on Ways and Means for beginning the arduous task of considering the alternatives available to reform Social Security and the process by which the House will undertake this task. The nation's state legislators feel very strongly about one aspect of Social Security reform, that of the extension of mandatory Social Security coverage to all or new state and local government employees. NCSL VIGOROUSLY OPPOSES ANY EFFORTS TO EXTEND MANDATORY COVERAGE TO ADDITIONAL GROUPS OF STATE AND LOCAL GOVERNMENT EMPLOYEES IN ANY PACKAGE TO RESTORE SOLVENCY AND INTEGRITY TO SOCIAL SECURITY.

[2] As you are aware, the Social Security Act of 1935 specifically prohibited state and local government employees from coverage in part, because state and local government retirement plans effectively provided retirement benefits to many state and local government employees. Most recently, the Omnibus Budget Reconciliation Act of 1990 (OBRA 1990) required mandatory coverage of state and local employees not covered by a public pension plan. Further, OBRA 1990 ordered that these plans maintain minimum contribution and benefit level standards equivalent to Social Security in order to avoid mandatory coverage.

[3] Numerous proposals intended to extend the life of Social Security offered since the 1980s have included a menu of options for bringing solvency to the nation's largest retirement insurance system. Many of these proposals have included plans to extend mandatory Social Security coverage to state and local employees under the guise of simplifying program administration and broadening participation in an important national program. While we agree that Social Security is a valuable program that provides benefits to the vast majority of Americans, state and local government retirement systems provide comparable and in many cases superior benefits to those provided by Social Security as well as flexibility to specific classifications of employees who are ill-suited to participate in Social Security.

[4] State and local government retirement systems effectively provide retirement and supplemental benefits, such as health care, to state and local employees and their families. THESE SYSTEMS EFFECTIVELY MANAGE RETIREMENT FUNDS ON BEHALF OF PUBLIC EMPLOYEES AND ARE MODELS FOR EFFECTIVE PRIVATE RETIREMENT SAVINGS THAT SHOULD BE STUDIED FOR BEST PRACTICES, NOT RAIDED AS A SHORT TERM FIX TO EXTEND SOCIAL SECURITY FOR A LIMITED NUMBER OF YEARS. State and local employees earned these funds, contributed to these plans and in many cases bargained successfully for the range of retirement benefits offered by state and local government retirement systems. State and local employees with a proven commitment to personal savings should not be punished for their planning and initiative. Many of those critical of state and local government retirement plans have stipulated that mandatory coverage is "only fair." We disagree. It is not fair to resolve the Social Security solvency problem at the expense of public employees who have saved and planned for their retirement in good faith and in partnership with their employers, state and local government.

[5] Mandatory coverage is not a sound policy. Mandatory coverage would devastate the retirement savings of state and local employees, without any guarantee that their Social Security benefit would be equal to their benefit under their current savings plan. The General Accounting Office (GAO) argues in an August 1998 report that by extending mandatory Social Security coverage to all newly hired state and local government employees Social Security's long-term actuarial deficit would fall about 10 percent and the program would remain solvent for an additional two years. GAO maintains that the "effect on public employers, employees, and pension plans would depend on how state and local governments with noncovered employees respond to the additional costs and benefits associated with Social Security coverage." State and local governments, as employers, would be faced with the untenable choice of decreasing or discontinuing benefits, raising the costs to participate in the program, or being forced to supplement these plans with additional funds from state revenues at the expense of other valuable state and local programs. While states are currently experiencing a lift in the economy, state and local governments might be forced to increase borrowing, reduce spending, or raise revenues to honor our commitments to public employees and to state retirement systems if we were unable to reduce benefits or impose additional costs on plan participants.

[6] Similarly, the Congressional Budget Office (CBO) routinely suggests as a means to provide funds for federal priorities or budgeting balancing purposes that the federal government mandate coverage of state and local employees. In March of 1997, CBO estimated that the extension of mandatory Social Security to all State and Local workers would generate $6.9 billion dollars to the federal government over five years. YET, THESE REPORTS FAIL TO EXAMINE ADEQUATELY THE LONG-TERM CONSEQUENCES OF THESE PROPOSALS. IN THE OUT YEARS, AS THESE EMPLOYEES RECEIVE SOCIAL SECURITY BENEFITS THE FEDERAL SYSTEMS IS AGAIN AT RISK OF BECOMING INSOLVENT.

[7] We understand the immediate fiscal appeal of extending mandatory coverage, but maintain that it would totally uproot state and local government retirement systems supported by employee contributions. Further, reduced contributions to state and local government plans would have a dramatic effect on the long term financing of state and local plans, shifting the solvency problem to state and local retirement plans that to date have performed auspiciously on behalf of employees.

[8] AN EXTENSION OF MANDATORY COVERAGE WOULD IMPOSE A TREMENDOUS COST SHIFT TO STATES, WHICH WE ARE CERTAIN WOULD CONSTITUTE AN UNWIELDY UNFUNDED MANDATE. While seven states -- California, Colorado, Illinois, Louisiana, Massachusetts, Ohio and Texas -- account for 75 percent of the employees who participate in government sponsored retirement plans, the extension of mandatory coverage affects all states. (See attached table).

[9] STATE AND LOCAL GOVERNMENT RETIREMENT PLANS MUST BE FULLY PRESERVED AND ALLOWED TO OPERATE WITHOUT ADDITIONAL INTRUSIVE AND ADMINISTRATIVELY CUMBERSOME FEDERAL REGULATION. We urge you to consider our concerns and resist quick fix efforts such as extending mandatory coverage that leave so many worse off.

[10] We appreciate your consideration of the views of the National Conference of State Legislatures on this issue. If our staff can be of any assistance to you, please do not hesitate to contact Gerri Madrid at (202) 624-8670 or Sheri Steisel at (202) 624-8693.

                                   Sincerely,

Representative Norma Anderson,     Delegate John Hurson, Co-Chair

                              * * * * *

  ESTIMATED SOCIAL SECURITY COVERAGE OF WORKERS WITH STATE OR LOCAL

                              1992 /1/

              Sorted by the Number of Uncovered Workers

          [based on 1-percent sample; numbers in thousands]

                                          Number of Uncovered

California         2,198              1,069     1,129              49%

Total for

                         FOOTNOTES TO CHART

     /1/ Includes seasonal and part-time workers for whom State and

     /2/ Information not available for the District of Columbia,

Prepared by the National Conference of State Legislatures.

                      END OF FOOTNOTES TO CHART