state employees retirement system update on social security coverage for public employees nicholas...
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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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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
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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
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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)
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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
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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
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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)
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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
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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
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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
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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
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State Employees’ Retirement System
Optional Exclusions
Elected class
Part-time class
Payment on a fee-basis
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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
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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
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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
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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
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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
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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