TN 8 (01-20)

SL 30001.311 General Concepts of Coverage Group Composition

A. Coverage groups

Coverage groups are defined in Section 218(b)(5). Generally speaking, a coverage group is a grouping of positions that are all engaged in either (1) nonproprietary (governmental) functions, or (2) a single proprietary function (see SL 30001.311D).

The following employee groupings would constitute a coverage group:

  • State employees performing services in connection with a nonproprietary (governmental) function;

  • State employees performing services in connection with a single proprietary function;

  • Employees of a political subdivision performing services in connection with the nonproprietary (governmental) function; and

  • Employees of a political subdivision performing services in connection with a single proprietary function.


Coverage groups may be absolute coverage groups or retirement system coverage groups. For a detailed explanation of the difference between absolute and retirement system coverage groups, refer to SL 30001.315 and SL 30001.320.

B. Nonproprietary and proprietary functions

A coverage group includes services performed in connection with either (1) nonproprietary (governmental) functions or (2) a single proprietary function. If an individual position involves the performance of services in connection with (1) multiple proprietary functions or (2) both proprietary and nonproprietary functions, then the position is only included under one coverage group, and the State’s Agreement should specify how to determine which coverage group applies.

A proprietary function is a business function. A State or political entity exercises a proprietary function when it engages in a business similar to one a private enterprise would engage in for profit. For example, the operation of parking garage by a city is a proprietary function.

Nonproprietary (governmental) functions of a State or political subdivision are the traditional functions of government, i.e., legislative, executive, and judicial functions. Governmental functions include activities such as controlling and preventing crime, regulating the conduct of citizens for the general welfare, and providing for the public safety. Likewise, the operation of schools or institutions of higher learning by State or political subdivisions is a governmental function.

The distinction between a nonproprietary and a proprietary function is not always readily apparent. The provisions of State law govern in determining whether a function is governmental or proprietary. What may be a proprietary function under the laws of one State may not be classified as such in another.

C. Political subdivision

A political subdivision:

  1. 1. 

    Is a separate legal entity of a State;

  2. 2. 

    Has governmental powers and functions; and

  3. 3. 

    Is an independent legal entity with the power to:

    • Hire, supervise, and discharge its own employees;

    • Sue and be sued (generally) in its own name;

    • Contract; and

    • Hold and convey real and personal property.

A “political subdivision” ordinarily includes counties, cities, townships, villages, schools, sanitation, utility, irrigation, drainage and flood-control districts, and similar governmental entities.

When evaluating whether an entity is a political subdivision, the Social Security Administration's (SSA) policy applies a factor-based analysis. SSA applies a similar analysis to the one described in the Internal Revenue Service (IRS) Revenue Rulings 57-128 and 65-26. These rulings provide that the following factors, among others, should be considered:

  • Whether there are any private interests involved, or whether the States or political subdivisions involved have the powers and interests of an owner;

  • Whether control and supervision of the organization is vested in public authority or authorities;

  • If express statutory, implied statutory, or other authority is necessary to create and/or use such an instrumentality and whether such authority exists; and

  • The degree of financial autonomy and the source of its operating expenses.

Generally, SSA considers provisions of State law when determining whether an organization is a separate and distinct political subdivision for coverage purposes. State law generally identifies political subdivisions as bodies “corporate and politic,” but exceptions exist. Libraries and hospitals are illustrative of organizations whose status is often not apparent from either title or statute. They may be integral parts of a political subdivision such as a city or county (not separate political subdivisions), instrumentalities of a State or political subdivision (separate political subdivisions), or they may be private nonprofit organizations (not separate political subdivisions).

While the status of an entity or an organization should usually be clear, there may be instances were SSA may request that the State obtain a State attorney general opinion addressing whether an entity or organization constitutes a political subdivision under State law. SSA gives a State attorney general opinion due weight in making Section 218 Agreement determinations (see SL 30001.301B).

“Instrumentality” and “integral part” are concepts that are closely related to political subdivisions. Understanding these additional concepts is important to understanding whether something can be considered a separate legal entity for the purposes of Section 218 coverage:

1. Instrumentality

An instrumentality is a political subdivision that is wholly owned by:

  • A State;

  • One or more political subdivisions of a State, or

  • A State and one or more of its political subdivisions.

An instrumentality is organized to carry on some function of government for the State or political subdivision. It is an independent legal entity with powers, for example, to sue and be sued in its own name, to contract, and to hold and convey property.

Accordingly, instrumentalities constitute a specific class of political subdivision, and, as such, a State may cover an instrumentality as a political subdivision in its Agreement.

2. Integral Part

An integral part (which may also be referred to as a component or department) is not a separate legal entity from the political subdivision of which it is a part and receives whatever coverage the political subdivision or State has.

Some integral parts may have their own payroll, bookkeeping, tax reporting system, employer identification number, etc., but they are not separate legal entities that require (or are entitled to) their own separate Section 218 Agreements.

Example: A city has executed a Section 218 Agreement that covers all services performed by city employees for Social Security purposes. The city subsequently creates a recreation board to oversee the city’s recreational facilities. However, the recreation board is a department of the city and does not qualify as a separate political subdivision under State statute. The recreation board has a separate payroll system from the city, applies for and receives a Federal Employer Identification Number (EIN), withholds the appropriate employment taxes, and reports such taxes and wages to SSA and IRS. The recreation board, as an integral part of the city (not a separate legal entity from the city), is covered by the city’s Section 218 Agreement.

D. Political subdivision under Section 501(c)(3) of the Internal Revenue Code (IRC)

Section 102 of Public Law 98-21 (Social Security Amendments of 1983), which became effective January 1, 1984, changed provisions of the law concerning employment for organizations exempt from income tax under Section 501(c)(3) of the IRC, including nonprofit charitable, religious, and educational groups.

Section 501(c)(3) entities frequently occupy a similar role to political subdivisions, although they are not actually political subdivisions. Therefore, it is important to evaluate a 501(c)(3) entity to determine if it is public or private to resolve the Social Security coverage implications:

  • Evaluate the entity to determine if it meets the definition for a political subdivision (see SL 30001.311C) and

  • If the entity is a political subdivision of the State, ignore the entity's 501(c)(3) status for purposes of determining Social Security coverage implications.

Many private nonprofit schools, colleges, hospitals, and libraries are 501(c)(3) organizations but are not political subdivisions despite performing similar functions. If the entity is not a political subdivision of the State, the State's Section 218 options are inapplicable to the entity. Notably, some private 501(c)(3) organizations have employees who are allowed to become members of some State or political subdivision retirement systems. Accordingly, do not rely on employee membership in a public retirement system when evaluating 501(c)(3) entities, as it may not be determinative. The governing standard is whether the entity qualifies as a political subdivision. The services performed by private 501(c)(3) employees are mandatorily covered. Such private 501(c)(3) employees are not considered State or political subdivision employees for Social Security coverage purposes.

Conversely, some 501(c)(3) organizations are public entities, and thus subject to coverage rules applicable to a State's political subdivisions. Political subdivisions that are also 501(c)(3) entities can only obtain coverage (1) under the provisions of Section 218 of the Social Security Act (Act); (2) in accordance with the mandatory Social Security coverage provision beginning July 2, 1991; or (3) under the mandatory Medicare-only coverage provision beginning April 1, 1986. Status as a 501(c)(3) entity does not exempt a State's public entities from the normal rules for establishing coverage under Section 218.

SSA may request a State attorney general opinion concerning whether an entity constitutes a political subdivision under the laws of that State. In addition, it may be necessary to coordinate some issues with IRS, with respect to Federal Insurance Contributions Act (FICA) taxation.


If any nongovernmental entities were erroneously listed in a Section 218 Agreement, the State should submit a Modification to remove them from the Agreement (see SL 40001.450E).

E. Special coverage groups

1. Civilian employees of the National Guard

Civilian employees of State National Guard units employed under Title 32, U.S. Code Section 709 and paid by the Department of Defense were deemed State employees effective January 1, 1951. Many States provided coverage for the services of such individuals as a separate absolute coverage group. If the individuals were in positions under a retirement system, coverage was extended as a part of the retirement system coverage group that included other State employees in positions under the same retirement system.

Effective January 1, 1969, all new National Guard technicians are covered under the Civil Service Retirement System (CSRS) as a Federal employee (Public Law 90-486, National Guard Technicians Act of 1968). National Guard technicians employed as of the effective date (or within 30 days following reemployment if, under specific circumstances, they were reemployed within 60 days of the effective date) had the opportunity to elect to remain under an employee retirement system of, or plan sponsored by, a State or the Commonwealth of Puerto Rico, so long as the State or Commonwealth of Puerto Rico consented to the election. Individuals who elected to remain constitute a separate special coverage group within the State’s Section 218 Agreement, as specified in Section 218(b)(5). Otherwise, Social Security coverage for National Guard technicians’ services under a State’s Agreement was terminated effective December 31, 1968.

2. Agricultural inspectors

Effective January 1, 1955, individuals employed pursuant to an Agreement entered into under Title 7, U.S. Code 1624 or Title 7, U.S. Code 499n between a State and the U.S. Department of Agriculture to perform services as inspectors of agricultural products may be deemed by the State to be State employees and a separate absolute coverage group. Agricultural inspectors whose positions are under a retirement system may be covered only as members of a retirement system coverage group.

3. Special State-specific coverage groups

As authorized by various congressional actions, many States obtained special authority to cover certain positions as a coverage group at different points in time. See SL 30001.370 for special State provisions.

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SL 30001.311 - General Concepts of Coverage Group Composition - 01/29/2020
Batch run: 02/04/2020