State legislatures authorize and fund public employee pension plans and determine their regulation and oversight. With these plans, state and local governments provide retirement savings vehicles and security to virtually all full-time state and local employees. Any federal regulation of state and local government pension plans should recognize the unique designs and protections inherent in these plans and should only be pursued through consultation with state and local governments. Current federal regulations that impose excessive and unnecessary administrative costs on states and localities should be simplified or eliminated.
Federal Reductions to Social Security Benefits
Under some circumstances, the Social Security Administration reduces benefits to state and local employees who earn government pensions through work not covered by Social Security. Since 1983, the Social Security Administration has reduced worker and spousal benefits through two provisions called the Government Pension Offset (GPO) and the Windfall Elimination Provision (WEP). There have been numerous proposals before Congress to repeal or to limit the application of the GPO and the WEP. The National Conference of State Legislatures supports efforts by Congress and the Administration to address the inequities and unintended consequences to state and local government retirees caused by federal reductions of Social Security benefits. NCSL urges Congress to enact legislation that will reduce or eliminate the impact of the GPO and WEP on state and local government retirees, particularly those who have earned lower uncovered government pension benefits or partial benefits.
Mandatory Medicare and Social Security Coverage
The National Conference of State Legislatures opposes expansion of mandatory Social Security and Medicare Coverage to public employees of state and local governments who are not already covered. NCSL believes that state and local governments should be allowed to affiliate their plans with Social Security and Medicare on a voluntary basis.
Taxation and Regulation
NCSL believes that the exemption of state pension and benefits plans from federal taxation is a sound component of federal tax policy that should continue.
All states and many local governments sponsor defined contribution plans that allows employees to defer an additional portion of their salary in anticipation of retirement needs. Federal legislation enacted in 2001 simplified participation in, and the administration of, these supplemental arrangements. NCSL supports further improvements that enhance flexibility, improve existing arrangements, avoid increased federal regulation, maintain or expand the plans’ unique features and characteristics and avoid mandates that would replace existing plans with methods designed for the private sector. NCSL opposes any federal encroachment on state authority to regulate state pensions that would supplant rather than supplement current savings, and other efforts that could result in additional cost and complexity for state and local governments and their plan participants.
NCSL strongly opposes any effort by Congress to impose annual federal reporting and funding requirements on state and local governments regarding various aspects of their public employee pension plans and penalties for non-compliance, such as loss of federal tax exempt financing benefits for bonds issued by state or local governments during any noncompliance reporting period.
NCSL believes these actions would be unnecessary, intrusive and coercive. This federal effort would impose new, unfunded costs on states by requiring additional reports and compels the presence of the federal government in issues exclusively managed and legislated by states. States report comprehensive information in proposed federal legislation in their consolidated annual financial reports as recommended by the Governmental Accounting Standards Board.
Health Care Costs
The National Conference of State Legislatures (NCSL) supports federal efforts that allow public sector retirees to deduct health care premium costs and/or additional medical expenses from their taxable income, as well as federal efforts to allow retirees to save for health care costs through tax preferred vehicles.