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Ronald Reagan Presidential Library
Digital Library Collections
This is a PDF of a folder from our textual collections.
Collection: Reagan, Ronald: Gubernatorial Papers,
1966-74: Press Unit
Folder Title: [Social Security] - Feasibility Study
to Terminate Social Security Coverage for
State Employees, 04/01/1972
Box: P38
To see more digitized collections visit:
https://reaganlibrary.gov/archives/digital-library
To see all Ronald Reagan Presidential Library inventories visit:
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Contact a reference archivist at: [email protected]
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tod
ted Gray
PRESS
FEASIBILITY STUDY
TO TERMINATE SOCIAL SECURITY COVERAGE
FOR STATE EMPLOYEES
DRAFT PRELIMINARY REPORT
APRIL 1, 1972
FEASIBILITY STUDY
TO TERMINATE SOCIAL SECURITY
COVERAGE FOR STATE EMPLOYEES
DRAFT PRELIMINARY REPORT
Prepared for
Agriculture and Services Agency
Prepared by
Social Security Task Force
April 1, 1972
MEMBERSHIP
Social Security Task Force
A1 Reis
Agriculture and Services Agency
Charles Hobbs
Department of Social Welfare
Robert Bishop
Department of Social Welfare
Beverly Gaffney
Public Employees' Retirement System
Kisuk Yang
Public Employees' Retirement System
Steve Jablonsky
Department of Finance
Dale Flournoy
Department of Finance
This draft preliminary report contains no recom-
mendations. The advantages and disadvantages to
termination contained on pages 5 through 10 are
generally based on specific assumptions as stated
on pages 1 and 2.
TABLE OF CONTENTS
CHAPTER
Page
List of Exhibits
iii
I.
Introduction and Conclusion
1
II.
Advantages and Disadvantages of Withdrawal
from Social Security
5
III.
Risks in Withdrawal from Social Security
12
IV.
Impact of Termination on Interested Groups
14
V.
Costs and Benefits of PERS and Social Security
as Contrasted with PERS.
18
VI.
Potential Future Changes in Financing the
Social Security Program
35
VII.
Cost of Replacement Retirement Benefits Due
to Termination from Social Security
38
VIII.
Substitute for Medicare Coverage
40
IX.
Age and Salary Characteristics of the State
Employee Work Force
46
X.
Scope of Social Security Coverage for Public
Employees in California and Other States
56
XI.
Withdrawal Experience of Public Employers--Trends
61
XII.
Existing and Potential Future Social Welfare
Aspects of Terminating Social Security Coverage
for State Employees
71
XIII.
Position of Other Interested Groups (CSEA,
Legislative Analyst) in Social Security
73
XIV.
Withdrawal Procedures, Action Authorities,
Finality of Commitment and Required Legislation
82
ii
List of Exhibits
Exhibit No.
Page
1
Cabinet Issue Memo
4
2
Anticipated Savings Due to Social Security
Termination
11
3-14
Cost and Benefit Projections for PERS and
Social Security
20
15
Medicare Health Plan Benefits
(Parts A and B)
43
16-23
Characteristics of the State Employee
Work Force
48
24
Employers and Employees Covered by PERS
58
25
Social Security Coverage: California
Public Employees
59
26
Retirement Allowances--Other States
60
27
Schedule of California Public Agencies
Requesting Voluntary Termination of Social
Security
64
28
Schedule of Public Agencies Requesting
Voluntary Termination of Social Security
by Fiscal Year
69
29
Safety Retirement Formulas Under PERS
70
30
Employee Polls on Social Security
Coordination
76
31
CSEA Poll on Social Security Termination
78
32
CSEA 1971 Resolution on Termination of
Social Security Coverage for State Employees
79
33
Social Security Act: Termination Procedure
85
34
California Government Code: Termination
Procedure
86
iii
I. INTRODUCTION AND CONCLUSION
A Governor's Cabinet Issue on the subject of a task force study of
the State's withdrawal from social security was approved on February 8,
1972. The Cabinet Issue paper, which outlines the specific charge to
the task force, is appended as Exhibit I.
The task force attempted to gather and evaluate all the data relative
to the subject within the time constraints allowed. This report sum-
marizes a review of this data under a topical arrangement paralleling
the specific charges made to the task force.
This report does not necessarily reflect each individual member's
view but rather a general concensus of the group.
The data presented in this report demonstrate that advantages can be
gained by both the State and most of its employees (which includes
legislators and constitutional officers) by state withdrawal from
social security with the following assumptions:
1. That PERS benefits, augmented to substitute in general terms
those now provided by social security, are entirely adequate.
However, some employee's ultimate benefit would be less than
in a coordinated program.
2. The actual cost savings to the State and its employees are
dependent on the method of financing substitute benefits.
3. The actual impact on social welfare has not been determined
and would require further study.
-1-
4. That the Social Security program is financed under present
statutes or HR I in its current form generally.
5. That if a significant change in the method of financing the
Social Security program occurs in the future, such as
general revenue financing, sufficient grounds would be
available to seek state reentry into the Social Security
program.
There are four courses of action that can be pursued at this time:
1. Do nothing and continue with PERS and social security
coverage.
2. Enact legislation directing the Public Employees' Retirement
System to notify the Social Security Administration of
California's desire to terminate its employees from social
security coverage. Included in this legislation should be
appropriate substitute benefits to become effective upon
actual termination.
3. Enact legislation as in No. 2 above but with the under-
standing that the social welfare aspects will be studied
further during the two-year notice requirement period.
4. Enact legislation seeking termination with further study
of the entire issue during the two-year notice requirement
before termination becomes effective with the understanding
that the termination notice could be withdrawn.
-2-
The task force believes that if a decision to terminate is made,
alternatives two or three are much more desirable. This re-
presents a positive solution to the problem of providing maximum
retirement benefits at the most economical cost, and would not
leave state employees in a quandary for the interim two-year
period.
It is hoped that the discussions and data contained in this report
facilitate the decision on the issue of state withdrawal from
social security coverage.
-3-
Exhibit 1
1
DECISION
CABINET ISSUE MEMO
DISCUSSION
To: Governor Ronald Reagan
Date: Feb. 4, 1972
From:
Agriculture and Services Agency
No
AS 72-6
Signed Enled
Originated
by
by
Earl Coke, Secretary
A. J. Reis, Assistant Secretary
SUBJECT:
TASK FORCE TO STUDY STATE WITHDRAWAL FROM SOCIAL SECURITY
ISSUE:
COMPOSITION AND DUTIES OF TASK FORCE
CONCLUSION:
D ASSIGN TASK FORCE COORDINATOR: AL REIS, AGENCY ASSISTANT
SECRETARY
APPOINT TASK FORCE MEMBERS:
STEVE JABLONSKI
DEPARTMENT OF FINANCE
Hobbs
TOM Mel JURRAY
HUMAN RELATIONS AGENCY
KISUK YANG
PUBLIC EMPLOYEES RETIREMENT SYSTEM
CHIEF ACTUARY
BEVERLY GAFFNEY
PUBLIC EMPLOYEES RETIREMENT SYSTEM
SOCIAL SECURITY EXPERT
CHARGE TO THE TASK FORCE:
COMPLETE STUDY AND SUBMIT REPORT BY MARCH 10.
DOCUMENT SOCIAL SECURITY COVERAGE PATTERNS IN PUBLIC
EMPLOYMENT GENERALLY AND IN CALIFORNIA STATE SERVICE
PARTICULARLY.
INVESTIGATE AND EVALUATE WITHDRAWAL EXPERIENCE OR PLANS
OF OTHER PUBLIC EMPLOYERS; DETERMINE ANY TRENDS.
MAKE PRESENT COMPARISONS AND FORECASTS OF COSTS AND
BENEFITS OF PERS COMBINED WITH SOCIAL SECURITY AS
CONTRASTED WITH PERS ALONE.
SPELL OUT WITHDRAWAL PROCEDURES, ACTION AUTHORITIES,
FINALITY OF COMMITMENT, AND REQUIRED LEGISLATION.
ASSESS IMPACT OF WITHDRAWAL ON STATE EMPLOYEES, PUBLIC
INTEREST, FEDERAL ADMINISTRATION, OTHER PUBLIC EMPLOY
ERS, AND THE SOCIAL SECURITY SYSTEM.
IDENTIFY LONG TERM IMPLICATIONS AND DANGERS OF WITH-
DRAWAL AND ASSESS THE RISKS
SUMMARIZE AND WEIGH THE ADVANTAGES AND DISADVANTAGES
OF WITHDRAWAL.
STATE BOTH THE CASE FOR WITHDRAWAL AND THE CASE FOR
RETAINING SOCIAL SECURITY FOR DECISION BY CABINET
GIVE SPECIAL CONSIDERATION TO EXISTING AND POTENTIAL
FUTURE SOCIAL WELFARE ASPECTS OF THE QUESTION
0
-4-
II. ADVANTAGES AND DISADVANTAGES OF WITHDRAWAL FROM SOCIAL SECURITY
Summary
The advantages and disadvantages of termination from social security
are as follows:
Advantages:
1. Immediate dollar savings to the State depend upon the
financing of substitute or improvement in PERS benefits.
2. Immediate increase in takehome pay for approximately
100,000 state employees (those now covered by social
security).
3. Substitute benefits (not necessarily dollar-for-dollar
equivalent) for social security coverage can be purchased
for less money in the Public Employees' Retirement System.
4. Substitute benefits for Medicare coverage can be funded
within the savings from social security termination.
5. Substitute benefits could apply to all state employees
regardless of prior social security coverage.
6. State control over future retirement benefit improvements
and costs.
7. Approximately 39 percent of the state work force are women
who, if married, can already qualify for social security
benefits based on the earnings of their retired husbands.
-5-
8. Many state employees, both currently employed and those
hired in the future, can be eligible for some social
security benefits based on minimum quarter coverage under
social security.
9. Some state employees pay a disproportionate share of
social security costs because social security favors
the lower paid employees and California employees are
considered to be higher paid than those located in
other states.
10. As the wage base for social security coverage continues
to expand, the supplemental portion of social security
cost and benefits expands due to the offset provisions
of the coordinated program being fixed at annual base
of $4,800.
11. The pressure for continued improvements in state retire-
ment benefits will continue even under the current co-
ordinated plan, and termination would allow improvement
in PERS benefits from savings in social security
contribution.
-6-
Disadvantages:
1. Noncareer employees lose the advantage of continuous
social security coverage during their total employment
career.
2. If Federal General Tax Revenue is used in the future to fund
social security benefits, state employees would be
contributing towards the cost of a benefit for which they
could not participate.
3. Use of social security reserves could increase benefit
payments without increasing the employee's and employer's
cost for some period of time.
4. It is difficult to replace the spouse cash benefit in
social security with an equivalent PERS benefit.
5. Maximizes total retirement benefits when attendant
contribution costs are not a serious consideration.
6. Employees may attribute a higher degree of security to
benefits provided by social security than to benefits
provided by PERS.
7. Social security disability benefits will cease after five
years from termination.
8. It is possible to withdraw retirement contributions from
the public employees retirement system in lieu of a re-
tirement allowance, exhaust such contributions, and then
qualify for welfare.
9. Testimony from advocates of coordination contended that lack
of social security coverage disadvantages the State in re-
cruiting personnel from private industry.
-7-
10. Assuming termination from social security is coupled with
an increase in PERS benefits, a subsequent reentry into
social security in the future could further increase state
costs beyond the current system.
11. It is not practical to replace social security benefits
on a dollar-for-dollar basis; therefore, some employees'
ultimate benefits will be less as a result of termination.
Discussion and Facts
Advantages:
It is possible for California to terminate its participation in
social security and realize immediate dollar savings upon termina-
tion to both the employer (state) and the employee (Exhibit 2).
Savings which accrue from termination can be used in part to
improve both retirement benefits in PERS as well as possibly other
staff benefits for all state employees. Significant savings could
result to enable California to provide equivalent health care
benefits to match the Federal Medicare Program for state employees
when needed at some future date. Termination would eliminate the
undesirability of paying into two different retirement systems at
the same time. Social security represents a federally mandated
program for both the State and its employees with cost increases
over which California has no control.
-8-
Disadvantages:
It is difficult for any change in a retirement system to affect all
members of the plan in the same way. If the State was to terminate
its contract for social security, noncareer employees would lose
the advantage of social security coverage for their total employment
career. It is impossible to calculate the affect of the break in
social security coverage for an individual unless his total employ-
ment and salary history is known. It is possible that an inter-
ruption in social security coverage may reduce a person's final
compensation level from social security. This may affect transient
employees. Termination should not prove detrimental to career
employees if substitute benefits are provided in PERS to supplement
the 1/50th formula.
Social security is currently funded on a 50/50 basis by the employer
and employee. If significant funding changes were made so that
Federal general tax revenues were used to fund future social security
benefits, the state employee could be funding the cost of this program
with his Federal taxes and be excluded from participating in the
benefits of the system.
If existing social security reserves are used to increase benefit
payments without increasing employer or employee taxes, the cost/
benefit savings which are mentioned in this report, based on existing
Federal statutes may not materialize. Such a situation would
diminish the present cost/benefit advantage for termination.
-9-
It is extremely difficult to replace social security benefits in
PERS on a benefit-for-benefit basis. For instance, social
security provides a dependent spouse a retirement benefit at age
65 equal to one-half of the fully insured member's allowance even
though she did not contribute to social security. It is this
kind of specific benefit that would be exchanged for other benefits
of equivalent value in PERS. Some employees could view this
action as a loss of a desirable retirement asset even though another
substitute benefit was provided which had an equal or greater total
dollar value.
There are also some employees who are primarily concerned with
retirement benefit levels. The cost of those benefits may be of
secondary concern. To this employee, termination from social
security could be viewed as a decrease in his total retirement
benefit level, even though other substitute benefits were being
provided within the PERS.
Certain employees may also attribute a higher degree of security or
safety to those retirement benefits which are provided through
social security versus benefits provided by PERS. To this employee,
the social security benefit is backed by the full faith and credit
of the Federal Government, and he may not necessarily attach the same
level of reliance to PERS benefits.
-10-
Exhibit 2
ANTICIPATED SAVINGS DUE TO SOCIAL SECURITY TERMINATION
(Projected annual cost: 1975-possible
date of actual termination)
Present
Social Security
HR-1
Law (millions)
(millions)
1. Employer Contributions
$61.3
$74.9
2. Employee Contributions
61.3
74.9
Total savings
$122.6
$149.8
3. Substitute-type Benefits in PERS
to Replace Social Security a
A. Elimination of the social
security modification which
applies to the PERS benefit $6.9
B. (a) 50 percent of retired
members' allowance to
surviving spouse
(active members only)
33.4
(b) 15 percent increase to
retirement benefit for
retired members who chose
option 3 or 4
4.8
$38.2
C.
Extension of 1959
Survivor Benefits to
members now covered by
social security:
(a) Member pays $2/month
$7.2
(b) Additional if State
pays $2.00/month
4.0
D. Post retirement Death
Benefits:
Increase post retirement
benefit from $500 to $750
$0.5
Total cost
$56.8
$56.8
Potential immediate savings to the State
and its employees
$65.8
$93.0
a Excludes cost of replacing future Medicare benefits. For a more
complete discussion of this topic, see page 40.
- 11 -
III. RISKS IN WITHDRAWAL FROM SOCIAL SECURITY
Withdrawal from the Social Security System involves some long-term
risks to the employee. These include:
1. The possibility of using General Tax Revenue to fund at least
a portion of future social security costs.
2. The fact that current Federal statute does not permit a state
to reenter the Social Security Program after termination.
3. The loss of uniform retirement coverage for noncareer employees
moving between state service and other employment.
Discussion
In the discussion on the topic of potential future changes in
financing the Social Security Program (Chapter VI), the possibilities
of contingency reserve financing and general revenue financing are
discussed.
The risk here is that the state employee may end up supporting
social security through Federal taxation without being eligible to
receive benefits. Another possibility is that the increased
benefits could be funded for a period of time from Trust Fund
reserves. Once social security has been terminated, the State may
not again extend social security coverage to employees in the
coverage group under current provisions.
-12-
Some employees may feel that social security benefits could be
improved at a faster rate than PERS benefits. A noncareer employee
who leaves state service with less than five years has no vested
right under PERS and would be entitled to social security benefits
(and possibly another retirement plan, if any) only through other
employment.
The task force believes that general revenue financing represents
a major departure from the current method of funding. It is
therefore probable that sufficient grounds would be available to
warrant the State to reenter the Federal program should this occur.
Termination with subsequent reentry would increase costs over the
current system because social security would become fully supple-
mental with possibly some duplication of PERS benefits.
-13-
IV. IMPACT OF TERMINATION ON INTERESTED GROUPS
Summary
The impact of termination is difficult to assess. Opposition to
termination from interested groups would probably be minimal if
(1) adequate substitutes for social security benefits were
provided and (2) a proposal for termination clearly delineates
the fact that an adequate state retirement system exists.
Discussion
1. State employees--Equality of treatment for member groups is
difficult to achieve when considering changes to a program
such as retirement. During deliberation of SB 249/1971
(PERS 1/50 retirement formula), those employees who retired
just prior to its enactment were very unhappy and the benefit
increase to a 69-year old employee was far less than a 60-year
old employee.
The impact on state employees should probably be viewed from at
least two vantage points, the career type (who works at least
15-20 years or more) and the noncareer employee. It should be
noted that surveys on the subject of termination have not been
stratified by these two categories of employees.
If adequate substitutes are provided for social security benefits,
the majority of career employees are expected to favor termination.
This assumption is based not only on economies, but also by the
-14-
fact that past surveys, which include noncareer employees,
favored termination without addressing themselves to sub-
stituting social security benefits. The employees' associa-
tion has since 1963 favored termination without clearly
identifying substitute benefits, although their position has
been to utilize all savings to the State to improve benefits
generally. It should also be noted that many employees receive
very little benefit from the State's (and their own) social
security contributions. For example, a substantial but unknown
portion of the State's social security costs represent payments
in behalf of its female employees (a group constituting
approximately 39 percent of the state work force) many of whom,
if married, are already eligible for a social security benefit
based on the earnings of their retired husbands.
The impact of termination on noncareer employees varies depending
on the individual situation. Those working for the State for a
relatively short period of time, particularly at the end of their
working life, and not having accrued a vesting right to another
retirement system by virtue of other employment would feel the
most adverse effect of termination from social security. Others,
particularly those accruing retirement benefits in other employ-
ment, would merely incur a break in social security coverage
which may, or may not, have a significant adverse effect. With
practically no data available on the characteristics of the non-
career employees, it is not possible to evaluate the impact of
terminating social security coverage for short-term state employees.
-15-
2. Legislature and Constitutional Officers--Current members of the
Legislature and constitutional officers can participate in
social security on an individual optional basis. Chapter 1300,
Statutes of 1971, mandatorily requires social security coverage
for those who first take office on or after May 1, 1972.
Because these officials are regarded as state employees for
social security purposes, termination will also remove them from
coverage. The question of terminating social security coverage
has not been pursued with these officials.
3. Other Public Employers--Should California seek termination from
social security coverage, other public employers would most
likely be interested in reviewing such action. The mere fact
that California is the most populous state would probably motivate
other states, with adequate retirement plans of their own, to
consider similar action.
In California, some small public agencies contracting with PERS
have already terminated or are awaiting termination from social
security coverage. If termination from social security coverage
for state employees were sought, the review of this issue by public
agencies (both small and large) would be intensified, particularly
those contracting with PERS since Chapter 170, Statutes of 1971
(1/50th formula) also increased the retirement formula for
contracting agencies.
4. Social Security System One might conclude that termination from
social security coverage may have a fiscal impact on the social
security system. Only a cursory review, however, tends to dispel
this conclusion.
-16-
The 1971 Statistical Abstract of the United States shows that
in 1969, there were 93 million workers reported with taxable
earnings including seasonal and part-time workers. Also in
1969, 6.3 million social security numbers were issued and 6.2
million workers reported taxable earnings for the first time.
At the present time, approximately 100,000 state employees are
covered by social security, a very negligible portion of all
workers covered by the Social Security System. It should be
noted that the two-year notice to terminate requirement allows
the Social Security System to plan for any cash flow change which
may result.
5. Federal Administration--The task force did not have an opportunity
to evaluate the impact on the Federal Administration should termina-
tion of social security coverage for state employees be sought. It
is felt that any concern would probably be political and at the
minimum, termination notice should identify the fact that an adequate
state retirement system exists.
6. Public Interest--It is believed that the impact of terminating
social security coverage for state employees would be negligible
as far as the general public is concerned if the proposal clearly
delineates the fact that a very adequate state retirement system
already exists. It would be unfortunate if any pronouncement of
termination were made without the latter explanation and thus
cause any shadow of doubt about the fiscal soundness or integrity
of the Social Security System.
-17-
V.
COSTS AND BENEFITS OF PERS AND SOCIAL SECURITY AS CONTRASTED
WITH PERS
SUMMARY
The costs and benefits of the two retirement systems are obviously
greater than one alone. The following material attempts to focus
on this issue in several ways to provide some perspective of costs
and benefits.
Discussion:
Discussions regarding retirement benefits and cost usually fall
short of describing the situation in an unbaised fashion. This
report attempts to avoid the criticism of either the employer or
employee groups by illustrating the costs and benefits of PERS and
social security in several different forms.
Included below is a list of the various ways in which retirement
costs can be viewed.
1. Estimated State Costs (Employer Only) for Social Security
from 1970-71 through 1979-80 (Exhibit 3).
2. Social Security Contribution Schedule (Employer or
Employee) (Exhibit 4).
3. Maximum Social Security Tax (Employers or Employees).
A. Chart Form (Exhibit 5).
B. Tabulation (Exhibit 6).
4. Comparison of Benefits: PERS Versus PERS-Social
Security Coordinated.
A. Narrative Comparison (Exhibit 7)
B. Dollar Comparison (Exhibit 8)
-18-
5. PERS and Social Security Employee Costs by Types of Employee.
A. Clerk II
1. Chart Form (Exhibit 9).
2. Tabulation (Exhibit 10).
B. Assistant Analyst
1. Chart Form (Exhibit 11).
2. Tabulation (Exhibit 12). .
C. Senior Analyst
1. Chart Form (Exhibit 13).
2. Tabulation (Exhibit 14).
-19-
EXHIBIT 3
Estimated State Costs for Social Security
(1970-71 through 1979-80)
Present Law
HR 1
Maximum
State
/
Maximum
State
/
Fiscal
Employees
tax per
cost in
tax per
cost in
year
covered
employee
millions
employee
millions
1970-71
106,161
$405.60
$35.0
-
-
(actual)
1971-72
110,407
468.00
44.7
-
-
1972-73
114,823
508.50
51.4
$550.80
$56.2
1973-74
119,415
508.50
53.7
550.80
58.8
1974-75
124,191
508.50
56.2
632.40
71.5
1975-76
127,917
526.50
61.3
632.40
74.9
1976-77
130,477
526.50
62.7
754.80
92.4
1977-78
133,087
526.50
64.1
754.80
94.5
1978-79
135,749
526.50
65.5
754.80
96.5
1979-80
138,464
535.50
68.1
754.80
98.5
/ Employer only--covered employees contributing an equal amount.
-20-
EXHIBIT 4
SOCIAL SECURITY CONTRIBUTION SCHEDULE
(Employer or Employee)
I. Current Federal Law
Percent of
Years
Covered Wage
Salary
1951-53
$3,600
1.5%
1954-55
3,600
2.0%
1955-56
4,200
2.0%
1957-58
4,200
2.25%
1959-60
4,800
2.5%
1960-61
4,800
3.0%
1962-63
4,800
3.125%
1963-64
4,800
3.375%
1964-66
4,800
3.625%
1966-67
6,600
4.2%
1967-68
6,600
4.4%
1969-70
6,600
4.8%
1971
7,800
5.2%
1972
9,000
5.2%
1973
9,000
5.65%
1974
9,000
5.65%
1975
9,000
5.65%
1976-79
9,000
5.85%
1980-86
9,000
5.95%
1978+
9,000
6.05%
II. Proposed Federal Legislation (HR 1)
1972
10,200
5.4%
1973
10,200
5.4%
1974
C.P.I.1/
5.4%
1975
6.2%
1976
6.2%
1977+
7.4%
1/
Covered wage changes as the comsumer price index increases over 3 percent.
-21-
EXHIBIT 5
MAXIMUM SOCIAL SECURITY TAX
(Employers or Employees)
Existing Federal Statute
Proposed Federal Statute
Annual
Annual
Contribution
Maximum
Contribution
Maximum
Covered
Rate
Employee
Covered
Rate
Employee
Year
Wage Base
(percent)
Tax
Wage Base
(percent)
Tax
1961
$4,800
3
$144.00
1962
4,800
3.125
150.00
1963
4,800
3.375
162.00
1964
4,800
3.625
174.00
1965
4,800
3.625
174.00
1966
4,800
4.2
201.60
1967
6,600
4.4
290.40
1968
7,800
4.4
343.20
1969
7,800
4.8
374.40
1970
7,800
4.8
374.40
1971
7,800
5.2
405.60
1972
9,000
5.2
468.00
$10,200
5.4
$550.80
1973
9,000
5.65
508.50
10,200
5.4
550.80
1974
9,000
5.65
508.50
11,4251
5.4
616.95
1975
9,000
5.65
508.50
11,425
6.2
708.35
1976
9,000
5.85
526.50
11,425
6.2
708.35
1977
9,000
5.85
526.50
11,425
7.4
845.45
1980
9,000
5.95
535.50
11,425
7.4
845.45
1985
9,000
5.95
535.50
11,425
7.4
845.45
1/
Covered wage related to the consumer price
index when CPI is greater than 3 percent.
-22-
(Dollar Cost)
MAXIMUM SOCIAL SECURITY TAX
$1,100
$1,000
$900
$800
$700
-23-
$600
$500
$400
$300
$200
9 EXHIBIT
$100
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
EXISTING FEDERAL STATUTE
PROPOSED FEDERAL STATUTE
COMPARISON OF BENEFITS
PERS VS PERS--SOCIAL SECURITY COORDINATED
(Miscellaneous Members)
EXHIBIT 7
Item
PERS
PERS Social Security Coordination
Substitute Benefits
I. Service Retire-
The allowance depends on length
The allowance for the coordinated
Restore full formula under
ment Allowance
of service, age at retirement
member consists of two parts: A
PERS for future service. The
(Nondisability)
and final compensation. For
benefit from PERS and one from
total allowance of employee
example: 2.4% X years of ser-
Soc. Sec. The PERS allowance is
under coordination generally
A. Member
vice X final compensation
computed as indicated in the column
exceeds the allowance of the
Benefit
(highest 3 consecutive years)
to the left, less a certain amount
employees under PERS only; the
at age 63.
($2.67 at age 60; $3.22 at age 65)
differential is greatest for
for each year of service since
those who retire in near future
Jan. 1, 1956. The social security
There is no precise way to
benefit is based on average monthly
achieve equivalency.
wage under covered employment--
since 1956 for most state employees.
B. Wife's
None
In addition to the above, the
Add comparable benefit to PERS.
Benefit
wife of the coordinated employee
may be entitled to a wife's benefit
equal to one-half of the employee's
social security retirement benefit.
If she is also entitled to a social
security benefit on her own account
she receives the highest one but
not both.
C. Children's
None
If the retiree has dependent
Add comparable benefit to PERS.
children under age 18, some
additional social security retire-
ment benefits are payable.
Item
PERS
PERS Social Security Coordination
Substitute Benefits
EXHIBIT 7
II. Disability
If incapacitated for perform-
The coordinated member is entitled
Increase disability benefit to
Retirement
ance of his job, an employee
to the same benefit from PERS
1.8% of final compensation for
may retire for disability.
without reduction. In addition
each year of service. Also
The benefit is 1½ percent of
he may be entitled to a disability
consider adding family benefits
final compensation for each
retirement benefit from social
year of service with an
security. The social security
improvement in some cases to
definition of disability is
one-third of final compensation
more rigorous than that of PERS.
if credited service exceeds ten
Benefits are also payable by
years.
social security for dependents of
the disabled worker.
II. Survivor
Benefits
A. Benefits
on Death
Prior to
Retirement
1. Lump
The designated beneficiary
The beneficiary receives the same
Add burial benefit on death
Sum
receives a sum equivalent
benefit from PERS (the amount of
before retirement.
Death
of one month's salary for each
the accumulated contributions will
Benefit
completed year of service to
be less since the rate of contri-
(burial
a maximum of six (paid by
bution to PERS is reduced by one-
benefit)
employer) and return of
third on the first $400 of salary).
the employee's accumulated
Social security pays a lump sum
contributions.
burial benefit of up to $255.
EXHIBIT 7
Item
PERS
PERS Social Security Coordination
Substitute Benefits
Benefits on Death
Prior to Retirement
(cont'd)
2. 1959
In addition to the basic death
In lieu of the PERS benefit, the
Provide 1959 survivor benefit
Survivor
benefit, an eligible beneficiary
beneficiaries of the coordinated
to all employess.
Benefit
(widow age 62, dependent child
member receive comparable sur-
alone) is entitled to $180 a
vivor benefits from social security.
month; two beneficiaries, $360;
three or more, $430.
3. 1957
The widow or dependent widower
The same 1957 benefit is payable
Restore full formula under PERS
Survivor
of a member age 55 with at least
from PERS on death of a coordin-
for future service.
Benefit
five years service may accept
nated member. (The amount of the
in lieu of the basic death
benefit will be smaller since the
benefit above a life-time
PERS service retirement benefit
monthly allowance equal to
the member would have been entitled
one-half the member's service
to receive is reduced.) The social
retirement allowance, The
security death and survivor benefits
1959 Survivor Benefit is
referred to above are payable in
payable in addition.
addition.
B. Benefits on
None, unless member reduces
Social security survivor benefits are
Provide 50% post-retirement
Death after
service retirement allowance
payable plus any benefits payable
survivor allowance for active
Retirement
by selecting an option.
from PERS if member has selected an
members. Also consider 15%
option.
increase in retirement benefits
for retired members.
1. Survivor
Benefits
Item
PERS
PERS Social Security Coordination
Substitute Benefits
EXHIBIT 7
B. Benefits on Death
After Retirement
(cont'd)
2. Burial
On the death of a retired
The PERS benefit is also payable
Add benefit provided by
Benefit member, PERS provides a
on the death of a retired member
social security.
benefit of $500.
who was under the coordinated
plan. In addition, he is covered
by the social security lump sum
benefit of up to $255.
IV. Health Insurance No comparable benefits.
Hospital benefits--Part A
Provide comparable benefits
Medicare (Estimated value $31
under Meyers-Geddes Plan.
per month).
-27-
PUBLIC EMPLOYEES' RETIREMENT SYSTEM
Comparison of Allowance Results 1/50th to 1/50th Modified and Social Security*
Assumptions Male, age 65, retiring 7/1/72 with female beneficiary, age 62
Final Compensation $500.00, $700.00, $900.00, and $1,500.00
Service -- 5 years, 10 years, and 20 years.
1/50th Formula
Retired 1/50th Modified Formula and Social Security
Final
System's Unmodified
Total System and
System's Unmodified
Social Security Benefits
Service
Compensation
Allowance to Member
Social Security Allowance,
Allowance
Total
Man
Wife
Without
with
Wife's Ben.
Wife's Ben.
1.
5 years
$ 500.00
$ 60.45
$232.83
$311.83
$ 44.33
$267.50
$188.50
$79.00
-28-
2.
5 years
700.00
84.63
257.01
336.01
68.51
"
"
11
3.
5 years
900.00
108.81
281.19
360.19
92.69
11
$7
"
4.
5 years
1,500.00
181.35
353.73
432.73
165.23
It
"
"
5. 10 years
500.00
120.90
277.16
356.16
88.66
11
11
"
6. 10 years
700.00
169.26
325.52
404.52
137.02
"
"
#:
7. 10 years
900.00
217.62
353.88
452.88
185.38
"
"
"
8. 10 years
1,500.00
362.70
518.96
597.96
330.46
"
"
11
9. 20 years
500.00
241.80
377.11
456.11
188.61
"
11
"
10. 20 years
700.00
338.52
473.83
552.83
285.33
"
"
17
EXHIBIT 8
11. 20 years
900.00
435.24
570.55
649.55
382.05
If
"
"
12. 20 years
1,500.00
725.40
860.71
939.71
672.21
"
"
"
* Assumes maximum social security benefits.
(Dollar Cost)
CLERK II
PERS AND SOCIAL SECURITY COSTS
$1,600
$1,400
$1,200
-29-
$1,000
$800
$600
$400
6 LIBIHXE
$200
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
EXISTING FEDERAL STATUTE
PROPOSED FEDERAL STATUTE
CLERK II
PERS AND SOCIAL SECURITY COSTS
Monthly
Annual
Current Federal Statute
Proposed Federal Statute
Wage
Wage
Year
PERS
Soc. Sec.
TOTAL
PERS
Soc. Sec.
TOTAL
$358
$4,296
1961
159
129
288
395
4,740
1962
175
148
323
395
4,740
1963
175
160
355
419
5,028
1964
190
174
364
419
5,028
1965
190
174
364
429
5,148
1966
197
202
399
440
5,280
1967
204
232
436
458
5,496
1968
216
242
458
480
5,760
1969
231
276
507
505
6,060
1970
247
291
538
530
6,360
1971
299
331
630
556
6,672
1972
467
347
814
467
360
827
556
6,672
1973
467
375
842
467
360
827
570
6,840
1974
478
386
864
478
369
847
584
7,008
1975
491
396
887
491
434
925
598
7,176
1976
502
420
922
502
445
947
613
7,356
1977
515
430
945
515
544
1,059
660
7,920
1980
554
471
1,025
554
586
1,140
747
8,964
1985
627
533
1,160
627
663
1,290
EXHIBIT 10
ollar Cost)
ASSISTANT ANALYST
PERS AND SOCIAL SECURITY COSTS
$2,200
$2,000
$1,800
$1,600
$1,400
8-
$1,200
$1,000
$800
EXHIBIT 11
$600
$400
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
EXISTING FEDERAL STATUTE
PROPOSED FEDERAL STATUTE
ASSISTANT ANALYST
PERS AND SOCIAL SECURITY COSTS
Monthly
Annual
Current Federal Statute
Proposed Federal Statutes
Wage
Wage
Year
PERS
Soc. Sec.
TOTAL
PERS
Soc. Sec.
TOTAL
$644
$7,728
1961
340
144
484
676
8,112
1962
361
150
511
676
8,112
1963
361
162
523
717
8,604
1964
388
174
562
717
8,604
1965
388
174
562
790
9,408
1966
433
202
635
829
9,948
1967
463
290
753
863
10,356
1968
485
343
828
905
10,860
1969
513
374
887
950
11,400
1970
543
374
917
998
11,976
1971
651
406
1,057
1,048
12,576
1972
880
468
1,348
880
551
1,431
1,048
12,576
1973
880
509
1,389
880
551
1,431
1,074
12,888
1974
902
509
1,411
902
617
1,519
1,100
13,200
1975
924
509
1,433
924
708
1,632
1,128
13,536
1976
948
527
1,475
948
708
1,656
1,156
13,872
1977
971
527
1,498
971
845
1,816
1,245
14,940
1980
1,046
536
1,582
1,048
845
1,893
1,408
16,896
1985
1,183
536
1,719
1,183
845
2,028
EXHIBIT 12
(Dollar Cost)
SENIOR ANALYST
PERS AND SOCIAL SECURITY COSTS
$3,000
-33-
$2,600
$2,200
$1,800
$1,400
$1,000
EXHIBIT 13
$600
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
EXISTING FEDERAL STATUTE
PROPOSED FEDERAL STATUTE
SENIOR ANALYST
PERS AND SOCIAL SECURITY COSTS
Monthly
Annual
Current Federal Statute
Proposed Federal Statute
Wage
Wage
Year
PERS
Soc. Sec.
TOTAL
PERS
Soc. Sec.
TOTAL
$950
$11,400
1961
543
144
687
998
11,976
1962
575
150
725
998
11,976
1963
575
162
737
1,058
12,676
1964
615
174
789
1,058
12,696
1965
615
174
789
1,166
13,992
1966
687
202
889
1,225
14,700
1967
726
290
1,016
1,275
15,300
1968
759
343
1,102
1,337
16,044
1969
800
374
1,174
1,405
16,860
1970
845
374
1,219
1,475
17,700
1971
1,010
406
1,416
1,548
18,576
1972
1,300
468
1,768
1,300
551
1,851
1,548
18,576
1973
1,300
509
1,809
1,300
551
1,851
1,587
19,044
1974
1,333
509
1,842
1,333
617
1,950
1,627
19,524
1975
1,367
509
1,876
1,367
708
2,075
1,668
20,016
1976
1,401
527
1,928
1,401
708
2,109
1,710
20,520
1977
1,436
527
1,936
1,436
846
2,282
1,842
22,104
1980
1,547
536
2,083
1,547
846
2,393
2,082
24,984
1985
1,749
536
2,285
1,749
846
2,595
EXHIBIT 14
VI. POTENTIAL FUTURE CHANGES IN FINANCING THE SOCIAL SECURITY PROGRAM
Summary
It is nearly impossible to predict what the future method of financing
the Social Security program will be. Yet, future cost and benefits of
the Social Security program should be considered in determining termi-
nation of social security coverage. The most commonly discussed
changes are encompassed in HR 1 (the major social security bill now
pending in the U. S. Senate). Other possible future changes are
contingency, reserve financing and general revenue financing.
Discussion and Facts
A. HR 1 (the major social security bill now pending the Senate).
Under Federal legislation (HR 1), which has already passed the
House and is now being considered by the U. S. Senate Finance
Committee, the social security wage base will be raised from
$9,000 to $10,200 and the tax rate will be increased in scheduled
increments from 5.2 percent in 1973 to 7.4 percent in 1977, at
which time the maximum employer-employee contribution would be
$1,509.60. A major feature of HR 1 is a provision for automatic
increases in social security allowances equal to the percentage
of change in the cost of living if the cost-of-living index
increases 3 percent or more in a year. Both the taxable wage
base and tax rates are subject to automatic upward adjustment to
fund the cost-of-living increases. If HR 1 is enacted with
possibly some change in its present form, employer and employee
costs would escalate at an even greater rate than in the past.
_35_
B. Contingency-Reserve Financing
Use of contingency-reserve financing for the Social Security
program has also been discussed. Under this financing arrange-
ment, contribution rates would be set no higher than the level
needed to pay current benefits and administrative expenses,
and to maintain the trust funds at approximately the level of
1 year's benefit payments. (Present law provides for a schedule
of increasing contribution rates which build up interest-earning
trust funds. However, in the past and before these trust
funds have accumulated, Congress has either postponed increases
in the contribution rates or has increased benefits.) Under
contingency-reserve financing, benefits could be adjusted to
increases in the cost of living (as long as maximum creditable
earnings are also increased as wages rise), but contribution
rates would not have to be increased until about the year 2010,
when the retired population will be larger relative to the
employed population since those born during the high-birth-rate
years following World War II will have reached age 65.
C. General Revenue Financing
A possible future change, which would substantially increase the
value of social security protection in relation to social security
contributions, is the financing of a substantial part of the
protection from general revenues. Under present law, general
Federal revenues are used to finance: (1) special transitional
age-72 payments for uninsured people; (2) noncontributory wage
-36-
credits for servicemen; (3) transitional hospital insurance
benefits for uninsured workers who become age 65 before 1975;
and (4) one-half of the cost of the supplementary medical
insurance program. Major considerations for using general
Federal revenues to help finance regular social security
benefits are that full-rate benefits are provided for people
who were already older when their work was first covered by
the program and who will not contribute to the program over
a full working lifetime, and that social security benefits
are weighted in favor of workers with lower average covered
earnings.
-37-
VII. COST OF REPLACEMENT RETIREMENT BENEFITS DUE TO TERMINATION FROM
SOCIAL SECURITY
Summary
Generally, existing social security benefits can be replaced
with comparable benefits in PERS.
The estimated cost of subsitute type benefits in PERS is $56,800,000
in 1975 when termination could become effective.
Discussion and Facts
State employees with social security coverage receive a greater
retirement benefit than those who are not covered by social
security.
In order to reduce the effect of benefit impairment due to
termination from social security, it may be necessary to improve
benefits under PERS for those employees who were previously
covered by social security. It should be emphasized that
replacement benefits may not necessarily be dollar for dollar
benefit equivalents to what social security provides. Never-
theless, at least the first four of the benefits listed below
could be viewed as a substitute for social security benefits.
-38-
Retirement
Projected
Rate
Annual
Annual
Increase
Cost
Cost
1972
1975
1. Elimination of the
social security
modification which
applies to the PERS
benefit.
0.427%
$5,900,000
$6,900,000
2. (a) 50 percent of
retired members
allowance to
surviving spouse
(active members only)
2.073
28,800,000
33,400,000
(b) 15 percent
increase to retire-
ment benefit for
retired members who
0.300
4,200,000
4,800,000
chose option 3 or 4.
2.373%
$33,000,000
$38,200,000
3. Extension of 1959
Survivor Benefits
to members now
covered by social
security
(a) Member pays
$2.00/month
0.450%
$6,300,000
$7,200,000
(b) Additional if
state pays
$2.00/month
0.250
3,500,000
4,000,000
4. Post retirement
death benefits:
Increase post
retirement benefit
from $500 to $750
0.033
500,000
500,000
Sub Total 1 through 4 3.533%
$49,200,000
$56,800,000
5. 12 months pay for
preretirement death
0.210%
$2,900,000
$3,400,000
6. Increase disability
retirement benefits
from 1.5% of pay
per year of service
to 1.8%
0.028
400,000
500,000
7.
Increase cost of
living adjustment
to 3 percent per
year
(a) Assume 2½
percent average
0.7
9,500,000
11,300,000
(b) Assume 3 percent
average
1.4
19,000,000
22,500,000
-39-
VIII. SUBSTITUTE FOR MEDICARE COVERAGE
Summary
Most of the State's current health plans would have to increase
benefit levels to meet the current level of care provided by Part
"A" (hospital) of Medicare. This would not be an immediate cost be-
cause state employees retiring within the next 10-15 years already
meet the minimum requirements for Medicare coverage.
At some future point in time, State would have to increase its
contribution towards the cost of a health benefit plan for persons
age 65 or older. In 1972-73, the State pays $16 per month towards
the cost of health plans. Social security-supported Medicare
(Part "A") currently costs approximately $31 per month.
Discussion and Facts
Medicare Part "A" (Exhibit 15) represents the hospital insurance por-
tion of the plan and is funded by the social security premium.
Currently, a person must have a certain number of quarters of social
security coverage to participate in Medicare Part A. The number of
social security quarters needed for Medicare varies by year of birth.
However, a person born after 1909 needs the same number of quarters
coverage for Medicare as for the social security cash benefits.
Medicare Part "B" (Exhibit 15a) is the medical insurance portion of
the program; coverage is optional to persons over 65 years old (no
social security coverage required).
- 40 -
The Social Security Administration currently estimates that Medicare
benefit under Part "A" for a person covered by social security costs
approximately $31.00. California during the 1972-73 fiscal year will
contribute up to $16/month towards the health insurance coverage for
an active employee or an annuitant.
If the State were to terminate social security coverage, there could
be a need for an improvement to the benefits in some of the Meyers-
Geddes Health Plans in the future. PERS reports that the plans
currently available for state employees which would meet the current
level of care provided under Medicare are Kaiser North and Kaiser
South. Roos-Loos plans would come close to meeting the benefit
levels, and with some improvements in benefits, the California
Western/Occidental Statewide Indemnity plan plus major medical and
the Blue Cross-Blue Shield plan plus major medical would relate
closely to Medicare. This would also be true of the County Founda-
tion plan.
In terms of the state's responsibility and relationship with its
employees, should social security be terminated and thereby eliminate
the element of Medicare, the following premises should be noted:
1.
Employees who did not coordinate with social security
would have no eligibility for Medicare other than
through non-state covered employment.
2.
Employees who did coordinate with social security
would in all likelihood have adequate quarters to be
eligible for Medicare and therefore, no responsibility
-41-
would be required of the State other than con-
tinuation of its own health plans.
3.
State employees hired since social security coordi-
nation have all been required to be members of
social security, therefore, in many instances these
employees would have adequate number of quarters of
coverage to be eligible for Medicare.
4.
For continuing new employees, some means would need
to be developed to bring the state plans up to the
level of Medicare if this were a requirement of
dropping social security. It is impossible at this
time to either determine the number of these people
or the money affect.
In conclusion, there is no responsibility for the noncoordinated
employee; the coordinated employee will have adequate number of
quarters of social security coverage; employees hired since the
State contracted for social security will in the main also have
developed adequate quarters of coverage. It does not appear that
this is a major problem for the group of employees who may not
have established sufficient quarters to be eligible for Medicare
and the need for some provision of additional state benefits is
perhaps 15 years away. It is impossible at this time to predict
what will happen to Medicare or any other Federal-type or even
state health program.
-42-
Exhibit 15
MEDICARE HEALTH PLAN BENEFITS
TITLE 18 OF THE SOCIAL SECURITY ACT
I. Hospital Insurance (Part A)
A.
Benefits
1. Subject to deductible of $68.00 per spell of illness.
2. 90 days' room and board per spell of illness, regular
benefit (first 30 days paid in full, 61st through 90th
day co-pay of $17.00 per day).
3. 60-day lifetime room and board benefit ($34.00 per day
co-pay).
4. 190-day lifetime room and board benefit for psychiatric
care.
5. Christian Science limited as hospital or Extended Care
Facility (90 days as hospital plus 30 days as Extended
Care Facility). Medicare pays only $2.75 per day during
the lifetime reserve.
6. Semi-private room.
7. Nursing care, regular and intensive.
8. Drugs furnished by the hospital.
9. Laboratory tests.
10. X-ray and radiology.
11. Medical supplies (splints, casts, etc.).
12. Operating room charges.
13. Appliances (wheelchairs, crutches, etc.).
14. Medical social services.
B.
Exclusions - Hospital
1. Personal comfort or convenience items.
2. Private-duty nursing.
3. Private room, unless medically indicated.
4. Doctors' services.
5. Custodial care.
6. Non-participating and non-qualifying hospitals have
other limitations.
C.
Post-Hospital Extended Care
1. 100 days per spell of illness.
2. Co-payment of $8.50 per day for the 21st through the
100th day.
3. Semi-private room.
4. General nursing care.
5. Physical, occupational and speech therapy.
6. Drugs ordinarily furnished.
7. Medical supplies, splints, casts, etc.
8. Medical services.
9. Diagnostic services.
10. Therapeutic services.
-43-
Exhibit 15
D.
Exclusions - Post-Hospital
1. Physicians' fees.
2. Services not generally provided.
3. Institutions excluded by definition.
4. Drugs and biologicals not usually provided.
E.
Post-Hospital Home Health Care
1. 100 days between benefit periods, provided within
365 days after discharge from hospital or Extended
Care Facility.
2. Part-time nursing care.
3. Physical, occupational or speech therapy.
4. Medical supplies (no drugs).
5. Use of medical appliances.
F.
Exclusions - Post-Hospital Home Health Care
1. Doctors' visits.
2. Drugs.
-44-
Exhibit 15a
MEDICARE HEALTH PLAN BENEFITS
TITLE 18 OF THE SOCIAL SECURITY ACT
II. Medical Insurance (Part B)
A.
Benefits
1. Subject to deductible of $50.00 annually. 20 percent
co-payment thereafter.
2. Services of Physicians, Podiatrists, Osteopaths,
Pathologists, Radiologists and Anesthesiologists.
3. Dental surgery or treatment for fractures.
4. Home health visits up to 100 per calendar year.
5. Out-patient diagnostic, X-ray and laboratory benefits.
6. Therapy X-ray, radium, radioactive isotopes.
7. Surgical dressings, splints, casts, etc.
8. Ambulance.
9. Purchase or rental of durable equipment.
10. Prosthetic devices other than dental.
11. Braces, artificial arms, legs, eyes, etc.
12. Blood (after first three pints).
13. Out-patient psychiatric care up to $250.00 or
50 percent after deductible, whichever is smaller
(per calendar year).
14. Out-patient diagnosis and treatment.
15. Physical therapy.
B.
Exclusions
1. Personal and comfort items.
2. Routine check-up.
3. Glasses or routine examinations for glasses.
4. Hearing aids or examinations for hearing aids.
5. Routine immunizations.
6. Orthopedic shoes.
7. Cosmetic surgery.
8. Routine dental and foot care.
9. Self-administered drugs.
10. Private-duty nursing.
11. Services by government agencies.
12. Services by relative or member of household.
13. Cases eligible for Workman's Compensation.
-45-
IX. AGE AND SALARY CHARACTERISTICS OF THE STATE EMPLOYEE WORK FORCE
Summary
In 1968, the majority of male state employees were earning between
$600 and $1,000 per month. The salary range for female employees
was slightly lower--$400 to $800 per month.
The greatest number of employees were grouped around the 40-year
age bracket and had accumulated approximately 10 years of state
service.
Noncareer state employees generally terminate their employment
during the first five years.
Discussion and Facts
In 1968, most state employees earned a monthly salary which ranged
from $400 to $1,000. (Exhibits 16 and 17). However, over 50
percent of the state work force at that time earned $750 or less
per month. The 1968 data compiled by the State Personnel Board is
the latest information accumulated in this manner. In viewing
this 1968 data, one should bear in mind that salary increases were
granted in 1969 and 1970. The State Personnel Board reports that
in 1971 the average salary for state civil service employees was
$851 per month. (Exhibit 18). The 1968 data is presented, however,
to provide some insight into the salary and age characteristics
at the State's work force at a point in time.
-46-
For the employee that earns $750 or less per month, retirement
contributions by both PERS and social security are computed on
his total salary. The contribution to PERS is 7 percent of total
salary; the social security rate for 1972 is 5.2 percent of the
first $9,000 of earnings. Only the rate of contribution con-
tinues to increase under the current social security statute.
Both the rate of contribution and the covered wage in the Social
Security Program will increase under the proposed Federal Statute
HR-1. For the lower paid employee, total retirement contributions
currently approximate 11 percent of his gross salary.
The greatest number of state employees fall in the 30-55 age
bracket. (Exhibit 19). The retirement system reports that only
about 20 percent of the work force enters state service at an
early age and stays with the State until retirement. The greatest
amount of state employee turnover appears to occur during the first
five years of state service. (Exhibits 20-23).
-47-
Exhibit 16
NUMBER OF FULL-TIME CIVIL SERVICE EMPLOYEES BY SALARY, AGE, AND SEX
(AS OF JULY 1, 1968)
Age Groups in Years
Monthly Salary
Sex
18-24
25-34
35-44
45-54
55-64
Over 65
Total
$200 and under
$400
Male
151
33
15
15
9
1
224
Female
664
113
60
56
16
1
910
TOTAL
815
146
75
71
25
2
1,134
$400 and under
$600
Male
1,593
3,108
1,762
2,094
1,574
198
10,329
Female
3,450
4,904
4,985
7,229
4,409
394
25,371
TOTAL
5,043
8,012
6,747
9,323
5,983
592
35,700
$600 and under
$800
Male
1,133
7,620
4,442
5,118
2,778
212
21,303
Female
315
1,196
1,483
2,641
1,729
111
7,475
TOTAL
1,448
8,816
5,925
7,759
4,507
323
28,778
$800 and under $1,000
Male
88
4,715
6,259
4,954
2,401
193
18,610
Female
42
633
641
966
729
64
3,075
TOTAL
130
5,348
6,900
5,920
3,130
257
21,685
$1,000 and under $1,200
Male
0
614
1,896
2,013
1,077
98
5,698
Female
0
32
149
275
233
29
718
TOTAL
0
646
2,045
2,288
1,310
127
6,416
$1,200 and under $1,400
Male
1
268
1,120
1,027
497
35
2,948
Female
0
24
28
66
47
4
169
TOTAL
1
292
1,148
1,093
544
39
3,117
$1,400 and under $1,600
Male
0
36
511
704
432
49
1,732
Female
0
1
16
24
24
8
73
TOTAL
0
37
527
728
456
57
1,805
$1,600 and under $1,800
Male
0
22
211
342
276
49
900
Female
0
0
5
7
14
0
26
TOTAL
0
22
216
349
290
49
926
$1,800 and under $2,000
Male
0
6
111
153
168
41
479
Female
0
0
7
7
12
6
32
TOTAL
0
6
118
160
180
47
511
$2,000 and under $2,200
Male
0
2
50
86
104
40
282
Female
0
0
3
6
8
1
18
TOTAL
0
2
53
92
112
41
300
$2,200 and under $2,400
Male
0
0
31
50
48
14
143
Female
0
0
0
1
2
1
4
TOTAL
0
0
31
51
50
15
147
TOTALS
Male
2,966
16,424
16,408
16,556
9,364
930
62,648
Female
4,471
6,903
7,377
11,278
7,223
619
37,871
TOTAL
7,437
23,327
23,785
27,834
16,587
1,549
100,519
Source: California Personnel Statistics, compiled and released by California State Personnel Board, 1968
-48-
Number of Employees
(Thousands)
40
NUMBER OF FULL-TIME CIVIL SERVICE EMPLOYEES BY SALARY AND SEX
(As of July 1, 1968)
35
30
25
-49-
20
15
10
5
Total All Employees
Female
Male
0
Exhibit 17
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400
Monthly Salary
Source: California Personnel Statistics Compiled and Released
By California State Personnel Board, 1968
Exhibit 18
AVERAGE SALARY FOR STATE CIVIL SERVICE EMPLOYEES
July 1, 1961 - July 1, 1971
Number Full-
Weighted
Year
Time Employees*
Average
1961
79,501
$507
1962
82,044
545
1963
87,005
549
1964
90,637
590
1965
93,794
625
1966
98,462
656
1967
99,180
707
1968
101,363
751
1969
102,429
793
1970
101,789
841
1971
100,688
851
* Does not include trade rate employees or employees receiving
only maintenance for self.
Source: Statistical Supplement to SPB 1971 Annual Report
-50-
Exhibit 19
NUMBER OF FULL-TIME CIVIL SERVICE EMPLOYEES BY AGE
(As of July 1, 1968)
Thousands
28
26
24
22
20
18
16
14
12
10
8
6
4
2
18
25
35
45
55
65 and over
Age
Source: California Personnel Statistics Compiled and Released
By California State Personnel Board, 1968
-51-
Exhibit 20
LENGTH OF STATE SERVICE OF MALE AND FEMALE FULL-TIME CIVIL SERVICE EMPLOYEES
(AS OF JUNE 30, 1968)
Cummulative
Months of Service
Male
Female
Total
Total
0 - 5
2,585
2,204
4,789
4,789
6 - 11
2,270
1,769
4,039
8,828
12 - 17
1,502
1,130
2,632
11,460
18 - 23
2,660
2,152
4,812
16,272
Years and Months of Service
2 - 2/11
4,896
3,320
8,216
24,488
3 - 3/11
4,223
2,510
6,733
31,221
4 - 4/11
3,988
2,380
6,368
37,589
5 - 9/11
15,878
10,056
25,934
63,523
10 - 14/11
10,994
6,176
17,170
80,693
15 - 19/11
6,918
3,436
10,354
91,047
20 - 24/11
3,984
1,592
5,576
96,623
25 and over
2,750
1,146
3,896
100,519
Source: California Personnel Statistics, compiled and released by California
State Personnel Board, 1968.
-52-
Exhibit 21
STATE OF CALIFORNIA
DEPARTMENT SEAL OFA THE STATE
PERSONNEL STATISTICS
THE
OF
Compiled and released by
CALIFORNIA
CALIFORNIA STATE PERSONNEL BOARD
TABLE 11
LENGTH OF STATE SERVICE OF MALE AND FEMALE FULL-TIME CIVIL SERVICE EMPLOYEES
AS OF JUNE 30, 1968
MONTHS OF SERVICE
MALE %
FEMALE %
TOTAL %
CUMMULATIVE TOTAL %
0-5
3.5
5.2
4.1
4.1
6-11
3.6
4.7
4.0
8.1
12-17
2.4
3.0
2.6
10.7
18-23
4.3
5.7
4.8
15.5
YEARS AND MONTHS OF SERVICE
2-2/11
7.8
8.8
8.2
23.7
3-3/11
6.8
6.6
6.7
30.4
4-4/11
6.4
6.3
6.3
36.7
5-9/11
25.2
26.5
25.7
62.5
10-14/11
17.6
16.3
17.1
79.6
15-19/11
11.0
9.1
10.3
89.9
20-24/11
6.4
4.2
5.6
95.4
25 AND OVER
5.1
3.7
4.6
100.0
PERCENTAGES MAY NOT TOTAL TO 100.0 DUE TO ROUNDING
YEARS OF STATE SERVICE OF MALE AND FEMALE FULL-TIME CIVIL SERVICE EMPLOYEES COMPARED
WITH MEDIAN YEARS ON THE JOB OF ALL PERSONS EMPLOYED IN THE U.S.
MALES
FEMALES
FULL-TIME STATE CIVIL SERVICE
YEARS OF SERVICE
YEARS OF SERVICE
FIRST QUARTILE
3.5
2.7
MEDIAN
7.7
6.5
THIRD QUARTILE
14.0
12.0
ALL PERSONS EMPLOYED IN THE U.S.
MEDIAN
5.7
3.0
BURFAU OF LABOR STATISTICS - MONTHLY LABOR REVIEW. OCTOBER 1963. PAGE 1149.
Number of Employees
Thousands
NUMBER OF FULL-TIME CIVIL SERVICE EMPLOYEES BY LENGTH OF SERVICE AND SEX
18
(As of July 1, 1968)
16
14
12
10
8
6
4
Exhibit 22
2
Male
Female
0
2
3
4
5
10
15
20
25 and over
Length of Service
(Years)
Source: California Personnel Statistics
Compiled and Released by California
State Personnel Board 1968
Exhibit 23
STATE OF CALIFORNIA
PERSONNEL STATISTICS
COMPILED AND RELEASED BY- CALIFORNIA STATE PERSONNEL BOARD
Table 20
SEMIANNUAL REPORT OF:
SEPARATIONS FOR CALIFORNIA STATE EMPLOYEES
FOR THE PERIOD JANUARY 1, 1971 THROUGH JUNE 30, 1971
ISSUED: August 11, 1971
COMPARISON OF
AVERAGE MONTHLY SEPARATION & VOLUNTARY SEPARATION RATES
FOR THE FISCAL YEARS 1963-64 THROUGH 1970-71
RATE
2.5
TOTAL SEPARATION
2.0
1.5
VOLUNTARY SEPARATION
1.0
.5
63-64
64.65
65-66
66-67
67-68
68-69
69-70
70-71
71-72
YEAR
55
X.
SCOPE OF SOCIAL SECURITY COVERAGE FOR PUBLIC EMPLOYEES IN
CALIFORNIA AND OTHER STATES
The U.S. Department of Health, Education, and Welfare reports that
as of March, 1968, approximately 68 percent of the 9.2 million
employees of state and local governments in the 50 states were
covered under social security. It is the belief of the Public
Employees' Retirement System that new requests for social security
coverage are leveling off in California and in other states because
agencies which desired coverage have now joined the system. New
requests for coverage relate primarily to agencies that do not have
other retirement systems and to public agencies that have recently
come into existence.
Discussion and Facts
A. California
As of June 30, 1971, 2,631 public agencies and 457,509 public
agency employees were covered by social security in California
(See Exhibit 24)
There are approximately 6,000 public agencies in the State of
California. 55 (94 percent) counties out of 58 counties are
covered under social security. 304 (74.8 percent) cities out
of 406 cities are covered under social security; all noncerti-
ficated school districts employees in the State are covered
under social security. Only the school teachers who belong to
the San Francisco Retirement System are covered by social security.
"
In the last five years on an average, an additional 25 public
agencies have extended social security coverage to their
employees each year. Exhibit 25 shows the trend of covered
employees since 1959.
B. Other States
The U.S. Department of Health, Education, and Welfare reported
in 1968 that of the 2.4 million state employees, 11 percent were
covered under social security only while 61 percent were covered
under social security and another retirement plan. The Depart-
ment of Health, Education, and Welfare also reports that
employment in state and local governments has continued to rise
at an average annual rate of about 5 percent. Predictably,
social security coverage has increased at about the same rate.
The Public Employees' Retirement System conducted a separate survey
in 1971 of other state retirement plans. Thirty-eight other
states and one U.S. Territory responded to the questionnaire.
The survey indicated that 9 (23.6 percent) states did not partici-
pate in social security. Twenty-nine (76.3 percent) of the states
contracted for social security coverage. The survey further
illustrated that 26 states treated social security as a fully
supplemental benefit to the state retirement allowance; 3 states
credited the social security benefit as a partial or full offset
to the state retirement benefit. California regards the social
security benefit as a partial offset to the PERS retirement
allowance. A tabulation of this survey, including retirement
formulae, employee contribution percentage, final compensation
base, and age is included in Exhibit 26.
Exhibit 24
PUBLIC EMPLOYEES' RETIREMENT SYSTEM
EMPLOYERS AND EMPLOYEES COVERED, JUNE 30, 1971
Number of
Number of
Employers
Employees
By Public Employer
State of California
1
99,955
University of California
1
3,507
Cities
304
43,536
Counties (Including San Francisco City
and County)
55
145,680
School Districts
1,096
124,321
Other Public Employers
1,174
40,510
Totals
2,631
457,509
1. By Retirement System
Public Employees' Retirement System
State
State
1
99,955
University of California
1
3,507
Total
2
103,462
Public Agencies
Cities
181
27,344
Counties
34
31,856
School Districts1
1,095
118,579
Other Agencies
230
12,274
Total
1,540
190,053
1937 Act County Retirement Systems
Counties
18
101,308
Other Agencies
61
1,835
Total
79
103,143
Other Retirement Systems
Cities
51
14,626
Counties (including San Francisco
City and County)
3
12,516
School District (San Francisco Unified)
1
5,742
Other Agencies
132
14,705
Total
187
47,589
Total Covered by Retirement System
1,808
444,2472
2. Employers and Employees Covered Not in a
Retirement System
Cities
72
1,566
Other Agencies
751
11,696
Total
823
13,262
Grand Total
2,631
457,509
1/Adjusted for inactive districts.
2/Includes nonmembers in positions covered by retirement systems.
Exhibit 25
CHART C- SOCIAL SECURITY COVERAGE
CALIFORNIA PUBLIC EMPLOYEES
1959
1960
1961
1962
FISCAL YEARS ENDED JUNE 30
1963
1964
1965
1966
1967
1968
1969
1970
1971
0
100
200
300
400
(thousands)
Exhibit 26
RETIREMENT ALLOWANCES--OTHER STATES
SOCIAL SECURITY
Offset to
Employee
Final
State
Contr.
Retirement
Compen.
Supple-
No
Retiremen
State
Rate %
Rate %
Base Yrs.
mental
Coverage
Allowance
Alabama
4
1½
5
X
Alaska
3½
2
3
X
Arizona
X
Arkansas
5
1½
5
X
California
7.17
2
3
Partial
Colorado
7
2.5
5
X
Connecticut
5
2
3
Partial
Delaware
Non cont. 1/60th
5
X
Florida
6
2
highest
X
X
4
10
Guam
6
1½
average
X
Hawaii
6
2
5
X
Illinois
7½
1/60th
Full
Indiana
3
1.17 +
average
X
annunity
Iowa
3½
1.45
not known
X
Kansas
4
1.25
not known
X
Kentucky
4
1½
5
X
Louisiana
6
2
5
X
Maine
6.14
1/60th
3
X
Maryland
sex-age
1/60th
5
X
Massachusetts
5
2½
3
X
Michigan
3-5
1-1/½
5
X
Mississippi
4½
1 1/2
5
X
Missouri
4
1
5
X
Montana
5-3/4
1/70th
5
X
Nevada
6
2½-1½
3
X
New Hampshire
sex-age
1/60th +
5
X
New Jersey
sex-age
1/60th
5
X
New Mexico
5
2
5
New York
non cont.
1/60th
5
X
N. Carolina
5-6
1½
5
Partial
Ohio
7.7
1.9
5
X
Oklahoma
4
1½
5
X
Rhode Island
5
1.7-2.4
3
X
S. Carolina
4-6
1-1½
3
X
S. Dakota
3-5
1
X
Tennessee
7
1-3/4
5
X
Texas
5
1½-1-3/4
5
X
Utah
4-3/4
1
5
X
Vermont
sex-age
1/70th
5
X
W. Virginia
4½
2
3
X
-60-
XI.
WITHDRAWAL EXPERIENCE OF PUBLIC EMPLOYERS--TRENDS
Summary
From personal contacts by the Public Employees' Retirement System's
staff with public agencies considering termination of coverage, it
appears the prime concern is the dollar savings. Annually, the
Legislature considers numerous proposals to extend "safety" coverage
to additional state employee groups. Historically, the pattern has
been to withdraw social security coverage for groups granted safety
membership in PERS.
There is no requirement in either Federal or state law for an election
among the employees to terminate social security coverage.
Discussion and Facts
A. Other States
As of March 1, 1972, no state employees (excluding firemen and
policemen) in the various states that provide social security
coverage have withdrawn from social security coverage.
B. California Public Agencies
In California, 51 public agencies have withdrawn from social
security coverage affecting 5601 employees. Forty public agencies
with 5390 employees have requested termination and are now in the
two-year waiting period before termination of coverage is
effective.
The agencies requesting termination of coverage include 37 cities
and 36 fire districts. The pattern is for the employee groups to
request the employer to terminate coverage to permit the agency
to use the dollar savings to extend safety member benefits to the
policemen and/or firemen classifications in the agency.
Some agencies contract for retirement plans and apply the savings
from the termination of social security to the cost of the retire-
ment plans. Since the enactment of Chapter 170, Statutes of 1971
(SB 249) some agencies have indicated that since they were
mandatorily covered under the increased retirement formula, they
look to the termination of social security to make up the dollar
difference in costs of fringe benefits.
Some of the agencies covered under PERS that have terminated social
security coverage are amending their contracts to add the half
continuance payments to surviving spouses. The agencies under
PERS are also adding the 1959 survivors coverage if they do not
already have it.
Exhibit 27 indicates the agencies that have terminated coverage
or are in process of terminating coverage. Exhibit 28 also
indicates the termination activity by fiscal year.
C. California State Employees
There is a historical pattern for state employee groups granted
safety membership in PERS to withdraw from social security
coverage. Federal regulations permit such withdrawal when
employees are designated as policemen or firemen positions for
social security purposes. At the present time, safety members
still covered by social security are Corrections and Youth
Authority employees which were granted safety membership in
1971, Institutional Firemen which were granted safety membership
in 1972, and Lifeguards.
The primary difference between the safety and miscellaneous
member of PERS concerns earlier retirement, survivors and
disability benefits. The safety member is covered by more
liberal benefits which are financed by the employers contri-
butions to the retirement fund.
It is difficult to evaluate the motivation to seek termination
from social security coverage by the safety membership groups.
It can be assumed that the major motivation is: (1) the earlier
retirement age allows post retirement employment in some form
or another under social security coverage to at least earn some
social security benefits; and (2) the improved benefits, par-
ticularly the post retirement survivor benefit, is considered
sufficient so as to realize the savings to the employee from
discontinuing social security contributions.
Exhibit 29 shows the various safety groups, their retirement
formulas, contribution rates, and social security status.
-62-
Exhibit 27
SCHEDULE OF CALIFORNIA PUBLIC AGENCIES REQUESTING
VOLUNTARY TERMINATION OF SOCIAL SECURITY
COMPLETED
PENDING
TOTAL
COUNTIES
1
1
CITIES
19
18
37
FIRE DISTRICTS
17
19
36
OTHER AGENCIES
14
3
17
TOTAL
51
40
91
-64-
Exhibit 27
SCHEDULE OF CALIFORNIA PUBLIC AGENCIES REQUESTING
VOLUNTARY TERMINATION OF SOCIAL SECURITY
NUMBER OF
AGENCY
EFFECTIVE DATE
EMPLOYEES
Rodeo Fire Prot. District
9/30/59
3
Vista Local Fire District
6/30/63
13
Spring Valley Local Fire Dist.
6/30/65
22
Anza Fire Prot. District
6/30/66
3
Danville Fire District
6/30/67
28
Brentwood, City of
9/30/67
40
Vallejo Sani. & Flood Control
9/30/67
40
Montclair, City of
3/31/68
99
Novato, City of
3/31/68
66
Ashland County Fire Prot. Dist.
3/31/68
16
Encinitas Fire Prot. District
3/31/69
30
Barstow, City of
6/30/69
321
Castro Valley Co. Fire Prot. Dist.
6/30/69
40
Tehama County Mosq. Abate. Dist.
9/30/69
5
Oxnard, City of
9/30/69
360
Sylvan Cemetery District
9/30/69
3
Tustin, City of
9/30/69
107
South Coast County Water Dist.
9/30/69
11
South Laguna Sani. District
9/30/69
13
Cherryland Fire Prot. District
9/30/69
14
Palos Verdes Estates, City of
12/31/69
70
San Dieguito Irrigation Dist.
3/31/70
39
Point Montera Fire Prot. Dist.
3/31/70
5
Greater Vallejo Rec. District
3/31/70
33
Exhibit 27
Voluntary Terminations
Social Security
NUMBER OF
AGENCY
EFFECTIVE DATE
EMPLOYEES
West Covina, City of
3/31/70
360
Santa Clara County Flood Cont. & Wtr.
6/30/70
226
Claremont, City of
6/30/70
136
Los Altos, City of
6/30/70
216
Live Oak Fire Prot. Dist.
6/30/70
16
Half Moon Bay Fire Prot.
9/30/70
12
San Rafael, City of
9/30/70
365
Belmont Fire Prot. Dist.
12/31/70
34
Idyllwild Fire Prot. Dist.
12/31/70
5
Orange Co. Wtr. Wks. Dist. #8
12/31/70
3
Mountain View, City of
12/31/70
237
Santa Rosa, City of
12/31/70
602
Napa, County of
6/30/71
492
Stanton, City of
6/30/71
114
Benicia, City of
6/30/71
110
Pleasant Hill, City of
6/30/71
79
Orange County Law Library
6/30/71
9
Estero Muni. Improve. Dist.
6/30/71
141
Waterloo-Moranda Rural Co. Fire
6/30/71
10
Area E Civil Defense & Disaster
9/30/71
2
Chino, City of
9/30/71
115
Orange, City of
9/30/71
612
Carmichael Fire District
9/30/71
53
Sanitary Dist. #6 of Marin Co.
9/30/71
16
Baldwin Park, City of
12/31/71
216
-66-
Exhibit 27
Voluntary Terminations
Social Security
NUMBER OF
AGENCY
EFFECTIVE DATE
EMPLOYEES
Mojave Water Agency
12/31/71
6
Salinas Rural Fire District
12/31/71
33
Buena Park, City of
3/31/72
492
Paradise Fire Prot. District
3/31/72
28
Bonita-Sunnyside Fire Prot.
3/31/72
12
Aptos Fire Prot. District
6/30/72
14
Seal Beach, City of
6/30/72
217
Tahoe City Fire Prot. Dist.
9/30/72
13
Placentia, City of
9/30/72
227
Napa, City of
9/30/72
100
Washington Fire Prot. Dist.
9/30/72
6
Davis, City of
12/31/72
156
Yucca Valley Co. Fire Prot.
12/31/72
11
North Highlands Village Fire
12/31/72
12
Scotts Valley Fire Prot.
12/31/72
7
Santee Fire Prot. Dist.
12/31/72
25
Chino Rural Fire Prot. Dist.
12/31/72
21
Milpitas, City of
12/31/72
158
Woodbridge Rural County Fire
3/31/73
15
Freedom Fire Prot. Dist.
3/31/73
4
Campbell, City of
3/31/73
118
Vallejo, City of
3/31/73
324
Kelseyville-Big Vly Fire
3/31/73
5
Bell Gardens, City of
3/31/73
78
Glendora, City of
3/31/73
93
-67-
Exhibit 27
Voluntary Terminations
Social Security
NUMBER OF
AGENCY
EFFECTIVE DATE
EMPLOYEES
Rancho Cordova Fire Prot.
6/30/73
61
Fruitridge Fire Prot. Dist.
6/30/73
9
Westminster, City of
6/30/73
319
Auburn, City of
6/30/73
47
Fairhaven Fire District
9/30/73
2
North Bay Coop. Library Dist.
9/30/73
33
Fairfield, City of
9/30/73
329
San Rafael Sani. Dist.
9/30/73
15
Westlands Water Dist.
9/30/73
39
La Habra, City of
9/30/73
297
Lemon Grove Fire Dist.
9/30/73
19
Citrus Heights Fire Dist.
12/31/73
174
Sunnyvale, City of
12/31/73
680
Rio Linda Fire Prot. Dist.
12/31/73
9
Escondido, City of
12/31/73
320
Garden Grove, City of
12/31/73
764
Cypress, City of
12/31/73
137
TOTAL
10,991
-68-
Exhibit 28
SCHEDULE OF PUBLIC AGENCIES REQUESTING VOLUNTARY TERMINATION OF
SOCIAL SECURITY BY FISCAL YEAR
NUMBER OF
FISCAL YEAR
PUBLIC AGENCIES
1959-60
1
1963-64
1
1965-66
1
1966-67
1
1967-68
6
1968-69
1
1969-70
14
1970-71
11
1971-72
18
1972-73
20
1973-74
17
Safety Retirement Formulas Under PERS1/
Original Formula
Current Formula
Contribution Rate
No. of
Year
Year
Social
Group
Members
Formula
Effective
Formula
Effective
Member
Employer
Security
Highway Patrol
5,622
1/2 pay at 55
1935
2% at 50
1969
9%
27.51%
No
Fish and Game Wardens
286
1/2 pay at 60
1945
1/50th safety
1971
7%
15.38
No
Forestry
3,873
1/60th safety
1947
2% at 55
1970
7%
15.00
No
Corrections
4,017
1/60th safety
1947
2% at 55
1971
7%
18.97
Yes
(Prison member)
Narcotic Enforcement
]
1/60th safety
1951
1/2 pay at 55
1963
5.64%-12.55%
18.97
No
Criminal Iden. & Invest
200
1/60th safety
1951
1/2 pay at 55
1963
5.64%-12.55%
18.97
No
Life Guards
6
1/2 pay at 55
1968
1/2 pay at 55
1968
5.64%-12.55%
18.97
Yes
State Police
127
1/2 pay at 55
1968
2% at 55
1972
7%
18.97
No (eff. '72)
Youth Authority
1,625
2% at 55
1971
2% at 55
1971
7%
18.97
Yes
Institutional Firemen
50
2% at 55
1972
2% at 55
1972
7%
18.97
Yes
TOTAL
15,806
1/Table 1 does not reflect the fact that (1) different formulas may be applicable to members of the same group because
individual members were given the option of remaining under the old formula, and (2) the formulas have different normal
and compulsory retirement ages.
Exhibit 29
XII.
EXISTING AND POTENTIAL FUTURE SOCIAL WELFARE ASPECTS OF TERMINATING
SOCIAL SECURITY COVERAGE FOR STATE EMPLOYEES
Summary
Termination of social security coverage for state employees could
result in some increase in welfare costs. The Task Force generally
believes, however, that the impact on welfare would be negligible.
However, the Department of Social Welfare feels that further study
is necessary to document the potential effect on the welfare program.
Discussion and Facts
Presently, persons aged 65 and over may receive an Old Age Security
(OAS) grant, supplementing their income, to provide up to $206 per
month (unless there is need for an additional expenditure for atten-
dant care). These persons are also eligible for a comprehensive scope
of health care from the Medi-Cal Program. The State General Fund
(effective July 1, 1972) pays for 25 percent of OAS costs and 50
percent of Medi-Cal costs. It is presently not possible to determine
the number of persons, without other sources of income, who would
fall below $206 per month at age 65 if coordination between social
security and PERS was discontinued (this requires consideration of
all income sources). It can be assumed that this would occur when an
employee spent his entire career in a very low salary structure or
spent only a relatively short period of time in state employment
without working in other employment accruing other retirement benefits.
In either case, other sources of income would still be a consideration.
It should also be noted that, under PERS, it is possible for a
person to resign and withdraw his retirement contributions, exhaust
those funds and then qualify for OAS. The liklihood of this occur-
rence could increase when potential retirement income is near to the
OAS grant line. One could argue, however, that any other assets
could be deteriorated in the same manner by a potential welfare
recipiant.
22
XIII.
POSITION OF OTHER INTERESTED GROUPS (CSEA, LEGISLATIVE ANALYST) IN
SOCIAL SECURITY
Summary
The Legislative Analyst recommends that: (1) the state notify the
Federal government of our desire to terminate social security cov-
erage. (2) the state should thoroughly study the desirability of
termination during the interim two years before termination would
take affect.
The California State Employees Association reaffirmed its previous
policy position at their 1972 State Legislative Convention to seek
termination from social security. The membership requested the
CSEA leadership to seek the assistance of PERS in the development
of legislation to accomplish termination.
Discussion and Facts
1. Legislative Analyst:
The Legislative Analyst recommends in his analysis of the 1972-73
Budget Bill that legislation be enacted in 1972 directing the PERS
Board of Administration to notify the Federal Government of
California's intention to withdraw from social security. Federal
law requires a two-year notice before public entities are permitte
to terminate their participation in the program. He also recommen
that PERS then conduct a detailed study and report to the 1973
Legislature on the feasibility of discontinuing social security
coverage. He suggests that improvements could be made in PERS
survivor, disability, and hospital benefits through utilization of
present and projected employer contributions to social security
70
and up to one-half the present and projected employee contribu-
tions to that Federal system.
The analyst states that should the study conclude that social
security be retained, the previous notification could be with-
drawn prior to the two-year effective date.
2. California State Employees Association (CSEA)
On a number of occasions, state employees have been polled on
the question of social security coverage. (Exhibit 30). In
general, most state employees did not favor coordination with
social security, and when given an opportunity to join social
security chose to remain outside the system. In a 1967 CSEA
poll on the question of social security termination, approximately
50 percent of those voting voted for termination, 40 percent voted
against termination, and approximately 8.9 percent did not vote
or had no opinion. (Exhibit 31). As early as 1963, the CSEA
General Council adopted a policy position to seek termination.
This organization reaffirmed its previous policy position at its
October 1971 General Council (Exhibit 32). CSEA leadership is now
working with the staff at PERS to develop legislation on this
subject to seek termination. It is impossible to know at this
time the form of that legislative proposal.
3. Other Interested State Departments
Both the State Personnel Board and the Public Employees' Retire-
ment System supported the proposal in 1961 to adopt social
security coverage for state employees. The task force did not
have an opportunity to contact these two organizations regarding
the termination question. In light of the increased costs for
social security coverage as well as the improvement in PERS
retirement benefits, these organizations may reexamine their
previous position on the issue.
75
Exhibit 30
STATE OF CALIFORNIA
RONALD REAGAN, Governor
PUBLIC EMPLOYEES' RETIREMENT SYSTEM
1416 NINTH STREET, P.O. BOX 1953
SACRAMENTO, CALIFORNIA 95809
STANLEY B. FOWLER, President
ono PALOMBO, Vice President
Reply to Section 2 - SOC. SEC.
DR. LESTER BRESLOW
DONALD GALLAGHER
ROBERT R. HEADLEY
A. W. "JOE" HISLOP
WILLIAM G. MAAS
LUCY E. RITTER
October 6, 1969
JAMES A. TAYLOR
CASPAR W. WEINBERGER
JOSEPH L. WYATT, JR.
Mrs. Roberta Chock, Secretary
Joint Legislative Retirement Committee
c/o Assemblyman Richard Barnes
State Capitol
Sacramento, California 95814
Dear Roberta:
Bill Payne asked me to send you the statistics on the results of the
referenda, division, and transfer procedures conducted among State employees
on the question of Social Security coverage. The following are the results
of the various actions taken:
1955 Referendum conducted among State and University employees on
the full offset plan.
Eligible to vote
68,202
Total voting
56,364
Members voting "yes"
12,860
Members voting "no"
43,203
Voided ballots
301
56,364
1959 Referendum conducted among State and University employees.
Eligible to vote
99,885
Total voting
75,714
Members voting "yes"
32,303
Members voting "no"
43,411
75,714
1961 Division of the Public Employees' Retirement System.
Total eligible State and UC Members 131,000
Members choosing Social Security
33,390
-76-
Exhibit 30
Jt. Legislative Retirement Committee
October 6, 1969
Page 2
1965 additional opportunity to transfer to the group covered under
Social Security.
Eligible members
68,870
Members choosing Social Security
4,900
If you need additional information, please feel free to contact us.
Very truly yours,
Beverly I Saffiney
(MISS) BEVERLY J. GAFFNEY, CHEEF
SOCIAL SECURITY DIVISION
BJG:cg
-77-
TABLE II
OVERALL RESPONSE
To the question: Should the Coordination
of the State Employees' Retirement System
with Social Security (OASDI) be Terminated?
Opinion
Number
Percent
YES
29,372
50.9
NO
23,200
40.2
NO OPINION
4,927
8.5
NO RESPONSE
234
0.4
Total
57,733
100.0
Exhibit 31
Exhibit 32
CAPFORNIA STATE EMPLOYEES' ASSOCIATION
1108
"O"
S
REET
SACRAMENTO, CALIFORNIA 95814
PHONE (916) 444-813
REPRESENTING
people who serve the people
October 15, 1971
CERS
EUSAPO A. WARD
ROBERT CARLSON
Mr. William E. Payne
PRESIDENT
PAUL M. HAYS
Executive Officer
Public Employees' Retirement System
DAVID SIMONIAN
1416 Ninth Street
JOHNS MATHENY
Sacramento, California 95814
YOU 2007 HELISHER
NELLO L GREEN
Dear Bill:
ACCOUNTS
DIRECTORS
CSEA's General Council this year modified Association policy with
JACK DANELL
respect to termination of Social Security coverage for state employees.
ROBERT E, BRIDGES
PAT ZURFLUH
Our previous policy, you will recall, required that all elements of
MITCHELLM. OLIVER
LOUIS R. TRIPODI
Social Security coverage (e.g. wife's benefit, disability benefits)
WILLIAM A. CRAIB
be continued under PERS and that coordinated employees, their
JAMES T. CUMMINS
dependents, survivors, and beneficiaries, be guaranteed benefits
LBERT B.CLARK
EVAND. LONG
equivalent to that they would have been entitled to receive had
WILLIAMS. EVERETT
Social Security not been terminated.
NAONE FARRELL
RICHARD G. HANNUM
EPOY A PEMBERTON
The new policy eliminates the guarantee provision and simply
LEOMAYER
requires that the total savings derived from termination of social
HELEN RODIN
ARNEETA BROWN
security coverage be used for additional benefits under PERS.
ROBERT D. DENGLER
ROBERT W. GREEN
The resolution adopted by our General Council (copy attached) also
AARON M. REUCK
LUCHETIA GOUGH
requests that we work with you to develop the necessary legislation.
ERAL MANAGER
This is to request your assistance in developing this legislation.
LOREN V SMITH
Lore Sincerely, Loren V. Smith / Anith
General Manager
mc
-79-
Exhibit 32
Resolution Adopted
by the
California State Employees' Association
October 11, 1971
R 32/71
SUBJECT:
OASDI TERMINATION
SUBMITTED BY:
20 Delegates
WHEREAS, (1) CSEA introduced legislation in 1969 (AB 1949) and in 1970
(AB 178) to accomplish the intent of policy 3 B 5.3, and
WHEREAS, (2) AB 1949 was referred to interim study during 1969 and AB 178
failed to receive a do pass vote from the Assembly Ways and Means
Committee in 1970, and
WHEREAS, (3) opposition to these bills centered on the guarantee of all
future OASDI benefits to those coordinated employees who elected such
benefits and a contention by the PERS that the bills in their present form
would be difficult to administer, and
WHEREAS, (4) it has become apparent that if termination from the social
security agreement is to be achieved a more flexible bill must be developed,
one which does not include a tie to all future social security changes, and
WHEREAS, (5) representatives from the PERS have indicated an acceptable
bill could be developed which did not provide for social security type
benefits and which could be administered by PERS, and
WHEREAS, (6) SB 249 was passed in 1971, giving all state employees the
1/50th retirement formula, and
WHEREAS, (7) passage of SB 249 provided an even greater opportunity than
in past years to terminate the OASDI contract and apply the savings toward
better-retirement benefits for all members, and
WHEREAS, (8) projected cost increases for OASDI will place an even greater
hardship on coordinated employees, and particularly those younger employees
paying increased PERS contributions due to passage of SB 249, now therefore
be it
RESOLVED, (a) that policy 3 B 5.3 be amended to read:
3B5.3 The Association shall seek legislation to terminate the coordination
of social security with PERS, with all savings derived from termina-
tion to be applied to increasing retirement benefits through PERS
for all state employees and state annuitants of PERS, both coordinated
and non-coordinated with OASDI.
and be it further
-80-
Exhibit 32
RESOLVED, (b) that in order to assure workability of the proposed legislation,
CSEA shall request that PERS develop the required legislation, which need
not be patterned after social security type benefits, and be it further
RESOLVED, (c) that legislation be introduced early in the 1972 legislative
year for accomplishment of the policy, and be it further
RESOLVED, (d) that this be the continuing policy of the Association.
-81-
XIV.
WITHDRAWAL PROCEDURES, ACTION AUTHORITIES, FINALITY OF COMMITMENT
AND REQUIRED LEGISLATION
Summary
Procedures are available to terminate social security coverage for
employees of the State and University of California. Termination
action would include constitutional officers and members of the
Legislature. Once social security coverage for state employees is
terminated, the state may not again extend social security coverage
to its employees under the present provisions of the Social Security
Act.
The primary action necessary is for the State Legislature to pass
legislation requesting termination of social security coverage.
Discussion and Facts
The provisions for termination of coverage under the Federal-State
Social Security Agreement are included in Section 218(g) of the
Social Security Act and Section 22310 of the California Government
Code. Exhibits 33 and 34 contain the cited sections of the Federal
and state law. The statutes provide that a public agency must be
covered under social security five years before a request for
termination of coverage may be filed. The state meets this require-
ment. At least two years' advance notice, in writing, must be
given to the Department of Health, Education and Welfare before
termination of coverage can be accomplished.
The State Legislature may pass legislation requesting termination
of social security coverage as it relates to employees of the state
and employees of the University of California. The request for
termination will also affect members of the Legislature who are
included under the terms of coverage relating to the Public Employees'
Retirement System and those who will be included in the terms of
coverage as members of the Legislators' Retirement System. The action
would also affect employees of the Industries of the Blind who are not
eligible for membership in PERS, but who are covered under social
security as state employees.
The request for termination of coverage should indicate the effective
date of termination desired.
The effective date of termination must be:
1. The last day of a calendar quarter (i.e., March 31,
June 30, September 30, or December 31) and
2.
No earlier than two years after the Federal Govern-
ment accepts the state notification of the request
for termination.
The legislation should direct the appropriate state official to notify
the Department of Health, Education and Welfare of the provisions of
the termination request.
The employees of the State would continue to be covered under the
terms of the social security agreement until the effective date of
termination. During the two-year period between the notice of termi-
nation and the effective date of termination, the Legislature may
pass legislation to cancel the request for termination. Such action
would have to be taken in advance of the proposed termination date
with sufficient time to allow for a notice to the Department of
Health, Education and Welfare to cancel the termination request.
Under the provisions of Section 218(g) (3) of the Social Security Act,
once social security coverage is terminated with respect to state
employees and University employees, the State may not again extend
social security coverage to employees in the coverage group.
SOCIAL SECURITY ACT
Exhibit 33
218(c)
SECTION 218 OF THE ACT
HSA TL No. 6 5-69
(A) to which an agreement under this section is made applicable,
and
(B) with respect to which the agreement, or modification thereof
making the agreement so applicable, specifies an effective date earlier
than the date of execution of such agreement and such modification,
respectively,
the agreement shall, if so requested by the State, be applicable to such
services (to the extent the agreement was not already applicable) per-
formed before such date of execution and after such effective date by any
individual as a member of such coverage group if he is such a member
on a date, specified by the State, which is earlier than such date of
execution, except that in no case may the date so specified be earlier than
the date such agreement or such modification, as the case may be, is
mailed, or delivered by other means, to the Secretary.
(3) Notwithstanding the provisions of paragraph (2) of this sub-
section, in the case of services performed by individuals as members of
any coverage group to which an agreement under this section is made
applicable, and with respect to which there were timely paid in good faith
to the Secretary of the Treasury amounts equivalent to the sum of the
taxes which would have been imposed by sections 3101 and 3111 of the
Internal Revenue Code of 1954 had such services constituted employ-
ment for purposes of chapter 21 of such Code at the time they were
performed, and with respect to which refunds were not obtained, such indi-
viduals may, if so requested by the State, be deemed to be members of
such coverage group on the date designated pursuant to paragraph (2).
Termination of Agreement
(g) (1) Upon giving at least two years' advance notice in writing to
the Secretary of Health, Education, and Welfare, a State may terminate,
effective at the end of a calendar quarter specified in the notice, its
agreement with the Secretary either-
(A) in its entirety, but only if the agreement has been in effect from
its effective date for not less than five years prior to the receipt of
such notice; or
(B) with respect to any coverage group designated by the State,
but only if the agreement has been in effect with respect to such
coverage group for not less than five years prior to the receipt of
such notice.
(2) If the Secretary, after reasonable notice and opportunity for hear-
ing to a State with whom he has entered into an agreement pursuant to
this section, finds that the State has failed or is no longer legally able
to comply substantially with any provision of such agreement or of this
section, he shall notify such State that the agreement will be terminated
in its entirety, or with respect to any one or more coverage groups desig-
nated by him, at such time, not. later than two years from the date of
such notice, as he deems appropriate, unless prior to such time he finds
that there no longer is any such failure or that the cause for such legal
inability has been removed.
(3) If any agreement entered into under this section is terminated in
its entirety, the Secretary and the State may not again enter into an agree-
ment pursuant to this section. If any such agreement is terminated with
respect to any coverage group, the Secretary and the State may not there.
after modify such agreement SO as to again make the agreement applicable
with respect to such coverage group.