Introduction

Social Security is a work-based, federal insurance program that provides cash benefits to workers and their eligible family members in the event of the worker's retirement, disability, or death. A worker's employment or self-employment is considered covered by Social Security if the services performed in that job result in earnings that are taxable and creditable for program purposes. In 2023, workers pay 6.2% of earnings in covered employment, up to a maximum earnings level of $160,200. The maximum earnings level is generally adjusted annually based on average wage growth in the national economy. Employers pay a corresponding amount—6.2% of the worker's covered earnings up to the annual maximum. Self-employed workers generally pay 12.4% of net earnings up to the annual maximum.¹ Workers qualify for Social Security by accruing a minimum number of earnings credits in covered jobs (in addition to meeting other requirements),² and benefits are based on their career-average earnings from all covered jobs.³

The largest and highest-profile group of noncovered workers is the segment of state and local public employees who are not covered by Social Security through their public employment. In 2019, about 6.5 million (or 28% of all) state and local public employees were employed in positions not covered under Social Security.⁴ Those workers are required to be covered under qualified public retirement systems.⁵ State and local public employees who are in positions covered by Social Security (1) pay the Social Security payroll tax and receive credits for program eligibility and benefit purposes, and (2) may also participate in public pension plans (if available) and receive public pension benefits in addition to Social Security benefits. In comparison, state and local public employees who are in positions not covered by Social Security (1) do not pay the Social Security payroll tax and those noncovered earnings are not creditable in determining Social Security eligibility or benefit amounts, and (2) participate in qualified public pension plans and receive benefits from noncovered public pensions (i.e., pensions based on earnings not covered by Social Security).⁶

Individuals with noncovered state and local public sector employment, however, may receive Social Security benefits based on other earnings that are covered under Social Security or covered earnings from spouses or deceased spouses. Those Social Security benefits are usually subject to certain reductions because of the receipt of noncovered public pension benefits. For example, a noncovered public employee may switch to a job later in his or her career that is covered by Social Security. The individual is likely to receive Social Security benefits based on those covered earnings in the later job, subject to certain reductions—referred to as the Windfall Elimination Provision (WEP). In another case, a noncovered public employee may be entitled to Social Security spousal benefits based on his or her spouse's covered earnings. This Social Security spousal benefit is likely to be subject to a reduction due to the noncovered public pension benefit the person would receive—referred to as the Government Pension Offset (GPO). The following section explains the basics of those benefit reductions.

This report provides participant data on state and local public sector pensions for employment that is not covered by Social Security. Congress has made proposals to change or eliminate the WEP and GPO for all or some affected individuals. Among individuals who are currently affected or will potentially be affected by the two provisions, lawmakers often have questions on the number of such individuals in each state and by occupation. Data on those noncovered public employees can assist policymakers in assessing the population that would be affected by proposed legislative changes. Because the WEP and the GPO typically affect Social Security beneficiaries who are receiving public pensions based on noncovered earnings, data on noncovered state and local public employees are closely related to participants in state and local public pensions.

Background on Social Security

Social Security is a work-related program that is funded primarily with dedicated payroll tax revenues. In all cases, a Social Security beneficiary becomes eligible for benefits either by working in a job that is covered by Social Security (a covered worker), by having a close family relationship to a covered worker, or both (among other requirements). For people who work in jobs that are covered by Social Security, participation is mandatory. Covered workers and their employers are required to pay Social Security payroll taxes.

Social Security Coverage: State and Local Public Sector Employment

Most jobs in the United States are covered by Social Security. The Social Security Administration (SSA) estimates that about 6% of workers in paid employment and self-employment are not covered under the Social Security program.⁷ The largest and most high-profile group of noncovered workers is the segment of state and local public employees who are not covered by Social Security through their public employment. In 2019, about 6.5 million (or 28% of all) state and local public employees—including state or local government employees, teachers, police officers, and firefighters—were not covered under Social Security.

If a job is not covered by Social Security, the worker's earnings are not subject to Social Security payroll taxes and do not count toward the worker gaining insured status under the program (i.e., the earnings do not count toward establishing future benefit eligibility for the worker and his or her family members). In addition, the earnings are not included in the computation of benefits.

Social Security coverage is voluntary for state and local public employees who are covered under qualified public retirement systems that meet certain requirements.⁸ If these state and local public employees collectively choose to participate in Social Security, they may elect coverage as a group through the state's so-called Section 218 Agreement with SSA, named in reference to Section 218 of the Social Security Act (42 U.S.C. §418), which authorized such agreements. Coverage is elected through a referendum held by the state. Ultimately, the decision to extend coverage to certain state and local public positions lies with the state, as the state must hold a referendum among eligible employees covered by a retirement system before Social Security coverage can be extended.⁹

For more information about Social Security coverage among state and local government employees, see CRS Report R46961, Social Security Coverage of State and Local Government Employees.

Social Security Benefits: the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO)

The Social Security program includes two provisions that affect Social Security beneficiaries who also receive pensions from noncovered employment: the WEP and the GPO. Congress enacted these provisions to address equity issues created by the exclusion of some workers from Social Security coverage. The WEP, which was enacted in 1983, affects the Social Security benefits that an individual receives based on his or her own work record (as a retired or disabled worker) as well as the benefits paid to his or her eligible family members. The GPO, which was enacted in 1977 and modified in 1983, affects the Social Security benefits that an individual receives as the spouse or surviving spouse of a Social Security–covered worker.¹⁰

The WEP affects individuals who have worked in both covered and noncovered employment. If an individual is receiving a pension from noncovered employment, his or her Social Security benefits are subject to reduction under the WEP if he or she has fewer than 30 years of substantial earnings in covered employment.¹¹ Under the WEP, the worker's Social Security benefits are computed using an alternative benefit formula (the "windfall formula") rather than the regular benefit formula. The windfall formula results in a lower initial monthly benefit for the worker. The amount of the reduction in the initial monthly benefit is limited to one-half the monthly amount of the worker's noncovered pension. The WEP also reduces benefits payable to eligible family members on the worker's earnings record. In December 2022, the WEP affected about 2.0 million Social Security beneficiaries (about 3% of beneficiaries).¹²

The GPO affects an individual who has worked in noncovered government employment, qualifies for a pension based on this noncovered employment, and also qualifies for Social Security benefits as the spouse or surviving spouse of a Social Security–covered worker. If an individual is receiving a pension from noncovered employment, his or her Social Security spousal or widow(er) benefits are subject to reduction under the GPO. The individual's Social Security spousal or widow(er) benefits are reduced by an amount equal to two-thirds of his or her noncovered pension (a two-thirds offset). Depending on the relative amounts of the two benefits, the Social Security spousal or widow(er) benefits may be reduced to zero. In December 2022, the GPO affected 734,601 Social Security beneficiaries (about 1% of beneficiaries).¹³

Participants in State and Local Public Pension Plans Not Covered Under Social Security

This section presents information on major state and local public pension plans that were not covered under Social Security in 2021 or 2022, depending on the year in which the most recent data is available.

Data on Social Security Coverage

CRS reviewed the state and local public pension plans in all 50 states and the District of Columbia, including official websites, annual comprehensive financial reports, member handbooks, and frequently asked questions. Those pension plans are typically provided for state or local government employees, teachers, police officers, and firefighters. Pension plans were included if they were designed for local public employees (such as those working for counties, cities or towns) but administered at the state level.

The Social Security coverage information in this report is based on public information available at the public pension plan organization, such as a retirement board or an agency.¹⁴ Typically, a noncovered public pension is included in Table 1 and Table 2 if the plan has published information confirming its coverage status. See Table A-1 and Table A-2 in the Appendix regarding sources for data in Table 1 and Table 2, respectively.

Some noncovered state and local public pension plans may be excluded from the tables due to several reasons. First, if Social Security coverage information could not be verified using public information or other means from the pension authority, the pension plan is excluded. Second, if a pension plan did not publish publicly-available participant information, the plan is excluded.¹⁵ Third, local pension plans that were administered by local agencies and had a Social Security coverage status that was generally different from the state pension or other local pensions are excluded.¹⁶

Data on Public Pension Plan Participants

This section displays the following information for each state or local public pension plan with participants not covered by Social Security:

• state,
• occupations covered under the plan,
• the year in which the most recent plan information was available,
• the number of active participants who were currently contributing to the plan,
• the number of inactive and vested participants who were not contributing but eligible for benefits on a future date, and
• the number of retirees who were receiving benefits.¹⁷

The Social Security WEP and GPO may affect some current retirees, and may impact some active members and inactive and vested members when they retire.

Table 1 displays information for public pension plans for which all participants are generally not covered under Social Security (based on the most recent data CRS was able to compile).

• In total, 26 states and the District of Columbia have one or more state public pension plans (or state-administered local public pensions) with almost all participants not covered under Social Security.
• Among noncovered participants for whom detailed occupation data are available, about 70% of active members and 68% of retirees were teachers, while 6% of active members and 9% of retirees were police officers and firefighters.
• Seven states accounted for about 81% of noncovered participants (active members, inactive members, and retirees) shown in the table. Those states are California, Colorado, Louisiana, Massachusetts, Nevada, Ohio, and Texas.

Table 2 displays related information for public pension plans with only a subset of participants not covered under Social Security. Social Security coverage in these plans usually depends on positions, locality, or jurisdiction, but data is generally reported on a combined basis including both covered and noncovered participants.¹⁸ (Therefore, this data may not be used to evaluate the number of participants in state and local public plans that are not covered by Social Security.)

• In addition to the 26 states listed in Table 1, five additional states have some participants in state or local public plans not covered under Social Security. Those states are Arizona, Arkansas, New Mexico, Utah, and Wisconsin.

Appendix. Sources for State and Local Public Sector Employment Not Covered Under Social Security and Related Public Pension Plans

Table A-1 and Table A-2 display sources for data in Table 1 and Table 2, respectively. Information includes the website for each public pension plan, the direct link for data, and links to documents describing Social Security coverage.