High Court to Rule in Social Security Case : Will Decide If States, Local Governments Can Quit Program

The Supreme Court agreed today to decide whether state and local governments may withdraw their employees from the nation’s Social Security system.

The court will review a ruling that invalidated a 1983 law in which Congress sought to protect Social Security’s economic integrity by barring states and local governments from pulling out.

Reagan Administration lawyers said the ruling last May 31 by a federal judge in California carries “immense” financial impact for Social Security, and could drain the pension system of more than $3 billion by 1990.

States and local governments have been allowed to enroll their employees in Social Security since 1950, and local government workers in all 50 states are enrolled today.

Only 5 States Out

As of 1983, about 9.4 million of an estimated 13.2 million state and local government employees participated in Social Security. Only five states--Alaska, Maine, Massachusetts, Nevada and Ohio--do not have their own employees enrolled in Social Security.

Under the 1950 amendment to the Social Security Act, each state was authorized to withdraw its employees on two years’ notice, and also could do so on behalf of the local governments within that state.

From 1950 to 1966, however, only 319 public employees withdrew from the system.

But as apprehension grew in the 1970s over the financial future of Social Security, such withdrawals became more numerous. Between 1977 and 1981, 96,000 state and local employees dropped out of the system.

227,000 Want Out

And in 1983, termination notices were pending from 634 state and local governments representing 227,000 employees.

Congress that year amended the act to say “no agreement . . . may be terminated, either in its entirety or with respect to any coverage group, on or after April 20, 1983.”

The amendment barred termination even by those state and local governments with notices pending when the amendment was enacted.

California had filed such a notice on behalf of 70 local governments within the state, representing 34,000 workers.

California state officials and a group called Public Agencies Opposed to Social Security Entrapment sued the federal government, challenging the 1983 amendment.

U.S. District Judge Lawrence K. Karlton of Sacramento ruled against the government, saying, “Congress is simply not free to deprive the state of its contractual right without just compensation.”

After finding that compensation was not feasible in such a case, Karlton invalidated the 1983 amendment and ordered the government to “accept the notifications of withdrawal properly tendered.”