Unlike workers in the private sector and most in the public sector, around 25% of state and local government employees are not covered by Social Security, including the program’s disability benefits. These workers are concentrated in certain states and occupations.
In Alaska, California, Colorado, Louisiana, Massachusetts, Nevada, Ohio and Texas, fewer than half of state and local government employees are covered by Social Security. Nationally, roughly 40% of public school teachers and more than two-thirds of firefighters, police officers and other first responders fall into this category.
Do public workers who are outside the Social Security system receive sufficient protection against poverty in their old age? What about long-term disability? Much has been written about the adequacy of pension benefits for this population, but a recent study from the Center for Retirement Research at Boston College aims to fill gaps in our knowledge about how disability insurance benefits stack up. Specifically, the study compares benefits for uncovered public employees with those for workers covered by Social Security disability insurance (SSDI).
The study concludes that most state and local programs for uncovered workers provide “adequate” disability insurance coverage; in fact, the programs provide more comprehensive benefits for longer-tenured employees than SSDI does for the older workers it covers.
Most state and local employees have Social Security protection because their states have special agreements with the Social Security Administration. For those without this protection, federal tax regulations compel employers to provide pensions that are at least as generous as old-age benefits under Social Security.
Social Security, however, also includes disability insurance in the event a covered employee suffers a long-term impairment preventing him or her from holding a full-time job in any occupation. Disability benefits for workers not covered by Social Security don’t have to be as generous as SSDI, according to federal regulations. But the Boston College researchers found that benefits for these uncovered public workers nevertheless compared to or exceeded SSDI provisions. That’s due in part to state disability programs for uncovered workers requiring only that workers be incapable of performing their current jobs, while Social Security requires inability to perform any job.
The study used three main criteria to compare disability benefits for workers covered by Social Security with those for employees not covered by the program:
1. Who is covered?
- Eligibility requirements
- Vesting requirements
2. What types of disabilities are covered?
- Degree of disability
- Duration of disability
3. What is the level of benefits?
- Benefit formula
- Definition of final average salary and service
The study sample included about 70% of disability programs for uncovered public workers and found that about 70% of them require between four and six years of service to vest, with 15% requiring 10 years.
The formula for calculating disability benefits for uncovered state and local employees is different from the one used for the SSDI program. Based on the differences in their formulas, each program offers varying amounts of compensation as a percentage of previous wages. In a simulation outlined in the study, SSDI provides about 50% of wages regardless of age for a worker entering a job in 2020 at age 25 with a salary of $36,000, but it provides a higher portion of pre-disability wages to low-income workers. State and local disability programs provide between about 30% and 60% of wages and offer a higher portion of pre-disability wages to workers with longer tenure.
A follow-up brief further reviews disability insurance programs. The brief focuses the correlation between program structure and the proportion of beneficiaries receiving disability benefits. Finally, a database of benefits for state and local disability insurance programs should be available on the Center for Retirement Research’s website this fall.
Tatiana Follett is an intern and Anna Petrini is a senior policy specialist in NCSL’s Employment, Labor and Retirement program.