State and Local Government Policy Adoption: Section 218 of the Social Security Act

Abstract

This research examines state and local governments’ decisions to participate in Social Security coverage for employees and the financial effects that mandating Social Security coverage will have on the budgets and pensions of these governments today. In the past, states had the option of accepting or declining Social Security coverage for their employees. Recently, however, the federal government has begun to consider mandating participation in Social Security. While the constitutionality of such a mandate may be debated on a federal level, the basis of this research focuses on state policy adoption and its effects. Since the states are considered the laboratories of government policy, insights gained from this study may enlighten federal policy decision making which directly impacts the states. Under the Tenth Amendment of the U.S. Constitution, state and local governments and their employees were exempt from the Social Security Act. Since this meant that employees of state and local governments could not participate in Social Security, many of these governments established employee pension plans, which were equivalent or superior to Social Security. Subsequent amendments to the Social Security Act were made to ensure that state and local government employees were covered by Social Security or by a similar state pension plan. The research identifies and analyzes factors which influence state and local governments’ policy decisions regarding Section 218 of the Social Security Act, and examines the effects of these decisions on state and local budgets and pension plans. Prior research on federalism, intergovernmental relations, diffusion, and organizational decision making related to state policy adoption of Medicaid, Medicare and Unemployment provide possible factors that may have been used in the state and local government decision process. These variables were used to analyze historically the changes in Social Security coverage for each state and local government. The research also identifies the possible financial effects that mandating Social Security coverage would have on state and local governments, pension plans and their employees.