A specific example of smaller local units of government choosing to opt out of Social Security to design their own pension plans occurred in 1981, when Congress still allowed government units to make that choice. The three Texas gulf coast counties of Brazoria, Galveston, and Matagorda selected a private investment firm to manage their employees’ retirement plans with a guaranteed annual return of 6.5 percent.

By 1996 the results were in, and county employees’ retirement benefits were triple what would have been paid by Social Security for a worker who earned $20,000 per year and over five times the Social Security benefits for a worker whose pay was $50,000 (see Chart 4, next page). Congress closed the local government opt-out window in 1983 with major Social Security reform legislation that raised taxes and effectively reduced benefits by raising the eligible retirement age after 2015. (See Chart 4.)