Could Mandatory Social Security Happen Sooner Than You Think?

February 5, 2026

Requiring all state and local government employees to participate in Social Security (SS) would slightly delay the impending depletion of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance (OASDI) fund. However, would doing so make this a sufficiently attractive option for Congress to consider it independent of overall SS reform? A new report by Moody’s Ratings concerning the impact of mandatory SS suggests near-term legislative action to address the ongoing SS deficit is “unlikely.” But does this mean that as Congress approaches 2034, the current projected date when SS’s Chief Actuary estimates the OASDI fund will be depleted, the temptation to buy a little more time — particularly if an overall deal appears to be within reach to achieve whatever reforms will place the program on a firm fiscal footing moving forward — might not gain support? And does advancing mandatory SS coverage as a standalone measure create serious new political and strategic risks for opponents? Finally, if mandatory SS does become law, Moody’s projects that those governments with retirement systems outside SS that have large unfunded liabilities, heavy benefit outflows, and a high reliance on member contributions to support annual cash flow, stand to be most negatively affected.

The January 14, 2026, report by Moody’s Ratings points out that between 20 percent and 30 percent of state and local government employees, mostly teachers and those in public safety roles, do not currently participate in the Social Security program, according to the National Conference of State Legislatures (NCSL). These employees receive retirement benefits from their government employers’ respective defined benefit pension systems instead. [Moody’s Ratings is a provider of credit ratings, research, and risk analysis for global capital markets, assessing the creditworthiness of bonds, issuers, and structured finance, using a scale from Aaa to C to indicate default risk.]

The Social Security Administration (SSA) Office of the Chief Actuary projects that if all newly hired state and local government employees were instead required to participate in SS starting in 2026, the system’s revenue would eventually rise to about 14 percent of taxable payroll, inclusive of contributions and taxes on benefits — about 0.5 percent higher than the status quo. Thus, about four percent of the system’s long-term imbalance on a present value basis could be eliminated by implementing such a provision.

Furthermore, this is a positive near term cash flow because such coverage generates a 12.4 percent OASDI tax flow immediately while benefits will not be drawn down for decades. Also, even though this moves the depletion date only marginally — by months and not years, most experts appear to agree, and is therefore not a meaningful extension of the reform window – it could nevertheless be a significant amount of time, depending on the circumstances and the politics of overall SS reform at any given point.

Much attention has been paid to the overall impact of mandatory SS on a national level. For example, the Committee to Preserve Retirement Security (CPRS) released a report in 2021 prepared by The Segal Group, a valued NCTR Commercial Associate member, that estimated the total initial five-year employer and employee cost of universal SS participation to state and local governments and their new employees would reach $35 billion and possibly as much as $50 billion, with the impact being felt in every state. [CPRS is dedicated to opposing efforts to force public employers and their workers to participate in the Social Security program, and its members include major public employee retirement systems and national, state and local employee, employer, and retiree organizations.]

This Segal Report, which is currently being updated, provides a state-by-state cost analysis, and explains how mandatory SS will:

raise the cost of maintaining current benefit levels;
likely result in reduced public plan benefits and limit the ability of employers to replace retiring baby boomers in the workplace;
affect more than newly hired public employees, requiring the making of additional benefit and/or funding adjustments; and
ignore the diverse work-force requirements of the public sector.

By contrast, the new Moody’s Ratings report focuses on governments with retirement systems that have large unfunded liabilities, heavy benefit outflows, and a high reliance on member contributions necessary to support annual cash flow.It explains how – if the federal government were to require all state and local government employees to participate in SS – these governments and their retirement systems “stand to be most negatively affected.”

More specifically, Moody’s underscores, underfunded retirement systems that have both significant negative noninvestment cash flow (NICF) and relatively large member contributions relative to investment assets “would be most at risk from changes that cause new members to contribute less to the system or not participate at all.”

Why? Moody’s emphasizes that materially negative NICF relative to assets “can constrain pension asset accumulation, particularly during periods of volatile returns.” Furthermore, since a retirement system with negative NICF must use its assets to cover benefit payments in years with low or negative returns, “any subsequently positive investment returns accumulate on a reduced asset base.”

Based on a sample from Moody’s database comprised of large retirement systems that cover teachers and public safety employees, Moody’s Ratings estimates that “about 10 percent of systems have negative NICF amounting to -3.5 percent of assets or less and rely on employee contributions amounting to at least two percent of their assets, as of their most recent financial reporting.” Without employee contributions, Moody’s therefore stresses these systems “would have exceptionally negative NICF, amounting to -5.5 percent of assets or less.”

Therefore, Moody’s Ratings believes state and local governments “will essentially have three broad options if faced with the scenario of mandatory SS, as follows:

Option 1: Do Nothing. Moody’s explains that if state or local governments take no action, their retirement costs would rise by 6.2 percent of payroll above their current share of normal costs for new employees because employer contributions for SS are 6.2 percent of taxable payroll. New employees’ contribution requirements would also rise by 6.2 percent of payroll in comparison to current employees in the same benefit tier. “We view this scenario as unlikely because of the current magnitude of employee contributions and the differences in employer costs and total retirement benefit generosity that would arise between currently active and prospective employees,” Moody’s observes.

For example, based on a sample from Moody’s database of statewide retirement systems in which teachers participate, as well as large public safety pension systems, employee contributions amount to 8.6 percent of payroll on average, meaning another 6.2 percent of payroll contribution for SS would boost prospective employees’ total mandatory contributions toward retirement to nearly 15 percent of payroll in the average case. (Emphasis added.)

Option 2: Create a New Benefit Tier Within Existing Retirement Systems. Moody’s Ratings notes that if governments create a new benefit tier within their current retirement systems, that tier would likely carry lower employee contribution requirements to help offset mandatory SS contributions. “As a result, NICF for the retirement system would be more negative than under the status quo, unless offset by higher government contributions,” Moody’s underscores, pointing out that, “[w]here possible, we expect governments to also attempt to structure any new benefit tier so it would be at most as costly as current benefit tiers when also considering the cost of Social Security participation for new employees.”

Consequently, Moody’s says that governments “would likely strive to reduce their share of normal costs by at least 6.2 percent of payroll,” but in more than half of the large retirement systems sampled in which teachers and public safety employees participate, governments’ shares of normal costs (employer normal costs) are currently less than 6.2 percent of payroll, based on reported actuarial assumptions. Therefore, in cases where governments’ employer normal costs are currently below 6.2 percent of payroll, “their [SS] retirement benefit contributions for new employees will be higher, even if those employees participate only in SS and receive no additional retirement benefit.”

Option 3: Close Current Retirement Systems to New Entrants. If governments choose to close their current systems to new entrants, the effects will be similar to Option 2, Moody’s warns. However, unless offset by higher government contributions, “the effect on legacy retirement systems’ NICF would be even more pronounced than under Option 2 because all new employee contributions and any related employer normal cost contributions would be entirely diverted away from the legacy retirement system, Moody’s stresses. “Total retirement costs for a state or local government in this scenario would depend on the generosity of any benefits offered to new employees, in addition to SS, outside the legacy retirement system,” Moody’s emphasizes.

However, it should be noted that under either Option 2 or 3 – assuming any new mandatory SS participation rules apply only to new employees, as expected — the cash flow impact on existing retirement systems would be gradual. For example, Moody’s points to the Teachers’ Retirement System of the State of Illinois (IL TRS), and notes that it projects that by 2030, about 18 percent of employee contributions will come from new employees (i.e., future hires), and by 2040, over half of employee contributions will come from future hires, reaching 75 percent by the mid-2040s.

None of these options are attractive responses to mandatory SS, but they represent the realities of the situation, and Moody’s new report underscores that for retirement systems that have large unfunded liabilities, heavy benefit outflows, and a high reliance on member contributions necessary to support annual cash flow, these impacts are particularly worrisome.

Also, as Moody’s notes, even though the exhaustion of Social Security Trust Fund reserves “is only on paper, it could still serve as a key political motivator and a potential trigger for legislative action.” And if this action is taken separate and apart from overall SS reform in order to buy additional time to reach a compromise, it could present an even more serious threat.

For example, consider the following political‑strategy risks that Microsoft Copilot has identified for opponents of mandatory SS coverage if the proposal moves forward as a standalone measure, rather than as part of a broader Social Security reform package. As this AI analysis explains, “The risks don’t come from the policy mechanics so much as from public perception, political framing, and the uneven distribution of impact across states.”

“The number of states that would feel little or no impact creates a political asymmetry,” presenting a structural disadvantage for opponents of mandatory SS. With roughly 75 percent of state and local workers already covered by SS, only a relatively small number of states have large non‑covered populations. This means that most Members of Congress represent states where mandatory coverage would be relatively a “non‑issue” for their constituents. Thus, the political cost of supporting mandatory coverage could be seen as low for the majority of lawmakers.
The general public does not know that Social Security does not cover all workers, with polling and SSA research consistently showing that most Americans assume everyone pays into Social Security. Therefore, this could mean that opponents must begin by explaining a fact that most Americans don’t know. This can create somewhat of a messaging disadvantage, because the public’s default assumption may be that mandatory coverage is simply “closing a loophole,” and supporters of mandatory SS can frame the issue as fairness, uniformity, or ending special exemptions, which could resonate with voters who are unaware of the historical context of non-coverage. Thus, this public‑knowledge gap could structurally favor supporters of mandatory SS.
Anti‑government sentiment in the current political climate – while cutting both ways — may largely work against opponents of mandatory SS. For example, there may already be a receptive audience for claims that government insiders get “special treatment;” public employees have benefits ordinary Americans do not; and “everyone should play by the same rules.” Powerful opponents of the repeal of GPO and WEP have already argued as much, and the sore feelings of Congressional leadership with the manner in which such repeal was handled should not be discounted.
Advancing mandatory coverage outside of broader Social Security reform may remove one of the strongest arguments opponents of mandatory coverage have. That is, when mandatory coverage is embedded in a larger reform package, opponents can argue it is being used as a budget gimmick, distracts from real solvency solutions, and complicates state pension funding. But if mandatory coverage is advanced as a standalone bill, those arguments lose some of their force, and the debate becomes simpler, which favors supporters of mandatory SS – with opponents left arguing technical pension‑funding issues and actuarial or transition‑cost arguments against a clean “fairness” narrative advanced by supporters.
The fiscal scoring optics favor supporters of mandatory SS. That is, both the SSA and the Congressional Budget Office (CBO) consistently score mandatory coverage as positive for the trust fund in the short term; modestly helpful for long‑term solvency; and closing five to ten percent of the 75‑year shortfall. This means that opponents of mandatory are left to argue against a measure that improves SS finances; has no immediate cost to the federal budget; and is scored as a solvency‑enhancing reform. This can be a difficult position to defend politically, especially when the public does not understand the nuances of state pension integration.
The “harm” narrative is harder to communicate than the “fairness” narrative. For example, some of the strongest substantive arguments for opponents of mandatory SS — transition costs, integration issues, and plan‑design disruption – are technical, state‑specific, and not intuitive to the general public, while the arguments of supporters of mandatory — fairness, uniformity, and everyone paying into the same system – are simple, national, and emotionally resonant.

In summary, the public may have difficulty engaging with actuarial or transition‑cost arguments, and opponents of mandatory coverage risk being framed as defending “special treatment” for public employees, protecting “government workers’ exemptions,” and opposing “fairness” or “uniform rules.” On the other hand, supporters can cast mandatory coverage as anti‑insider reform, a way to ensure public workers “pay into the same system as everyone else,” and a means to prevent “government employees from opting out of Social Security” while everyone else has to pay the FICA tax.

That is why NCTR joins CPRS in encouraging every public plan that has employees not covered by SS to carefully examine the potential impact on their plan and be prepared to explain the implications, particularly for those employees who are currently covered by SS, but who will nevertheless be exposed to negative effects. And possibly be prepared to do so sooner rather than later.