Effective Dates: 01/29/2020 - Present Previous | Next

TN 8 (01-20)

SL 30001.387 Continuation or Effective Termination of Coverage as a Result of Predecessor-Successor Situations

A. Effective termination of coverage caused by dissolution or predecessor-successor situations

Various transitions or changes to a State’s entities may result in the legal dissolution or other significant legal status changes that have a bearing on coverage established under the State’s Section 218 Agreement. SSA refers to these transitions or changes as “predecessor-successor situations.” Whether coverage ceases or continues due to these predecessor-successor situations depends on the nature of the legal changes to the underlying entities.

B. Determining the effect of a predecessor-successor situation on the State’s political subdivisions

SSA is responsible for determining the effect of a predecessor-successor situation on existing coverage under the State’s Section 218 Agreement.

The type of predecessor-successor situation will establish the impact on existing coverage and, in some cases, any steps the State will need to take to preserve desired coverage going forward. SSA must evaluate the entity and its positions that exist after the transition to determine whether the positions are covered under the terms of the State’s Section 218 Agreement. In order to evaluate all positions existing after the transition, SSA must determine (1) which, if any, political subdivisions legally dissolved; (2) which, if any, political subdivisions persist despite the transition; (3) if any new political subdivisions are created; and (4) whether changes to an existing entity fundamentally change the nature of that entity in a way that affects coverage. SSA will consider the following factors when evaluating these issues:

1. Primary evidence

When making its determination, SSA will consider evidence that directly demonstrates the nature of legal changes to the entities involved as a matter of law; SSA refers to this evidence as “primary evidence” of legal status changes. SSA may be able to make all necessary determinations relating to the predecessor-successor situation solely based on the available primary evidence. The State Administrator should submit as much of this documentation as is practicably available in a timely manner.

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    Direct evidence of a dissolution—SSA will consider any evidence specifically documenting the dissolution of one or more of the entities involved, such as the evidence described in SL 40001.485C.

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    Direct evidence of the creation of a new political subdivision—SSA will consider any evidence legally documenting the creation of a new entity, such as a charter, bylaws, articles of incorporation, or certificates of incorporation. These documents are particularly useful when they describe the relationship between the entities involved, including the assumption of obligations or any materials governing the retirement rights of the employees.

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    Relevant provisions of State law—SSA will consider any provision of State law that authorizes legal status changes to the relevant entities. SSA will rule out specific predecessor-successor situations for which State law provides no legal authority (i.e. prohibitions on annexation).

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    Legislative actions related to the political subdivisions involved—SSA will consider any contemporaneous legislative action relevant to the legal changes at issue. Examples of relevant legislative actions include statutes, ordinances, resolutions, or other enactments that bear upon the terms and conditions of the legal changes at issue.

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    Legal documentation relating to retirement systems—SSA will consider ordinances or resolutions by a relevant entity relating to establishing its retirement system(s).

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    State court decisions—SSA will consider any relevant State court decisions that the State identifies, or about which SSA is aware. A relevant State court decision is one that addresses either provisions of State law relevant to the legal changes at issue, the specific legal changes under consideration, or the legal effect of closely analogous cases.

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    State attorney general opinions—SSA will consider opinions by a State’s attorney general on the nature of the legal changes at issue.

NOTE: 

The State may choose to submit to SSA a determination by the State’s attorney general on the effect of the predecessor-successor situation. Alternatively, SSA may request that the state administrator obtain input from the State attorney general. SSA will give due weight to a State attorney general’s determination as part of its overall analysis, but is not bound by that determination. Where the State attorney general is unable or unwilling to provide SSA with a determination, or where a determination is not provided in a reasonably timely manner, SSA will proceed to make its own determination without the attorney general’s input.

2. Secondary Evidence

In cases where primary evidence is not available or is insufficient to support a complete determination, SSA will consider additional factors in order to infer and ascertain the legal effect of changes to an entity; SSA refers to these additional factors as “secondary evidence” of legal status changes. SSA will consider the secondary evidence in conjunction with any available primary evidence of legal status changes. The State Administrator should provide all relevant evidence to SSA in a timely manner.

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    Changes in functions—SSA will consider changes to an entity’s functions, responsibilities, or purpose. Because political subdivisions and instrumentalities are defined, in part, by their governmental functions, the addition, subtraction, or a complete change in an entity’s functions may indicate the presence of a legally distinct entity. Significant changes in functions tend to support the inference that a legal change to an entity’s status has occurred.

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    Changes in powers—SSA will consider changes to an entity’s powers, including the power to hire employees, supervise employees, discharge employees, sue and be sued, enter into contracts, hold property, convey property, and transfer assets and liabilities. Significant changes to an entity’s powers tend to support an inference that a legal change to an entity’s status has occurred.

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    Changes in control—SSA will consider a change in the control and supervision of the entity, such as a change from control by one government authority to another, or a change from public control to private control of the entity. Changes in control tend to support an inference that a significant legal change to an entity’s status has occurred.

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    Changes to financial autonomy—SSA will consider changes in financial autonomy, including changes to the source and control of an entity’s operating expenses. Relevant facts may include changes to an entity’s payment or sources of salaries, insurance, employee benefits, and expenses. Changes to Employer Identification Numbers may indicate the presence of different or additional entities. Depending on the nature of the change, it may support the inference that a legal change to an entity’s status has occurred.

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    Changes in form—SSA will consider changes to an entity’s form, including changes in operational processes and operational structure. Because an entity may undertake organizational changes in form for reasons unrelated to a legal status change, SSA generally considers a change in form, by itself, to be weak evidence of a legal status change.

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    Changes in name—SSA will consider changes to an entity’s name. Because an entity may change its name for reasons unrelated to a legal status change, SSA generally considers a change in name, by itself, to be weak evidence of a legal status change.

C. Types of predecessor-successor situations and their implications on coverage

Some of the more common predecessor-successor situations involve consolidation, annexation, or hybrid consolidation of two or more entities, as defined below. SSA refers to additional predecessor-successor situations that do not neatly fit within those categories as “miscellaneous transitions.”

1. Consolidations

A consolidation occurs when two or more political subdivisions each dissolve and a new and legally distinct political subdivision is created. Because consolidation follows the legal dissolution of the two or more political subdivisions, Social Security coverage effectively terminates for any of the consolidating political subdivisions previously covered under the State’s Section 218 Agreement.

Because the consolidation creates a new political subdivision not yet specifically covered by the State’s Section 218 Agreement, it is usually necessary for the State to submit a notice of dissolution as to the old political subdivisions and a new Modification to cover the positions if the State intends to preserve coverage for the employees moving from the dissolved entities into the consolidated entity or to extend coverage to new employees. Where the positions under the new entity are covered by a retirement system, referendum procedures must be used.

The exception to this rule is that the State will not need to take additional steps to extend coverage if positions under the new entity are retirement system positions within a retirement system that has received system-wide coverage under a Section 218 coverage Modification. Under those circumstances, the State must submit an identification Modification (SL 40001.490, Exhibit 6) to inform SSA that the new entity’s positions are to be included under the retirement system’s existing Section 218 coverage Modification.

NOTE: 

If positions under the new entity are not retirement system positions, then mandatory Social Security will apply to those positions until either the State chooses to cover those positions as an absolute coverage group or the positions are brought under a qualified retirement system.

Example: The Township of Cedar Grove covered non-retirement system positions for Social Security via Modification No. 27 (as an absolute coverage group). Cedar Grove’s retirement system positions were under the Public Employee Retirement System (PERS). Social Security coverage had been extended to PERS system-wide as a single retirement system under Modification 163 following a favorable majority vote referendum.

The Village of Rosedale had no positions under a retirement system, but covered all its employees for Social Security as an absolute coverage group via Modification 112.

Following the passage of ordinances and resolutions in both Cedar Grove and Rosedale, the two entities dissolved on January 1, 1995 and consolidated to become the City of Cedardale. The Cedardale Charter stated that all assets and territory that belonged to the predecessor entities “shall be a body corporate with the official name and title of ‘City of Cedardale.’” The powers granted to the city are broader than those granted to either the village or the township.

With the establishment of the City of Cedardale, all employee positions were placed under PERS.

2. Annexations

An annexation occurs when one political subdivision legally dissolves (the annexed political subdivision) and becomes part of a separate existing political subdivision (the annexing political subdivision). The legal dissolution of the annexed political subdivision terminates coverage previously extended to that political subdivision’s positions. Following an annexation, any existing coverage for employees in positions under the annexing entity is unaffected. The coverage status of the annexed employees will depend on whether the annexing political subdivision is covered under the State’s Agreement, and what positions within that political subdivision are covered by the State’s Section 218 Agreement.

NOTE: 

With the legal dissolution of the entity or entities being annexed, the State must submit notice(s) of dissolution to remove them from the State’s Section 218 Agreement.

If the annexation results in a name change for the continuing entity, a notice should be submitted to the Social Security regional office concerning the name change (SL 40001.475).

Example: The Village of Broadmoor obtained Social Security coverage for its non-retirement system employee positions via Modification No. 68. The remainder of the village employee positions was under the Broadmoor Unified Retirement Plan and not covered for Social Security.

The City of Fayette covers all its employee positions under the Public Employees Retirement Fund (PERF). Entities covered by PERF can obtain Social Security on a deemed retirement system (entity-by-entity) basis via coverage referendums. The City of Fayette has not held a coverage referendum, and, thus, its employee positions are not covered for Social Security.

Following the passage of ordinances and resolutions by the governments of Broadmoor and Fayette, the Village of Broadmoor dissolved on January 1, 2002, and its assets and territory were formally annexed by the City of Fayette. A notice of Broadmoor’s dissolution was submitted to SSA. All former Broadmoor employee positions were carried over by Fayette and placed under PERF coverage.

3. Hybrid consolidations

A hybrid consolidation is a consolidation in which one of the consolidating political subdivisions turns over some of its functions to the newly formed political subdivision but retains other functions. Because at least one political subdivision retains some of its functions, it does not legally dissolve.

Following a hybrid consolidation, the rules applicable to standard consolidations apply to positions under any dissolved entity, and positions under any newly formed entity (see SL 30001.387C.1). Coverage continues without complication for positions that remain under any original political subdivision that retained some of its functions and did not dissolve.

Example: The City of Nashville first covered its employees for Social Security under Modification No. 4 to the State’s Section 218 Agreement effective January 1, 1952. Davidson County first covered its employees for Social Security under Modification No. 30 effective April 1, 1955.

The governments of the City of Nashville and of Davidson County agreed to consolidate effective April 1, 1963, but this would not be a true consolidation. As of April 1, 1963, the City of Nashville dissolved, and its Section 218 coverage Modification No. 4 terminated. With its dissolution, the City of Nashville turned over all its governmental powers, functions, and workforce to a new entity to be called the Metropolitan Government of Nashville and Davidson County (Metro Government). Although the Davidson County Government turned over most of its governmental powers, functions, and workforce to the Metro Government, it did retain some of its powers, functions, and workforce and did not dissolve or terminate its Section 218 coverage Modification. Although a mere shell of its former self, the Davidson County Government continues to exist as an entity separate from the Metro Government.

A hybrid consolidation created the Metro Government effective April 1, 1963. Social Security coverage was extended to its employees effective April 1, 1963, via Modification No. 194 to the State’s Section 218 Agreement.

4. Miscellaneous Transitions

It is possible that additional entity status changes could affect existing coverage under the State’s Section 218 Agreement. These types of changes would have to be evaluated on a case-by-case basis to determine the impact on existing coverage and the steps necessary to effectuate the State’s intent with regard to coverage going forward (see SL 30001.387B).

Examples of miscellaneous transitions include, but are not limited to, the following:

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    An integral part of a political subdivision transitioning into a separate and legally distinct political subdivision.

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    Division of a single political subdivision into multiple legally distinct political subdivisions, in which case SSA would have to determine if the original political subdivision dissolved or continued as one of the subdivided entities, in addition to the coverage status of the resulting entities.

Example: Social Security coverage was extended effective January 1, 1958, via Modification 76 to The Village of Rockatuck’s non-retirement system positions as well as those positions covered by the Municipal Employees’ Retirement System (MERS), except police officers and firefighters. MERS was a deemed retirement system (Social Security coverage on an entity-by-entity basis). Effective February 13, 1970, the Village of Rockatuck was legally dissolved, and on the same date, the City of Rockatuck was incorporated. As part of the transition, all City of Rockatuck positions were placed under MERS.

Despite the dissolution of the Village of Rockatuck, SSA questioned whether the result of the change from Village to Incorporated City was merely a change in form, but not in substance, of the juristic entity. If the transition from Village to Incorporated City were merely a change in form, then the Administration’s stance would be that the same employee positions continued to exist and that a new referendum to extend Social Security coverage to them would not be necessary. If, on the other hand, the old juristic entity was actually terminated and a new one created, the positions involved would be new positions, and a coverage referendum of the City employees in positions covered by MERS would have to be held before Social Security coverage could be extended to them.

SSA recommended (or requested) the State to seek the opinion of the State attorney general concerning the legal status effect of the dissolution of the Village of Rockatuck and the incorporation (on the same date) of the City of Rockatuck.

The State attorney general opined that the dissolution of the Village and simultaneous incorporation of the City was just a change in form, and, thus, the Social Security coverage of the MERS positions under Modification No. 76 would carry over from the Village of Rockatuck to the City of Rockatuck. SSA gave due weight to the State attorney general’s opinion in making the coverage determination and determined that a new coverage referendum and Modification for the City of Rockatuck’s MERS employees was not necessary. All the City of Rockatuck’s MERS positions, except police and firefighters, were covered for Social Security from the date of incorporation under the existing Modification No. 76.

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SL 30001.387 - Continuation or Effective Termination of Coverage as a Result of Predecessor-Successor Situations - 01/29/2020
Batch run: 01/29/2020
Rev:01/29/2020