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 it again.
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 Security.
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 above.
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.