TN 24 (11-09)

A. Introduction to state and local coverage

The original Social Security Act of 1935 (Act) did not extend Social Security coverage to state and local government employees because there was a legal question regarding the Federal government’s authority to tax state and local governments. However, because many government employers did not have their own retirement system, Congress amended the Act in 1950. Beginning January 1, 1951, states were allowed to enter into voluntary agreements with the Federal government. These agreements, called Section 218 Agreements, originally provided Social Security coverage to state and local government employees who were not covered by a retirement system. The Social Security Amendments of 1954 expanded the Act to allow states to extend Social Security coverage to state and local government employees who were members of public retirement system. To date, all 50 states, Puerto Rico, the Virgin Islands, and approximately 60 interstate instrumentalities have entered into a Section 218 Agreement with the Social Security Administration (SSA).

B. History of state and local coverage

The following is a chronology of relevant dates and facts throughout the history of state and local coverage.

• 1950: On January 1, 1951, Section 218 of the Social Security Act was enacted, allowing states, on a voluntary basis, to extend Social Security coverage to governmental employees not covered under a retirement system by entering into a Section 218 agreement.

• 1954: The Social Security Amendments of 1954 expanded the Act to allow states to extend Social Security coverage to state and local government employees who were members of a public retirement system (except police officers and firefighters), provided coverage was authorized by the state and approved through a voluntary referendum of all retirement system members.

• 1956: The Social Security Amendments of 1956 authorized certain states to divide a retirement system and cover only those members who voted for coverage, and all new members.

• 1965: In 1965, Medicare was legislated and employees covered by Social Security were automatically covered for Medicare Hospital Insurance (HI). This included employees covered under a Section 218 Agreement.

• 1983: Before 1983, states could terminate Social Security coverage for employees covered under the state’s Section 218 Agreement. The 1983 Social Security Amendments rescinded this provision of the Act and prohibited states from terminating coverage beginning April 20, 1983.

• 1985: Medicare coverage became mandatory for state and local government employees hired or rehired after March 31, 1986.

• 1986: Prior to 1987, SSA and the states were responsible for collecting Social Security and Medicare payments from governmental employers. Effective January 1, 1987, responsibility shifted to the IRS. Now, governmental employers pay Social Security and Medicare taxes directly to the IRS.

• 1990: On July 2, 1991, Social Security and Medicare coverage became mandatory for state and local government employees who were not members of a public retirement system and who were not covered under a Section 218 Agreement.

• 1994: On August 16, 1994, all states were authorized to extend Social Security and Medicare-only coverage to police and firefighters covered by a retirement system. Prior to this date, only certain states could cover the services of these positions.

• 2004: The Social Security Protection Act of 2004 was enacted, requiring state and local government employers to disclose the effect of the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO) to employees hired on or after January 1, 2005, in jobs not covered by Social Security. Form SSA-1945, Statement Concerning Your Employment in a Job Not Covered by Social Security, is the document that employers should use to meet the requirements of the law.

C. General rules for state and local coverage

Due to the complex nature of Section 218 of the Act, we provide the following list as general rules to state and local coverage.

• There must be authority under Federal and state law for coverage under a Section 218 Agreement to be possible.

• A state secures coverage through a Section 218 Agreement. Section 218 Agreements become legally binding, and cannot be terminated, after both parties approve, sign and date the agreement or modification.

• Each state has a designated official, known as the State Social Security Administrator, who is responsible for maintaining the state’s agreement and interpreting the agreement’s coverage of governmental employers and employees.

• For purposes of a Section 218 Agreement, a “state” includes the 50 states, Puerto Rico, the Virgin Islands and interstate instrumentalities. It does not include the District of Columbia, Guam, American Samoa and the Commonwealth of the Northern Mariana Islands. All states have a Section 218 Agreement with the Social Security Administration.

• A Section 218 Agreement provides retirement, survivors, disability and hospital insurance coverage (OASDHI) for those groups of state and local government employees stipulated in the Agreement. A state can also provide Medicare HI-only coverage for certain individuals.

• With the exception of Medicare HI-only, Section 218 Agreements do not cover individuals. They cover services of positions filled by groups of employees, i.e., teachers or bus drivers.

• A state can modify its original Section 218 Agreement by submitting a formal document known as a modification. Modifications are used to change the provisions of the original agreement or subsequent modification (ex., include additional coverage groups, correct errors). Modifications can not terminate coverage of services.

• Political subdivisions such as counties, cities, school districts and utility districts can make a request to their respective state for coverage under a Section 218 Agreement.

• The extent of coverage under a Section 218 Agreement varies from state to state. Therefore, it is important to know who the employer is, identify the position and recognize key state and local coverage dates when determining coverage for an employee. If there is no coverage under Section 218 Agreement, you must consider whether coverage under Section 210 applies.