As many as one million U.S. public workers are at risk of entering retirement with benefits that fall short of typical Social Security standards, according to the Center for Retirement Reasearch at Boston College.
These "noncovered workers"—public workers who are not part of Social Security and are instead covered by comparable local and state government plans—may fall through the cracks even though federal law requires that their replacement retirement plans provide benefits equivalent to Social Security, the research center said in a recent research paper.
"All retirement plans for noncovered workers follow the letter of the law, but a significant number may still leave noncovered workers falling short of Social Security-equivalent resources in retirement," researchers at the center wrote.
The paper concluded that about 16% of uncovered workers, representing between 750,000 to one million employees annually, are in danger of experiencing shortfalls in retirement benefits.
"Although the share of workers falling short is not large, the problem is still serious. Social Security is intended to provide a minimum level of retirement income for all Americans," researchers said. "Covered public sector workers—and many private sector workers—augment their Social Security benefits with employer-sponsored retirement plans. Thus, learning that, ultimately, between 750 thousand and 1 million noncovered workers annually could be at risk of not receiving that minimum is concerning."
The study found that the workers most in danger of falling short of Social Security-equivalent benefits were medium-tenured employees—those who spent six to 20 years as noncovered workers and then went on to work as covered employees.
"The analysis found that public plans are most likely to fall short for members who stay in their noncovered position for more than a few years but less than a full career," the paper stated. "Specifically, 53% of plans fell short for a hypothetical worker who enters government employment at age 25, but only spends 12 years in government before leaving for the private sector."
About one-quarter of local and state government workers—about 5 million in total—are not covered by Social Security, according to the study. Federal law requires that such alternative plans provide benefits comparable to Social Security through the use of Safe Harbor provisions that assume a traditional retirement age of 65, the report said.
The center's researchers said the question of whether these government plans comply with the Safe Harbor provisions could become a critical issue.
"Despite the importance of the legal link between state and local pension generosity and Social Security coverage, the issue remains largely undiscussed," the paper stated. "It is not clear that the benefits earned by newly hired state and local employees satisfy the Safe Harbor requirements due to recent reductions enacted by government plan sponsors. Moreover, due to years of inadequate contributions and two stock market downturns, many public sector DB plans have insufficient assets to cover their liabilities."