STATE ENABLING LEGISLATION

BY MARYANN MOTZA, PhD, COLORADO STATE SOCIAL SECURITY ADMINISTRATOR NCSSSA ANNUAL CONFERENCE, NEW ORLEANS, LOUISIANA

JULY 29, 2014

WHAT IS “ENABLING LEGISLATION?” In the early 1950’s state enabling legislation (or “statute” or “act”) was adopted by each of the states and territories eligible to enter into Section 218 Agreements under federal law (Section 218, U.S. Social Security Act).

• Provided consent by the state (on behalf of itself and/or its political subdivisions) to enter into the voluntary coverage agreements and pay the concomitant contributions (tax).

Black’s Law Dictionary definition of “enabling statute” (or “enabling act”): “A law that permits what was previously prohibited or that creates new powers; esp. a congressional statute conferring powers on an executive agency to carry out various delegated acts.” Source: Blacks’ Law Dictionary (7th ed.), St. Paul, MN: West Group 1999.

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UNDER THE U.S. FEDERAL SYSTEM OF GOVERNMENT, WHEN DO FEDERAL VERSUS STATE LAWS APPLY?

Federalism and Section 218 As a republic, the United States is a federalist form of government in which sovereignty is divided between a central authority and member state authorities. This understanding of sovereignty and federalism was the reason that Congress did not include state and local government employers and employees in the original Social Security Act of 1935. To overcome this problem, Section 218 of the Social Security Act was enacted that allowed the states and their political subdivisions, through their states, to enter into voluntary agreements with the federal government (SSA) to provide coverage and benefits to their employees. So, why is Social Security and Medicare coverage different for state and local government employers/ employees than for those in the private sector?

• The answer is: federalism as embodied in the 10th Amendment to the U.S. Constitution.

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HIERARCHY OF LAWS IN THE U.S.

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U.S. Constitution

Federal Statutes

State Constitution

Federal Court Decisions

Federal Regulations State Statutes State Court Decisions

WHICH FEDERAL AGENCY OR DEPARTMENT HAS SUPREMACY? Answer: None. Each agency has independent jurisdiction to implement and enforce the laws within its authority as defined by federal statute. For example: Social Security coverage and benefits are within the

purview of the Social Security Administration Tax collection, including FICA, is within the jurisdiction

of the Internal Revenue Service.

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HIERARCHY OF COURT RULINGS

The hierarchy depends on the issue to be decided. U.S. Constitution and federal law issues are governed by the federal court system: U.S. Supreme Court, then the Circuit Court of Appeals, then the district or special jurisdiction courts, such as a tax court and lastly, the administrative ruling by the executive agency. The State Supreme Court has final authority over state law matters, even when the core issue involves a federal statute such as Section 218. For example, whether a political subdivision was created or dissolved is a matter of state law and the questions of fact and law are properly decided by the state courts, with the State Supreme Court being the final arbiter.

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STATE GOVERNMENT Each state has its own constitution based on its unique history, needs, philosophy, and geography. A state's

constitution is similar to that of the national Constitution; however, the laws made in individual states cannot conflict with the national Constitution or national laws. The national Constitution is "the supreme law of the land.“

Just like that of the national government, each state's constitution separates power among the three branches -- legislative, judicial, and executive. In addition, in most states, the legislative branch contains two houses. (In Nebraska, the state legislature only has one house). Instead of a president, each state elects a governor.

National government and state government are two types of government, but there are also local governments. Most Americans live under the national government, a state government, and several local governments. Local governments within each state are often divided into five categories: County Town and Township Municipality Special District School District Details on the number, types, and authority of governments within each state is available from the U.S.

Census Bureau at: www2.census.gov/govs/cog/2012isd.pdf.

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STATE CONTROL OF POLITICAL SUBDIVISIONS

Municipal corporations are political subdivisions of the state, created as convenient agencies for exercising such of the governmental powers of the state as may be entrusted to them. The number, nature, and duration of the powers conferred upon these corporations and the territory over which they shall be exercised rests in the absolute discretion of the state. The state, therefore, at its pleasure, may modify or withdraw all such powers, may take without compensation such property, hold it itself, or vest it in other agencies, expand or contract the territorial area, unite the whole or a part of it with another municipality, repeal the charter and destroy the corporation.

All this may be done, conditionally or unconditionally, with or without the consent of the citizens, or even against their protest. In all these respects the state is supreme, and its legislative body, conforming its action to the state Constitution, may do as it will, unrestrained by any provision of the Constitution of the United States. Hunter v. City of Pittsburgh, 207 U.S. 161, 28 S.Ct. 40, 52 L.Ed 151 (1907).

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FEDERAL OR STATE LAW (FOR SECTION 218 PURPOSES)

Federal law applies to the following: Does an employer-employee relationship exist?

What is the identity of the employer?

Are earnings wages?

What are emergency services?

What are student services?

State law applies to the following: Who is an officer of a state or political subdivision? Is an entity a political subdivision? What is the legal status of a new entity? Is a function governmental or proprietary? Is a position under a retirement system? Which employees are eligible for membership in a retirement system? Who is an employee for purposes of retirement system participation?

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Federal law governs determinations involving coverage of state and local government employees while the interpretation or application of state laws are resolved by the authorized legal officers of the state (e.g., State Attorney General) in accordance with applicable state and local laws, regulations and the state court decisions.

WHAT SHOULD BE THE AIM OF THE STATE ENABLING ACT?

Ensure compliance with federal law Move from “Accounting” to “Compliance” matters (since

1987 – or whenever your state reconciled its accounts with the U.S. Social Security Administration for pre-1987 contributions)

Implement federal law within each state according to the needs and desires of that state and its citizens

Identify the state department or agency that is responsible for ensuring compliance with Section 218 of the U.S. Social Security Act

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STATUTORY LOCATION OF STATE SOCIAL SECURITY ADMINISTRATOR’S OFFICES

Office Location Number of States Percent of States

Admin./Budget/Finance Office 8 15.40%

Auditor Office 2 2.85%

Comptroller Office 5 9.60% Labor or Employment Security 4 7.70%

Human Resources or Services 2 3.85%

State Retirement System 23 44.20%

Treasurer's Office 8 15.40%

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STATUTORY LOCATION OF STATE SOCIAL SECURITY ADMINISTRATOR’S OFFICES

Admin./Budget/Finance Office

Auditor Office

Comptroller Office

Labor or Employment Security

Human Resources or Services

State Retirement System

Treasurer's Office

3.85%

3.85%

9.6%

7.7%

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15.8%

44.2%

15.4%

SECTION 218 IS LIKE A LAYER CAKE – HUH??!!

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COMPARISON: LAYER CAKE AND SECTION 218 The frosting on the outside of the Section 218 “cake” consists of all of the interpretive information that has been applied to a particular state’s Section 218 Agreement and coverage decisions AND your state’s public pension laws. Sources include: State Social Security Administrator advisories and/or rulings, State Attorney General’s Office, various offices and officials of the U.S. Social Security Administration, and federal and/or state court decisions. The top layer is the state’s Master Section 218 Agreement that is entered into with the Social Security Administration (or its predecessor department), Modifications to the Master Agreement, and the various Plan and Agreements applicable to each employer that entered into an agreement The frosting between the top and middle layers are state statutes, rules, regulations, policies, and practices that apply the federal Section 218 Agreement to their state and local governments, based on the unique features of that state’s enabling legislation and public pension system laws. The middle layer is the state’s enabling legislation, act, or statute, which implemented the federal Act, based on the preferences of the people of that state. The frosting between the middle and bottom layers are other federal statutes, rules, regulations, policies, and practices that apply to the federal Section 218 Agreements. The bottom layer is the base – the U.S. Social Security Act. Everything else is supported by, and built upon, that layer. 14

The Section 218 “cake” consists of 52 separate “slices” that are each unique, to some degree, yet share similarities to the other 51 “slices.”

COMPARISON: LAYER CAKE AND SECTION 218 (CONT.)

Each slice of the Section 218 “cake” i.e., each state and each employer within that state, requires the State Social Security Administrator (as well as the U.S. Social Security Administration and Internal Revenue Service) to look for the facts and circumstances and which laws, regulations, policies, and guidelines apply to EACH SITUATION AND POSITION.

For example, if your state enabling legislation does not permit you to conduct referendum election for police and fire officials – even though federal law has permitted it in every state since August 15, 1994 -- YOU CANNOT LEGALLY CONDUCT SUCH AN ELECTION (until your state laws grant you that authority)!

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HAVE STATE LAWS KEPT UP WITH FEDERAL CHANGES?

Review your state enabling act to determine if there are provisions for: • Coverage of police and firefighters • Elimination of the ability of entities to withdraw from Section 218 • Mandatory Medicare and Social Security • Direct collection and filing provisions for payment of FICA taxes to the IRS (rather

than the State Social Security Administrator prior to 1987) • Referenda for the election of coverage (including Medicare-only)

NOTE: Colorado’s State Administrator has attempted repeatedly to update its enabling legislation since 1994 – never happened. It ultimately is the decision of the elected officials (members of the General Assembly and Governor) on what, if any, changes are made to such laws.

If not changed, some provisions are o.k. without being changed -- WHY?

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WHAT IF FEDERAL LAW CHANGED & THE STATE ENABLING STATUTE DID NOT? ANSWER: It depends! • If provisions within a state enabling statute have been superseded by changes

in federal law, those provisions are now invalid, so the state statute does not need to be changed (even though it’s a good idea to do so). For example: • Originally Social Security (and, later, Medicare) contributions were paid to the

State Social Security Administrator’s Office who then, in turn, transmitted the funds owed to the U.S. Treasury. That was changed, effective January 1, 1987; since that time FICA taxes are sent directly to the U.S. Treasury by public employers, with the IRS becoming responsible for their collection.

• Originally Section 218 Agreements could be terminated in whole or in part if the proper notice procedures was followed. That was changed effective April 20, 1983. Since that time, once a Section 218 Agreement is entered into It cannot be terminated unless the governmental entity is legally dissolved.

AND

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WHAT IF FEDERAL LAW CHANGED & THE STATE ENABLING STATUTE DID NOT? (CONTD.) • If federal law changed to permit coverage

of groups previously prohibited, and your state desires to extend Social Security (and/or Medicare-only coverage) to previously prohibited groups, the state’s enabling legislation MUST BE CHANGED BEFORE THE SECTION 218 AGREEMENT CAN BE MODIFIED to grant such coverage. For example: • Extension of coverage to police and

firefighters.

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POLICE OFFICERS AND FIREFIGHTERS

Beginning August 16, 1994, all states were allowed to extend Section 218 Social Security and Medicare or Medicare-only coverage to police officer and firefighter positions covered under a retirement system through a referendum procedure conducted by the state. (Prior to that date, only 23 states, and all interstate instrumentalities, were specifically authorized by Congress to do so.)

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Alabama Maryland South Carolina

California Mississippi South Dakota

Florida Montana Tennessee

Georgia New York Texas

Hawaii North Carolina Vermont

Idaho North Dakota Virginia

Kansas Oregon Washington

Maine Puerto Rico

SECTION 218 OF THE U.S. SOCIAL SECURITY ACT MAY PROVIDE FOR SPECIAL CIRCUMSTANCES FOR YOUR STATE For example: Any retirement system of the State of Florida, Georgia, Minnesota, North Dakota, Pennsylvania,

Washington, or Hawaii which covers positions of employees of such State who are compensated in whole or in part from grants made to such State under title III.

Wisconsin Retirement Fund -- (i)(1) Notwithstanding paragraph (1) of subsection (d), the agreement with the State of Wisconsin may, subject to the provisions of this subsection, be modified so as to apply to service performed by employees in positions covered by the Wisconsin retirement fund or any successor system.

Certain Employees of the State of Utah -- (k) Notwithstanding the provisions of subsection (d), the agreement with the State of Utah entered into pursuant to this section may be modified pursuant to subsection (c)(4) so as to apply to services performed for any of the following, the employees performing services for each of which shall constitute a separate coverage group: Weber Junior College, Carbon Junior College, Dixie Junior College, Central Utah Vocational School, Salt Lake Area Vocational School, Center for the Adult Blind, Union High School (Roosevelt, Utah), Utah High School Activities Association, State Industrial School, State Training School, State Board of Education, and Utah School Employees Retirement Board.

States authorized to “divide” their retirements systems for referendum elections purposes: Alaska, California, Connecticut, Florida, Georgia, Hawaii, Illinois, Kentucky, Louisiana, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, North Dakota, Pennsylvania, Rhode Island, Tennessee, Texas, Vermont, Washington, and Wisconsin.

KEY: Federal statutory authority MUST BE ACCOMPANIED BY COMPARBLE STATE AUTHORITY!

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OTHER STATE LAWS ARE ALSO IMPORTANT!

• Don’t ignore your state’s pension laws! Even more important, make sure you monitor proposed state legislation each session and warn legislators against changes they want to make that would conflict with federal laws and your state’s Section 218 coverage!

• The warnings won’t always work (e.g., Louisiana’s politicians ignored their State Administrator’s Office’s warnings about the Cash Balance plan a couple of years ago!), BUT, AT LEAST, THEY TRIED!!

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ALTERNATIVE APPROACHES BY STATES TO ENACTING SECTION 218 (SEE HANDOUT)

• Compare and contrast contents and Section 218 coverage authorized by different states.

• Key phrases to look for, such as: “covered” employment definition and the declaration of policy vis-à-vis the extension of coverage wanted by the state.

• How widespread does the state want Social Security coverage? • Appendix II of the GAO report of 2010 reflects each state’s wishes in that regard.

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ANSWER KEY TO EXAMPLES

Example Number

State Enabling Legislation for:

1 Michigan 2 Ohio 3 Vermont 4 Oregon 5 Colorado

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CONCLUSION

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Go forth and “sample” your enabling legislation, but don’t forget

the other components of the Section 218 “cake” and to

recommend changes in the “recipe” (i.e., contents of your enabling legislation), if necessary and

appropriate!