Identification Number:
SL 40001 TN 09
Intended Audience:See Transmittal Sheet
Originating Office:ORDP OISP
Title:Agreements and Modifications
Type:POMS Transmittals
Program:Title II (RSI)
Link To Reference:
 
PROGRAM OPERATIONS MANUAL SYSTEM
Part 19 - State and Local Coverage Handbook
Chapter 400 - Agreements and Modifications
Subchapter 01 - Agreements and Modifications
Transmittal No. 09, 01/2018

Audience

State Social Security Administrators
RO: RSI Team Leaders
Regional General Counsel Staff

Originating Component

OISP

Effective Date

Upon Receipt

Background

We reviewed current policy and consulted with the Regional Office Specialists regarding the involvement of the Parallel Social Security Office (PSSO) in the Section 218 Agreement and Modification process. This transmittal streamlines the policy to remove the unnecessary step of the PSSO.

Summary of Changes

SL 40001.401 State Enabling Legislation

We removed instructions to request assistance from the PSSO and replaced it with instructions to request assistance from the Regional Office. We split the existing section into two subsections for clarity.


SL 40001.405 SSA-State Negotiation Process

We removed this section and moved all information to section 410C and 420B.

SL 40001.410 Original Agreement

We amended the title of the section and updated the wording of the entire section for clarity.

Subsection A – We amended the title of this subsection.

Subsection C – We amended this policy to reflect the Regional Office, and not the PSSO. We changed instructions to submit modifications to the RO instead of the PSSO. We also clarified with which RO the Interstate Instrumentality should be working. We added the information contained in the previous version of section 405 and removed reference to the PSSO and replaced it with RO.

Subsection D – We removed reference to review by the PSSO and instructions to maintain a copy of the modification in the PSSO. We amended this subsection to add an intermediary step of legal clearance between Regional Specialist review and Regional Commissioner sign-off.

SL 40001.420 Modifications to the Original Agreement

Subsection B – We removed reference to the Parallel Social Security Office, resulting in the removal of all of subsection B2. We updated the wording of the subsection for clarity. We added the information contained in the previous version of section 405 and removed reference to the PSSO and replaced it with RO.

Subsections D, E, F –We added a new subsection D containing information from RS 01505.071B and have re-lettered the subsequent POMS accordingly. We updated the titles of subsection E and the numbered subsections below it. We added new subsection F with information from RS 01505.071B and changed the heading of the subsection.

Subsection H – We wrote out the acronym FICA - Federal Insurance Contributions Act and updated the wording of the subsection for clarity.

SL 40001.470 Political Entity Erroneously Included in More Than One Modification

We amended the second sentence to send requests to the Regional Office instead of the Parallel Social Security Office.

SL 40001.475 Changes in Entity Name

We removed instructions to send a copy of the accepted notice of name change to the Parallel Social Security Office. We split the section into two subsections and updated the wording for clarity.

SL 40001.477 Reporting New Government Components

Subsection A – We wrote out the acronym EIN - employer identification number

Subsection B – We removed reference to the Parallel Social Security Office and replaced it with the Regional Office. In B2, we replaced PSSO with Regional Office (RO). Removed B3. Renumbered B4 to B3. Renumbered B5 to B4 and removed instructions to send a copy of the notification form to the PSSO.

SL 40001.485 Legally Dissolved Entities

Subsection A – We wrote out the acronyms for the Regional Office (RO) and Employer Identification Number (EIN).

Subsection B – We changed PSSO to RO and removed review by the PSSO from the policy.


SL 40001.401 State Enabling Legislation and Negotiation with SSA

A. State authority

There must be authority under State law to enter into a Section 218 Agreement with the Commissioner of Social Security to

  • extend coverage under the agreement,

  • carry out the provisions of the agreement, and

  • permit modifications to the agreement.

Specific enabling legislation provides such authority.

B. Specific enabling legislation

All States have enacted enabling legislation to enter into agreements.

The State enabling legislation must

  • authorize all provisions in the Section 218 Agreement;

  • provide the election of optional exclusions or state the exclusions not permitted;

  • specify whether optional exclusions may be exercised by individual coverage groups or mandatorily apply to all coverage groups included under the State's agreement.

At the State’s request, SSA will assist in conforming the State’s enabling legislation with the provisions of Federal law. Direct requests for assistance to the Regional Office (RO).

SL 40001.410 Original Section 218 Agreement

A. Overview of a Section 218 Agreement

The Section 218 Agreement is a legal document, which incorporates the provisions, definitions, and conditions for coverage under the agreement as defined under Federal and State laws.

  1. Authority of the agreement

The agreement provides the authority for

  • covering employees of the State and its political entities.

  • adopting optional exclusions to the extent permitted by Federal and State laws.

  1. Content of the agreement

The agreement should include the following:

  • Statewide provisions that apply may be included in the original agreement (or a later modification).

  • The agreement includes a statement that the State will comply with SSA regulations for administering the agreement.

  • It establishes the framework for the continuing relationship between the State and SSA.

  • The agreement must specify if the State covers the services of individuals who are ineligible for membership in a retirement system only for the period in which they are ineligible.

  • The agreement must specify the effective date and may provide different effective dates for different political subdivisions and coverage groups listed in the appendices.

B. Appendix

The original agreement should have an appendix that identifies the covered political subdivisions or coverage groups, and the extent of the coverage, i.e., effective date of coverage and optional exclusions. Where absolute coverage groups are included, the appendix shows whether all or only certain designated groups are included. Append at least one political subdivision or coverage group to an agreement.

C. Preparing an original agreement

The official designated by the State or interstate instrumentality to handle the Section 218 Agreement negotiates with the Regional Office (RO) on all matters related to the agreement. Since all States have entered into original agreements, the interstate instrumentalities should take the following actions.

  • Submit two original modifications with the wet signature(s) of the designated official(s) to the RO in which the instrumentality’s principal office is located.

  • Provide extra copies when the instrumentality wants more than one signed copy. The RO returns one executed copy to the instrumentality and retains the other original copy. The interstate instrumentality may submit a draft of the original agreement to the RO for preliminary review.

D. Regional Office review of original agreement

The RO Section 218 Specialist reviews the agreement to confirm

  • the designated official has signature authority

  • the instrumentality is not already covered under Section 218

  • there is supporting documentation concerning the legal status of the instrumentality.

After review, forward the agreement and supporting documentation to the Office of General Counsel (OGC) for their review and legal clearance. After OGC’s legal clearance, hand carry the agreement to the Regional Commissioner or the Deputy Regional Commissioner for signature on behalf of the Commissioner of Social Security.

SL 40001.420 Modifications to the Original Agreement

A. Purpose of modifications

Modifications amend the original agreement to do the following:

  • extend coverage to new groups of employees;

  • identify new political subdivisions joining a public retirement system;

  • correct errors in previous modifications (for Error Modifications, see SL 40001.450 and for Modifications to Correct Errors, see SL 40001.465);

  • implement changes in Federal or State law; and

  • exclude services or positions previously covered (under very limited circumstances).

B. Preparing modifications

1. When preparing a modification, the State should:

  • explain the purpose clearly;

  • use sample language in the exhibits for Agreement and Modification, see SL 40001.490;

  • request assistance from the Regional Office (RO) if special language is required;

  • list all optional exclusions, including all statewide optional exclusions from the original agreement in each modification;

  • define part-time position in the modification if you exclude part-time positions or a class (classes) of part-time positions; and

  • add the county designation for precise identification if duplications of the name exist in the State for entities such as townships and school districts.

2. After preparing the modification, the State should:

  • request a preliminary review from the RO if the modification is complex or there is a question concerning the legality of any provision, and

  • submit two original modifications with the pen-and-ink signature(s) of the authorized State official(s) to the RO. Provide extra copies if you want more than one signed copy.

NOTE: The official designated by the State or interstate instrumentality to handle the State’s Section 218 Agreement negotiates with the RO on all matters related to the modifications. The designated official authorizes all modifications to the agreement and submits these to the RO.

C. Forwarding additional information with modification

Provide additional information on a separate sheet or include in the modification itself. Additional information may be necessary in these instances:

  1. If the status of the entity is not apparent from the name, the State should include a reference to the statutory authority, which established its status. Each modification must provide the Internal Revenue Service (IRS) issued Federal Employer Identification Numbers (FEIN) for each entity; or

  2. If a retirement system coverage group is included in a modification, the modification must have the certification of the governor or his designate.

D. Reviewing the modification packet

Upon receipt of the Modification, the RO Section 218 specialist takes the following steps to review the modification:

Step 1: Verify that the modification number is in sequential order and never used before.

Step 2: Review the collection of modifications, summaries of agreements, and the state’s agreement. Verify the coverage group represented does not conflict with existing coverage.

Step 3: Review the packet for completeness, clarity, and accuracy. Consider the following:

  • Are there two copies with original signatures by the authorized state official?

  • Does the modification (if it is for a retirement system coverage group) include the certification of referendum signed by the Governor or authorized official?

  • Does the modification follow the models or exhibits in SL 40001.490?

  • Is the modification number correct and never used before?

  • Is the entity clearly named?

  • Is the named entity a legal entity (This is important to the review process as government agencies privatize and new entities form that possess both government and private business characteristics, i.e., charter schools)?

  • Is the date of the state’s original agreement correct?

  • Is the EIN documented?

  • Are the number of employees to be covered documented?

  • If the modification excludes services, are optional exclusions specified per SL 30001.357?

  • Does the date controlling who is covered, also referred to as the Section 218(e)(2) date, conform to Federal law. This date cannot be earlier than the date of the postmark on the envelope from the state to the RO or the receipt date in the RO.

  • Does the effective date conform to Federal and state law? Normally, coverage cannot begin earlier than the last day of the sixth calendar year preceding the year in which SSA receives the modification.

  • Is the modification signed by the designated state official?

Step 4: Photocopy all modification material, including the envelope.

Step 5: Request an Office of the General Council (OGC) review of the modification, and follow-up with OGC in 30 days if no response.

E. Corrections before executing the modification

1. RO obtains written authority for minor corrections

Ask the State to provide written authority to make minor corrections (misspellings, typos, etc.) as necessary before executing a modification. Written authority can be in the form of a letter, email, or fax, and must include the following information:

  • name of the authorizing document,

  • details of the change, and

  • name, title, and contact information of the authorizing State official.

2. RO documents the verbal request for minor corrections

If the RO receives a phone call from the State requesting a minor correction:

  • use a Form SSA-5002 (Report of Contact) to document the request, and

  • ask the State to provide written authority to validate the correction.

Retain the State’s written authority with the modification and annotate the correction on the modification:

  • identify the authorizing document,

  • show the name and title of the authorizing State official, and

  • show the name of the person making the change and date of the change.

EXAMPLE: The state administrator mistyped the entity name on a pending modification as School District 12, when it should have been School District 13. The state administrator calls the RO Specialist to report the mistake and asks that he or she correct the typo. The RO Specialist takes the following actions:

  • ask the State Administrator to provide written authority (for example, an email) requesting the correction;

  • change “12” to “13,” on the modification;

  • add a parenthetical, “per 8/1/11 email from S. Smith, SSA”; and

  • sign and date the entry and attach the email with the modification.

3. RO handles submitting major changes

Major changes may require the State to rewrite the modification. If this is necessary, the RO copy of the initial modification establishes the date of its submittal.

NOTE: The RO has the discretion to decide between the minor change and major change process, as they deem appropriate.

F. Execution of the modification

After OGC approval, the RO specialist prepares a notification of approval letter and hand delivers the entire modification packet to the Regional Commissioner or designated official.

The RO verifies with the Regional Commissioner whether modification approval has been delegated to a designated official. The Regional Commissioner or authorized delegate must sign the approval letter and all original copies of the modification. A modification must meet the requirements of Federal and state laws. If it does not, the state must either withdraw the modification or the Commissioner will disapprove the modification and return all copies to the state with an explanation for the disapproval.

After executing the modification, the RO must:

  1. Date the approval letters and make copies;

  2. File an original sign modification packet in a locked fire-proof file cabinet;

  3. Send the State Administrator a notification of approval letter with an executed copy(s) of the modification and, if any, a copy of the State's authorization for any changes; and

  4. Fax a copy of the modification packet to the Internal Revenue Service at 855-243-4014.

G. Effective date of coverage

Show the effective date of coverage in the modification to extend coverage. The effective date identifies when coverage begins.

The date of execution is the date SSA signed the modification.

H. Closing agreement for retroactive coverage beyond the statute of limitations period

When submitting a Social Security or Medicare-only modification to SSA for approval, a state or local government entity can specify an effective date of the modification as early as “the last day of the sixth calendar year preceding the year” the modification is mailed or delivered to SSA (Section 218 (e)(1) of the Social Security Act).

However, the Internal Revenue Code (IRC) limits the statute period of assessment and collection of taxes to the 3-year period after the taxpayer files the tax return for a particular year. This IRS rule can come into conflict with SSA’s Section 218 effective date of retroactivity when a state or local government entity seeks a retroactive modification to a Section 218 agreement covering a 5-year period. Generally, the IRS bars the earliest 2 years for tax collection from assessment.

Thus, SSA can only process and approve any modification to a Section 218 Agreement requesting a period of coverage in excess of the 3 years beyond the statute period for Federal Insurance Contributions Act (FICA) tax collection only if the taxpayer agrees to execute a closing agreement with the IRS.

1. Definition of a closing agreement

A closing agreement is a written agreement between a taxpayer and the IRS, which conclusively settles:

  • the tax liability of the taxpayer for a taxable year ending prior to the date of the agreement, or

  • one or more issues affecting the taxpayer's tax liability.

Such an agreement is a determination conclusive on both the taxpayer and the IRS unless the taxpayer demonstrates fraud or misrepresentation as to a material fact. I.R.C. §721.

2. Terms of the closing agreement

SSA requires that a state or local government entity seeking a retroactive coverage modification for a period beyond the 3-year statute of limitations period enter into a closing agreement with IRS to ensure that the FICA taxes due for the entire period of retroactivity are paid.

SSA must sign and execute the modification before the closing agreement process begins (this is a key point). If SSA does not sign and execute the modification, IRS will not pursue a closing agreement because there is no tax liability to collect on until SSA executes the modification.

The entity agrees to:

  • a waiver of the statute of limitations for assessment,

  • an assessment in the amount of the tax to be paid, and

  • make full payment.

3. Required language to add to a modification needing a closing agreement

A modification for retroactive coverage under a Section 218 Agreement requires a closing agreement. The IRS closing agreement:

  • informs the entity the agreement is final and conclusive; and

  • gives the IRS Commissioner the right to assess and collect taxes identified, and

  • means the entity waives all defenses with regard to collection of the tax liability.

The State Social Security Administrator inserts language to inform the entity that ratifying the modification is contingent upon their executing a closing agreement with the IRS.

Required language:

(Name of Political Entity) ________ promises to pay, to the Department of the Treasury, contributions equal to the sum of the taxes, which would have been required from employers and employees under the Federal Insurance Contribution Act (FICA) as of the effective date of coverage. (Name of Political Entity) _______ also promises to enter into a closing agreement with the Internal Revenue Service (IRS) to effectuate this modification, including the agreement to pay all FICA contributions for the entire period of coverage. This modification is contingent upon the execution of a closing agreement between (Name of Political Entity) ________ and the IRS.

For exhibits of closing agreement modifications, see SL 40001.490H.

4. Closing agreement is mandatory

To effectuate the modification, the affected entity must enter into a closing agreement with IRS, which includes the agreement to pay all FICA taxes due for the entire period of coverage.

SSA will not approve the modification, unless the entity agrees that it will execute the closing agreement.

IRS will not begin the closing agreement process until SSA signs and executes the modification.

For questions concerning the closing agreement process, send the FSLG Closing Agreement Coordinator a fax 855-243-4014.

5. Exhibit of Closing Agreement

View the Closing Agreement on Final Determination of Tax Liability and Covering Specific Matters provided by IRS OGC in Agreement and Modification Exhibits.

G-SL_40001.420G

SL 40001.470 Political Entity Erroneously Included in More Than One Modification

If a State extends the same coverage to the same political subdivision in more than one modification, the error must be corrected.

The State must forward a written request to the Regional Office for the deletion of the reference to the political subdivision in the later modification.

A new modification is not required to correct the error.

SL 40001.475 Changes to Entity

A. Entity name change

If the name of an entity covered under a State’s Section 218 Agreement is changed, the State sends a written notice of the name change to the Regional Office (RO). The notice includes:

  • prior name of the entity;

  • modification number that covers the entity;

  • entity’s new name;

  • legal documentation for the name change; and

  • a statement whether there has been a change in the entity’s composition.

 

If only a name change occurred and the entity’s composition remains the same or the entity merely annexes or gives up territory and its legal status is not changed, a written notice of the name change with legal documentation for the name change is sufficient.

B.  Entity composition change

If the name change reflects the dissolution of the old entity and the creation of a new entity, a new modification may be required to cover employees of the new entity.

In these situations, the RO:

  • requests the Regional Chief Counsel’s office legal review of the name change and may ask the State Administrator to contact the State Attorney General’s office for an opinion on the legal status of the entity under State law;

  • updates its files and sends a copy of the accepted notice of name change to the Internal Revenue Service and the state administrator;

  • attaches the notice of name change to the modification that covered the “old name” entity; and

  • contacts the State official if additional information is necessary.

SL 40001.477 Reporting New Government Components

A. Purpose of reporting new government components

To insure accurate SSA and IRS Section 218 coverage records, a State should notify SSA and IRS of the existence of a new component that is an integral part of a political subdivision. The component is usually created by an existing political subdivision, such as a city or county, which has previously covered its employees under a Section 218 Agreement. Unlike other integral parts in the political subdivision, this component has its own payroll, bookkeeping, tax reporting system, employer identification number (EIN), etc. There is no need for a new modification, but still, SSA and IRS should know the political subdivision’s existing modification covers the new component.

For 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 not a separate political subdivision under state statute, but constitutes a department of the city. The recreation board has a separate payroll system from the city, applies for and receives an EIN, withholds the appropriate employment taxes and reports such taxes and wages to the SSA and IRS.

B. New government component notification process

New government component reporting must be done by following the new government component notification process:

  1. The political subdivision should inform the State Administrator of the new component’s name, address, the modification that covers the component, the component’s EIN and the effective date of coverage. In addition, the political subdivision must submit evidence of the establishment of the component (See SL 40001.477C). If this evidence is not provided, then the State must obtain it.

  2. The State completes and sends the Notification of a New Government Component form (See SL 40001.490F, Exhibit 24), with ink signatures, in duplicate along with the establishing evidence to the Regional Office (RO). If the State wants more than one signed copy, it must provide the extra copies.

  3. When the RO completes its review of the notification and accompanying legal documentation, it notifies the State the legal documentation is acceptable or asks for additional information.

  4. Once approved, the RO sends a copy of the notification form to the IRS, per existing State and Local Coverage Handbook procedures for notifying IRS (See SL 40001.420F).

C. Evidence of the establishment of a new government component

The State must submit evidence legally sufficient to substantiate the establishment of a new government component that is an integral part of the political subdivision. The evidence may be in the form of a copy of the legal authority under which the new government component was established. This could be a copy of a city ordinance or a copy of the order of an authorized official, which effectuated the establishment of the new government component. Where legislative authority is involved, the State should provide either a reference to it or a copy of the legislation along with proof that this authority has been exercised. The documentation provided must show that the new government component is an integral part of the existing political subdivision.

SL 40001.485 Legally Dissolved Entities

Although the 1983 Social Security Amendments prohibited the termination of Social Security coverage, there are still instances where an entity may be legally dissolved. When a political subdivision or absolute coverage group is legally dissolved, the State must submit to SSA a notice of legal dissolution to delete the dissolved entity from the State’s agreement.

A. Dissolved entity vs inactive entity

A “dissolved” entity is an entity that has been legally dissolved and no longer exists. An “inactive” entity is an entity that no longer has any employees and has not been legally dissolved.

 

When an entity becomes inactive or re-activated, the State should send a letter to the Regional Office (RO). The letter should include the name of the entity, the entity's employer identification number (EIN), the modification number the entity is covered under, and the effective date of the entity's inactivation or the effective date of the entity's reactivation.    

B. Reporting a legally dissolved political entity

If an entity is legally dissolved or is no longer in existence, the State should take prompt action to notify SSA of the dissolution. The State should send the RO a notice of legal dissolution and provide legal documentation with the notice of legal dissolution.

 

The RO will:

  • notify the State that the legal documentation is acceptable or ask for additional information and

  • send a copy of the notice of dissolution to the IRS.

C. Evidence of legal dissolution

The State must submit legally sufficient evidence to establish the fact of dissolution. The evidence must establish that the entity is not merely inactive or dormant, but that it no longer exists.

1. Primary evidence of dissolution

  1. If the dissolution occurred as the result of a legal authority, evidence of the dissolution may be in the form of a copy of the legal authority under which the dissolution occurred. This may include:

    • a copy of a city ordinance, or

    • a copy of the order of an authorized official which effectuated the dissolution, or

    • a copy of the results of an election which authorized the dissolution.

    In this situation, only one document is needed to establish dissolution.

  2. Where the dissolution resulted from the authorization of a legislative body (for example, State Legislature, County Council, City Council, etc.), acceptable evidence would be proof that the legislative authorization had been carried out with either:

    • a reference (e.g., law review, Bar journal, legal periodical, legislative history journal, legal or legislative website, etc.) to the legislative authorization, or

    • a copy of the legislation

      If the legislative authorization did not by itself dissolve the entity, a copy of the administrative or other order is required.

  3. A statement of the fact of dissolution executed by the official of the State or political subdivision with whom orders of dissolution are filed is acceptable as evidence of dissolution.

    Obtaining the various primary evidentiary documents mentioned in a. through c. above is usually possible if the dissolution occurred recently and an existing governmental entity maintains the records.

2. Secondary evidence of dissolution

Some entities, which went totally out of existence many years ago through annexation, consolidation, or dissolution, failed to notify the State or SSA properly. In most cases, the entities just stopped paying Social Security taxes, not realizing that formal notification to the State and dissolution documentati