An error occurs when a State or local government entity begins withholding and reporting
wages for employees for whom there is no basis for coverage.
A State or political subdivision may have made reports and payments for Social Security
coverage of its employees to the Internal Revenue Service (IRS), under the Federal
Insurance Contributions Act (FICA), in the mistaken belief that such action was sufficient
to provide coverage for its employees. Reporting may be erroneous for Section 218
purposes even if, at the time of the error, the employee is eligible to receive provisional
coverage under the Section 210 mandatory rules. The nature of the error depends on
the entity’s belief and intent, which may be inferred from the circumstances.
Where the employer made payments with the intent to cover employees and in a good
faith belief that the payments were sufficient to establish that coverage, the State
may correct the error in order to preserve coverage for the period during which the
error occurred. The State is not required to correct the error.
To correct the error, the State may provide retroactive coverage through either an
Error Modification or a regular Section 218(e)(3) Modification. Alternatively, if
the State does not wish to correct the error, it may still pursue a standard Modification
with the standard retroactivity options (see SL 30001.375).
If the error involves a retirement system position, the State must comply with the
referendum procedures before executing an Error Modification or a Section 218(e)(3)
Modification. If no position was under a retirement system at the time the error was
made, the coverage group would be covered as an absolute coverage group under Section
218(b)(5) of the Act and a referendum would not be necessary.
The State’s options to correct the error are described below.