Effective Dates: 6/04/2026 - Present

Identification Number:
SL 40001 TN 20
Intended Audience:See Transmittal Sheet
Originating Office:LP ISP
Title:Agreements and Modifications
Type:POMS Full Transmittals
Program:All Programs
Link To Reference:
 

PROGRAM OPERATIONS MANUAL SYSTEM
Part SL – State and Local Coverage Handbook
Chapter 400 – Agreements and Modifications
Subchapter 01 – Agreements and Modifications
Transmittal No. 20, 06/04/2026

Audience

Originating Component

ISP

Effective Date

Upon Receipt

Background

We added a note referencing the new eSignature POMS. We revised instructions for Modifications for clarity and replaced Regional Office contact info due to agency reorganizations and refer instead to Section 218 specialist. We added a note that SSA reserves the authority to add or revise the Commissioner's signature block before executing the modification.

 

Summary of Changes

SL 40001.420 Modifications to the Agreement

Added a note at the beginning of the section referencing the eSignature POMS.

Subsections B, D, E, F, H and J, replaced “Regional Office” with “Section 218 specialist”.

Subsection B.2, deleted “modification” and “wet” and replaced with “Modifications with the” and deleted the Note.

Subsection C.2, deleted "must have the certification.…." and replaced with "packet must include the certification of referendum signed by the Governor or authorized official.'

Subsection D.3, second bullet, added signature options including: valid, handwritten and electronic and in seventh bullet, added “recorded by the agency”.

Subsection D.4, deleted the need to photocopy all Modification material, added instructions to scan/save a copy of the Modification and provided storage info.

Subsection D.5 and 6, replaced Office of General Counsel (OGC) with “Program, Fiscal, and Disclosure Law (PFDL)” and “PFDL”.

Subsection E, added a Note that SSA reserves the authority to add or revise the Commissioner's signature block before executing the modification.

Subsection F, removed "all copies".

Subsection H, deleted "emails", replaced “regional commissioner or designated” with “delegated”, deleted "If delivering to.…...", deleted "whether Modification" and replaced with“that the modification", deleted regional commissioner or his or authorized delegate" and replaced with "delegated official".

Subsection H.2, deleted "in a locked fire proof file cabinet" and replaced with "for Agency records" and in step 3, added "For the States that have opted into electronic signatures, you can email the States the letter and signed modification."

Subsection I, added a POMS reference.

 

SL 40001.420 Modifications to the Agreement

NOTE: 

SL 40001.421D.4 describes alterations to modification-clearance procedures that apply if a State has opted into the electronic signing process and has not requested paper processing of the modification.

A. Purpose of Modifications

Modifications to the Agreement do the following:

  • •

    Extend coverage to new coverage groups;

  • •

    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 from the exhibits for Agreements and Modifications (see SL 40001.490). In rare cases where the sample language is inadequate for the specific situation, request assistance from the Section 218 specialist;

  • •

    Provide the Internal Revenue Service (IRS) issued Federal Employer Identification Number (EIN) for each entity;

  • •

    Clearly define what the "Retirement System" is;

  • •

    List all optional exclusions, including all statewide optional exclusions from the Agreement in each Modification;

  • •

    Define with specificity the term "part-time position" in the Modification if the State is excluding part-time positions or 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 Section 218 specialist if the Modification is complex or there is a question concerning the legality of any provision, and

  • •

    Submit two original Modifications with the handwritten signature(s) of the authorized State official(s) to the Section 218 specialist. The State should provide extra copies if it wants more than one signed copy.

C. Forwarding additional information with a Modification

Provide additional information on a separate sheet. Additional information may be necessary, including the following:

  1. 1. 

    If the status of the entity is not apparent from the name, the State should include a reference to the statutory authority that established its status, and

  2. 2. 

    If a retirement system coverage group is included in a Modification, the Modification packet must include the certification referendum signed by the Governor or authorized official.

D. Reviewing the Modification packet

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

Step 1: Verify that the Modification number is in sequential order and has never been used.

Step 2: Review the State's Agreement, Modifications, and any necessary associated documentation. Verify the coverage group represented does not conflict with existing coverage.

Step 3: Review the Modification 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? For purposes of the certification of referendum, a valid signature identifies and authenticates the signatory as the source of the certification and indicates this person's approval of the information it contains. The State may provide a paper copy of the certification with handwritten signature or, if State law allows a Portable Document Format (PDF) copy of the certification with electronic signature (both options are available regardless of whether the State has opted into the electronic signing process for modifications and notices described in SL 40001.421.

  • •

    Does the Modification follow the exhibits in SL 40001.490?

  • •

    Is the entity seeking coverage clearly identified?

  • •

    Is each named entity either the State or the State's political subdivision (this is important to the review process as government agencies privatize and new entities form that possess both government and private business characteristics, e.g., charter schools)?

  • •

    Is the date of the State's original Agreement correct?

  • •

    Is the EIN documented?

  • •

    Is the number of employees to be covered documented?

  • •

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

  • •

    If applicable, does the designated date for retroactivity conform to Federal law? This date cannot be earlier than the postmarked date on the envelope from the State or the receipt date recorded by the Agency (see SL 40001.435, Designated Date for Retroactivity Purposes).

  • •

    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 the Social Security Administration (SSA) receives the Modification.

  • •

    Is the Modification signed by the designated state official?

Step 4: Scan and save a copy of the Modification for Agency records.

Step 5: Request a Program, Fiscal, and Disclosure Law (PFDL) review of the Modification.

Step 6: After PFDL has provided its review, determine if any corrections are necessary (see SL 40001.420E). If no corrections are necessary, proceed to disapproval (SL 40001.420G) or execution (SL 40001.420H) of the Modification as the circumstances warrant (see SL 40001.420G-H).

E. Corrections before executing the Modification

1. Section 218 specialist 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 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.

NOTE: 

SSA reserves the authority to add or revise the Commissioner's signature block before executing the modification to ensure the signatory has proper authority to sign and because it does not alter the substance of the parties' intended agreement.

2. Section 218 specialist documents the verbal request for minor corrections

If the Section 218 specialist receives a phone call from the State requesting a minor correction:

  • •

    Use 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 Section 218 specialist to report the mistake and asks that he or she correct the typo. The Section 218 specialist should take the following actions:

  • •

    Ask the state administrator to provide written authority (e.g., an email) requesting the correction;

  • •

    Change "12" to "13" on the Modification;

  • •

    Add a parenthetical, per the August 1, 2011, email from S. Smith, SSA; and

  • •

    Sign and date the entry and attach the email with the Modification.

3. Section 218 specialist handles submitting major changes

Major changes may require the State to rewrite the Modification. If this is necessary, the date the first version of the Modification was submitted to the Section 218 specialist establishes the date of its submittal (in other words, the original mailing or delivery date can be used as the date it is "mailed or delivered by other means to the Commissioner of Social Security" for the purposes of determining the appropriate effective date under Section 218(e)(1)-(2) of the Act).

NOTE: 

The Section 218 specialist determines, within the specialist's discretion, whether a change is minor or major under these rules.

F. Withdrawal of the Modification

At any time before the Commissioner of Social Security executes a Modification, the State may withdraw the Modification by submitting a written request to the Section 218 specialist. If a Modification is withdrawn, the Section 218 specialist will return the unexecuted Modification to the State.

NOTE: 

Because coverage provided by a Modification cannot be terminated once executed by SSA (see Social Security Act (Act), Section 218(f)), if the State is contemplating withdrawal, it should contact SSA as soon as possible.

G. SSA disapproval of the Modification

The Commissioner will disapprove any Modification that fails to meet the requirements of Federal and State law. All copies will be returned to the State with an explanation for the disapproval.

H. Execution of the Modification

After PFDL's approval, the Section 218 specialist prepares a notification of approval letter and delivers the entire Modification packet to the delegated official for signature.

The Section 218 specialist should verify that the modification approval has been delegated to that official. The delegated official must sign the approval letter and all original copies of the Modification.

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

After executing the Modification, the Section 218 specialist must:

  1. 1. 

    Date the approval letters and make copies;

  2. 2. 

    File an original signed Modification packet for Agency records;

  3. 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;

  4. 4. 

    Fax a copy of the Modification to the IRS at 855-243-4014; and

  5. 5. 

    Scan and save a copy of the Modification packet for Agency records.

I. Effective date of coverage

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

J. Closing agreements for Modifications requesting more than three tax years of retroactive coverage

When submitting a Social Security Modification or Hospital Insurance (HI)-only Agreement (SL 30001.395) to SSA for approval, a State or local government entity can specify an effective date as early as “the last day of the sixth calendar year preceding the year” the Modification is mailed or delivered to SSA under Section 218 (e)(1) of the Act..

NOTE: 

For HI-only Agreements, a State may not request retroactive coverage for periods before April 1, 1986. See SL 30001.395A.

The Internal Revenue Code (IRC) limit the IRS's authority to assess taxes to the three-year period after the taxpayer files the tax return for a particular year. Because Section 218 permits a State to request retroactive coverage for periods outside of the IRS assessment period, SSA must ensure that the employer has paid Federal Insurance Contribution Act (FICA) taxes that correspond to the entire retroactive period requested. The Modification generally must give the IRS the ability to collect taxes for the full retroactive period before approving the Modification.

Where a Modification requests retroactive coverage that exceeds three calendar years before the execution date of the Modification, determine whether taxes have been paid for any retroactive period predating those three years. Where the employer has not paid FICA for periods beyond three calendar years, do not approve the Modification unless the State includes within the Modification a promise that the employer will execute a closing agreement with the IRS.

NOTE: 

Generally, where the State submits a standard Modification requesting retroactive coverage, expect that the employer has not paid FICA for the retroactive period. Where the employer has already paid FICA in error for the retroactive period, the State may use an Error Modification (SL 40001.465) to legitimize retroactive coverage for the entire period of the error. However, it is within the State’s discretion to decide how to obtain retroactive coverage. Therefore, a State may choose to use a standard Modification with up to five years of retroactive coverage instead of an Error Modification. Where the State makes that choice, a closing agreement is not necessary because the IRS already collected the taxes for the retroactive period. Accordingly, the IRS does not require additional authority to assess additional taxes outside of the assessment period.

IMPORTANT: Error Modifications (see SL 40001.450B) never require a closing agreement. IRS already collected the taxes for the retroactive period. Accordingly, the IRS does not require additional authority to assess additional taxes outside of the assessment period.

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 conclusive determination for both the taxpayer and the IRS unless the taxpayer demonstrates fraud or misrepresentation as to a material fact (I.R.C. §721).

2. When is a closing agreement required?

If the employer has not paid FICA corresponding to any part of the retroactive period beyond three calendar years, a closing agreement is required to provide IRS with the authority to collect taxes for that period. SSA will not execute the Modification unless it contains language requiring a closing agreement (SL 40001.420J.4.a).

Additionally, where delays in execution of a Modification result in an effective date that predates the IRS’s authority to collect FICA taxes, a closing agreement is necessary to ensure that the IRS has sufficient authority to collect those taxes. This is true even though a closing agreement may not have been necessary at the time the State submitted the Modification to SSA for execution. If a closing agreement becomes necessary for this reason, SSA will inform the State of the need to amend the Modification to include the required closing agreement language (SL 40001.420J.4.a), and wait for an amended Modification before execution. In this case, the procedures relating to major corrections apply (SL 40001.420E.3).

Where the State (1) submits a standard Modification that includes more than three calendar years of retroactivity, and (2) asserts that an employer has already paid FICA for the entire retroactive period predating the IRS’s statute of limitation, the State must provide evidence to verify payment of FICA. If SSA receives satisfactory evidence to verify the payment of FICA, the Section 218 specialist will obtain an Employer Query Report (ERQY) to confirm that SSA’s existing records reflect the past payment of FICA. If such evidence verifies payment of FICA, do not require the State to include closing agreement language, as described below (SL 40001.420J.4.a) to appear in the Modification; instead, the State should provide alternative explanatory language (SL 40001.420J.4.b). If the State is unable to provide satisfactory evidence to verify past payment of FICA, require the State to include the closing agreement language in the Modification.

3. Terms of the closing agreement

Where a closing agreement is required, SSA must execute the Modification before the closing agreement process begins. Without an executed Modification, no tax liability exists and the IRS cannot pursue a closing agreement. SSA's execution of the Modification creates the tax liability and obligates the entity to pay taxes correlating to the retroactive period.

Under a closing agreement, 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

  • •

    A promise to make full payment of taxes to the IRS.

Additionally, the closing agreement:

  • •

    Informs the employer that the closing agreement, once executed, is final and conclusive;

  • •

    Authorizes the IRS Commissioner to assess and collect taxes identified within the closing agreement; and

  • •

    Constitutes a waiver by the employer of all defenses with regard to collection of the tax liability.

4. Required Modification language

a. For standard Modifications requesting retroactive coverage extending beyond three calendar years for which FICA has not already been paid

Where a closing agreement is required, SSA will only execute a Modification with a retroactive effective date beyond three years if the State includes the following required language in the Modification:

(State) ________ promises to ensure that any employer whose positions are included under this Modification will pay, to the Department of the Treasury, contributions equal to the sum of the taxes that would have been required from employers and employees under the Federal Insurance Contributions Act (FICA) as of the effective date of coverage specified above. (State) _______ also promises to ensure that any employer whose positions are included under this Modification will enter into a closing agreement with the Internal Revenue Service (IRS) to provide the IRS with authority to collect all retroactively due FICA contributions created by this Modification. (State) _______ will ensure that the State Administrator notifies SSA as soon as the closing agreement is executed.

(State’s) _______’s failure to ensure payment of retroactively due FICA contributions will invalidate retroactive coverage provided by this Modification for any period for which no FICA contributions are paid. Prospective coverage provided by this Modification will not be impaired by the State’s failure to ensure that retroactively due FICA is paid.

SSA will not approve the Modification unless the State agrees that it will ensure that any employer whose positions are included under this Modification will execute a closing agreement. The IRS will not begin the closing agreement process until SSA signs and executes the Modification.

For exhibits of closing agreement Modifications, see SL 40001.490H. For questions concerning the closing agreement process, send the IRS Closing Agreement Coordinator a fax at 855-243-4014.

b. For standard Modifications requesting retroactive coverage extending beyond three calendar years for which FICA has already been paid

Where the employer has already paid FICA for the requested retroactive period, the State should include the following statement within the Modification to explain that a closing agreement was not required by the circumstances:

(State) _________ certifies that a closing agreement is not required in order to obtain the requested retroactive coverage because corresponding FICA taxes have already been paid for the retroactive period. SSA has verified payment of FICA for the retroactive period based on satisfactory evidence submitted by the State.

c. For Error Modifications requesting retroactive coverage

Error Modifications are only available in cases where an employer paid FICA in error during a requested retroactive period (SL 40001.465). Accordingly, where the State requests an Error Modification and where SSA has verified that an Error Modification is appropriate, SSA does not require the explanatory language above (SL 40001.420J.b) to appear in the Modification. Instead, the State should submit a Modification following the Error Modification format (SL 40001.490F, Exhibits 20a, 20b, 20c), which includes separate explanation and historical context.

5. Exhibit of closing agreement

View the IRS-approved Closing Agreement on Final Determination of Tax Liability and Covering Specific Matters:

View In PDF


SL 40001 TN 20 - Agreements and Modifications - 6/04/2026