Social Security for Governmental Employers
State and local government employers must provide Social Security and Medicare coverage to employees who are subject to mandatory withholding under federal law and to employees whose positions require coverage under a Section 218 Agreement between the State and the Social Security Administration.
Each state has a State Social Security Administrator (SSSA) who is designated to provide information and assistance to governmental employers concerning Section 218 Agreements. The Public Employees Retirement Association (PERA) is Minnesota’s SSSA.
The following Q&A provides helpful information about Social Security and Medicare coverage for public employees and include guidelines on when your governmental entity should contact PERA in its capacity as the SSSA.
Section 218 Agreement
State and local government employers may provide Social Security and Medicare coverage to employees through a Section 218 Agreement. Employees covered under a 218 Agreement have the same coverage and benefit rights as employees who are mandatorily required to contribute. Section 218 Agreements are irrevocable.
Section 218 Agreements may provide any of the following:
• Coverage for groups of employees in positions covered by a qualifying retirement system
• Coverage for groups of employees in positions not covered by a retirement system
• Coverage for employees in positions that are excluded from mandatory coverage provisions, but are optional exclusions under Section 218 Agreements
• Medicare Hospital Insurance (HI)-only coverage for employees hired before April 1, 1986, who are members of a public retirement system.
Mandatory Social Security
State and local government employers must extend Social Security participation after July 1, 1991, to employees who are not covered by a Section 218 Agreement and who are not participating in a qualifying public retirement system. Refer to IRS Publication 963 for information on qualifying public retirement systems, also called FICA replacement plans.
Before April 1, 1986, state and local government employees could only be covered by Medicare under a Section 218 Agreement. This changed when the federal law was enacted to mandate coverage for all state, and local employees hired or rehired after March 31, 1986. Employees excluded from mandatory Medicare coverage include those who have been in continuous employment with the same employer since March 31, 1986, and who are members of a qualifying public retirement system.
Section 218 Agreements have also been done on behalf of certain special authorities or districts such as hospitals, soil and water districts, and housing and redevelopment authorities that requested coverage.
The classes of state or local government employees listed below do not pay into Social Security. These employees will participate in Medicare unless they have continuous employment with the same employer since March 31, 1986.
- Police officers (except Tribal peace officers) and firefighters who are members of the PERA Police and Fire Plan as well as state employees covered under the MSRS State Trooper Plan. These employees are exempt from mandatory Social Security because of their membership in a qualifying public retirement system. The employees do not have Social Security coverage under a Section 218 Agreement because Minnesota Statutes Chapter 355 prohibits it.
- Elected officials who contribute to the PERA Defined Contribution Plan are exempt from mandatory Social Security unless one of the following is true:
- the entity that the elected official serves has a 218 Agreement requiring coverage, or
- the official holds a non-governing-body position that gives the person the option to join the PERA Coordinated Plan.
For more details about Social Security coverage for governing-body elected officials, refer to the Defined Contribution Plan Chapter in PERA’s Employer Manual.
- Minnesota has an Agreement with the federal government that excludes election workers who perform services at polling places in connection with national, state and local elections if their pay in a year is less than the federal threshold amount, which is subject to adjustment for inflation.
For information about the federal threshold amount, go to the Social Security website page for State and Local Government Employers (www.ssa.gov/slge) and select “Topics of Interest.” For guidance on related tax reporting, visit the IRS website and search for “election workers.”
Note: If an employer hires someone to a position that is exempt from Social Security coverage, the employer must have the individual sign Form SSA-1945 to ensure that the person is informed about a possible reduction in his/her future Social Security benefit entitlement. The form instructions require the employer to send a copy of the completed SSA-1945 to the employee's “pension paying agency.”
A county, city, township, or school district in Minnesota may extend Social Security coverage to its eligible local elected officials by conducting a referendum under the direction of PERA (using a divided or majority vote method). The process begins when the entity’s governing board adopts a resolution that indicates the effective date for the coverage. Social Security coverage may be retroactive up to five years from the date in which PERA mails the 218 modification agreement to the Social Security office. The documents below will facilitate the referendum. To initiate the process, please contact PERA.
Reasons for a governmental entity to contact the SSSA (PERA) include:
- Your unit of government wants to extend Social Security coverage to elected officials excluded from the PERA Coordinated Plan.
- Your governmental entity plans to merge or consolidate with another entity or will separate from another governmental entity
- A new, separate entity is being created, such as a joint powers board or a charter school
- Your entity has legally changed its name
- You need to resolve issues relating to Section 218 coverage, such as how to correct erroneous Social Security contribution reporting;
- You represent a special district or authority, such as a housing and redevelopment authority, that wants to start paying Social Security for its employees;
- You want to receive a copy of the Section 218 Agreement that covers your entity.
PERA cannot provide information about the Social Security or Medicare benefits available to workers and does not administer the mandatory coverage provisions of federal law. For guidance in those areas, please contact the Social Security Administration or the Internal Revenue Service.