Would Likely Increase Costs States and localities with non-covered workers could opt to provide newly hired employees with Social Security and pension benefits that, in total, approximate the pension benefits of current employees. GAO relied on a 1980 study by Social Security as well as more recent studies by Colorado, Illinois, and Ohio. Integration takes into account the income-weighting feature of Social Security. Specifically, Social Security pays proportionately larger benefits to individuals with low earnings during their careers and proportionately smaller benefits to those with higher incomes. Under integration, pension benefits paid by a private or public plan are proportionately smaller for lower paid individuals and larger for higher paid individuals, thereby offsetting Social Security's income-weighting feature.
Integration saves on pension costs because lower wage individuals get less.
Private plans commonly integrate, but public plans rarely do. GAO said that Social Security's cost is higher because it provides fully indexed COLAs, portability, and additional benefits for spouses and dependents. Public plans frequently provide portability through buy-back options and intrastate transfers. Could Mean Reduced Benefits Scenario III assumes that the state or locality would maintain the current level of funding for the pension plan, which could result in reduced benefits for many employees. GAO reached its conclusion based on an Ohio study.