Industry News

In September 2025, the American Academy of Actuaries (AAA) published its policy paper, Public Sector Workers Not Covered by Social Security: Implications for Their Retirement Security. This publication is a joint policy paper prepared by members of the AAA’s Social Security Committee and the Public Plans Committee. According to the paper, “Public sector entities seeking exemption from Social Security must demonstrate that they comply with the requirement that they sponsor a pension plan whose benefits are ‘comparable’ to Social Security. The most common method of demonstrating compliance is to show that the plan benefits are equal to or greater than a safe harbor that was established in 1991.”

The AAA policy paper examines the minimum benefit requirements for qualifying public retirement systems. Primarily, it focuses on the safe harbor under IRS Revenue Procedure 91-40. The safe harbor requires a minimum level of benefits that defined benefit plans must provide to be exempt from Social Security. The intent of the safe harbor provision is to ensure that non-covered employees receive pension benefits that would be comparable if those employees would have been covered by Social Security.

This policy paper analyzes the current safe harbor benefit to estimate the extent that it is or is not “comparable” to the current Social Security benefit. Generally, plans that meet the safe harbor requirement may be presumed to provide benefits that are “comparable to those provided in the Old-Age portion of the Old-Age, Survivor, Disability Insurance program under Social Security.” However, it is not certain if the plans’ safe harbor benefits are actually “comparable” to the current Social Security benefit.

The policy paper concludes, “The 91-40 safe harbor calculations are intended to ensure a comparable retirement benefit for individuals in public plans not covered by Social Security for at least part of their career. The safe harbor appears to provide reasonably comparable benefits to those provided by Social Security at retirement (depending on income level), but it does not provide insurance against inflation risk as does Social Security. It also does not provide greater benefits to lower-paid individuals than Social Security. The safe harbor focuses on retirement benefits, and other ancillary benefits are not considered. This could be viewed as unfair, because some systems that struggle to meet the safe harbor provisions provide significant automatic survivor benefits that are not considered in the safe harbor test.”

Among other members, the AAA’s Public Plans Committee includes Judith Kermans, President, CEO and Senior Consultant at GRS. In addition, Piotr Krekora, Senior Consultant for GRS, serves as a member of the AAA’s Social Security Committee as well as Brian Murphy, a retired Senior Consultant and past President of GRS.

The policy paper is available here.