Update on Social Security Coverage for Public Employees Nicholas C. Merrill, Jr. CPA, CGFM Wednesday April 16, 2:05p.m. – 2:55p.m. State Employees’ Retirement System

Social Security History Social Security Act Signed into law in 1935 Excluded state and local government employees Added new section (Section 218) in 1950 Effective 1951, for non-retirement system government employee coverage Subsequent modifications allowed For retirement system coverage and Medicare-only coverage State Employees’ Retirement System

Social Security History Federal Insurance Contributions Act (FICA) Added to Internal Revenue Code in 1939 Medicare Program Signed into law in 1965 Employees covered for Social Security under a Section 218 agreement automatically covered, effective July 1, 1966 State Employees’ Retirement System

State Employees’ Retirement System Section 218 Agreements Three-party contract between: Social Security Administration (SSA) State and/or local unit of government State Social Security Administration (designed in state statute) State Employees’ Retirement System

State Employees’ Retirement System Section 218 Agreements Absolute coverage group: Positions are not covered by a retirement system coverage is extended to all current and future employees State Employees’ Retirement System

State Employees’ Retirement System Section 218 Agreements Retirement System coverage group: a pension, annuity, retirement or similar fund or system established by a state or political subdivision 1954 amendments authorizing retirement system coverage also required that employees be allowed to vote for/against coverage Federal law gives States flexibility in deciding what shall be the retirement system for referendum and coverage purposes State Employees’ Retirement System

Retirement System Coverage Group Referendum types : Majority of the eligible members Divided- each employee selects their own choice of coverage or non-coverage (not available to all States) State Employees’ Retirement System

Retirement System Coverage Group Federal requirements for referendum : Secret ballot Opportunity was given and limited to eligible employees Not less than 90 days notice of the vote Supervised by Governor or his /her designee State Employees’ Retirement System

Retirement System Coverage Group Federal requirements for referendum : Majority of eligible employees voted for coverage (except for the divided referendum type) If majority referendum passes, all future employees will be covered After a divided referendum has been conducted, all future employees will be covered State Employees’ Retirement System

State Employees’ Retirement System Mandatory Exclusions Employees hired to relieve them from unemployment Services performed in a hospital, home or other institution by a patient or inmate Covered transportation services State Employees’ Retirement System

State Employees’ Retirement System Mandatory Exclusions Service other than agricultural labor and student services which would be excluded from coverage of performed for a private employee Emergency services State Employees’ Retirement System

Elected class Part-time class Payment on a fee-basis Optional Exclusions Elected class Part-time class Payment on a fee-basis State Employees’ Retirement System

Mandatory Medicare (Effective April 1, 1986) New hires on and after April 1, 1986 Continuous employment exception See Revenue Rulings 86-88 and 88-36 for additional information in a Q & A format State Employees’ Retirement System

Mandatory Medicare IRC Section 3121 (u) (Effective April 1, 1986) Exclusions for Mandatory Medicare are the same as those for mandatory Social Security Can execute a Medicare-only Section 218 Agreement for pre-April 1, 1986 hires State Employees’ Retirement System

State Employees’ Retirement System Mandatory Social Security IRC Section 3121(b)(7)(F) (Effective July 2, 1991) Default if neither of the following is true Position is not covered under a Section 218 Agreement Position is not covered by a public retirement system State Employees’ Retirement System

Federal-State Reference Guide IRS Publication 963 Federal-State Cooperative publication Social Security Administration Internal Revenue Service National Conference of State Social Security Administrators Excerpts from Publication 963 State Employees’ Retirement System

Social Security Provisions Affecting Benefits Windfall Elimination provision (WEP) affects the employee’s benefits Government Pension Offset (GPO) affects the survivor’s benefits Form SSA 1945 State Employees’ Retirement System

State Employees’ Retirement System Useful Websites Social Security Administration (SSA) www.socialsecurity.gov Internal Revenue Service (IRS) www.irs.gov National Conference of State Social Security Administrators (NCSSSA) www.ncsssa.org State Employees’ Retirement System