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

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Page 1: State Employees Retirement System Update on Social Security Coverage for Public Employees Nicholas C. Merrill, Jr. CPA, CGFM Wednesday April 16, 2:05p.m

State Employees’ Retirement System

Update on Social Security Coverage for Public Employees

Nicholas C. Merrill, Jr. CPA, CGFM

Wednesday April 16, 2:05p.m. – 2:55p.m.

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

State Employees’ Retirement System

Social Security History

Social Security Act

Signed into law in 1935Excluded state and local government employees

Added new section (Section 218) in 1950Effective 1951, for non-retirement system government

employee coverage

Subsequent modifications allowedFor retirement system coverage and Medicare-only coverage

Page 3: State Employees Retirement System Update on Social Security Coverage for Public Employees Nicholas C. Merrill, Jr. CPA, CGFM Wednesday April 16, 2:05p.m

State Employees’ Retirement System

Social Security History

Federal Insurance Contributions Act (FICA)Added to Internal Revenue Code in 1939

Medicare ProgramSigned into law in 1965Employees covered for Social Security under a Section 218 agreement automatically covered, effective July 1, 1966

Page 4: State Employees Retirement System Update on Social Security Coverage for Public Employees Nicholas C. Merrill, Jr. CPA, CGFM Wednesday April 16, 2:05p.m

State Employees’ Retirement System

Section 218 Agreements

Three-party contract between:Social Security Administration (SSA)State and/or local unit of governmentState Social Security Administration (designed in state statute)

Page 5: State Employees Retirement System Update on Social Security Coverage for Public Employees Nicholas C. Merrill, Jr. CPA, CGFM Wednesday April 16, 2:05p.m

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

Page 6: State Employees Retirement System Update on Social Security Coverage for Public Employees Nicholas C. Merrill, Jr. CPA, CGFM Wednesday April 16, 2:05p.m

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

Page 7: State Employees Retirement System Update on Social Security Coverage for Public Employees Nicholas C. Merrill, Jr. CPA, CGFM Wednesday April 16, 2:05p.m

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)

Page 8: State Employees Retirement System Update on Social Security Coverage for Public Employees Nicholas C. Merrill, Jr. CPA, CGFM Wednesday April 16, 2:05p.m

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

Page 9: State Employees Retirement System Update on Social Security Coverage for Public Employees Nicholas C. Merrill, Jr. CPA, CGFM Wednesday April 16, 2:05p.m

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

Page 10: State Employees Retirement System Update on Social Security Coverage for Public Employees Nicholas C. Merrill, Jr. CPA, CGFM Wednesday April 16, 2:05p.m

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 inmateCovered transportation services

Page 11: State Employees Retirement System Update on Social Security Coverage for Public Employees Nicholas C. Merrill, Jr. CPA, CGFM Wednesday April 16, 2:05p.m

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

Page 12: State Employees Retirement System Update on Social Security Coverage for Public Employees Nicholas C. Merrill, Jr. CPA, CGFM Wednesday April 16, 2:05p.m

State Employees’ Retirement System

Optional Exclusions

Elected class

Part-time class

Payment on a fee-basis

Page 13: State Employees Retirement System Update on Social Security Coverage for Public Employees Nicholas C. Merrill, Jr. CPA, CGFM Wednesday April 16, 2:05p.m

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

Page 14: State Employees Retirement System Update on Social Security Coverage for Public Employees Nicholas C. Merrill, Jr. CPA, CGFM Wednesday April 16, 2:05p.m

State Employees’ Retirement System

Mandatory MedicareIRC 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

Page 15: State Employees Retirement System Update on Social Security Coverage for Public Employees Nicholas C. Merrill, Jr. CPA, CGFM Wednesday April 16, 2:05p.m

State Employees’ Retirement System

Mandatory Social SecurityIRC 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 AgreementPosition is not covered by a public retirement system

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

State Employees’ Retirement System

Federal-State Reference Guide

IRS Publication 963

Federal-State Cooperative publicationSocial Security AdministrationInternal Revenue ServiceNational Conference of State Social Security Administrators

Excerpts from Publication 963

Page 17: State Employees Retirement System Update on Social Security Coverage for Public Employees Nicholas C. Merrill, Jr. CPA, CGFM Wednesday April 16, 2:05p.m

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

Page 18: State Employees Retirement System Update on Social Security Coverage for Public Employees Nicholas C. Merrill, Jr. CPA, CGFM Wednesday April 16, 2:05p.m

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