Section 218 Agreements
Social Security coverage is available to state and local government employees through a unique voluntary federal-state agreement authorized by Section 218 of the Social Security Act. Employees covered under a Section 218 Agreement have the same coverage and benefit rights as employees mandatorily covered for Social Security and Medicare.
Section 218 Agreements cover positions, not individuals. If the position is covered for Social Security and Medicare under a Section 218 Agreement, then any employee filling that position is subject to Social Security and Medicare taxes.
Public employees are brought under a Section 218 Agreement in one of two basic coverage groups:
- Absolute coverage group — Employees whose positions are not covered under a public retirement system
- Retirement system coverage group — Employees whose positions are covered under a public retirement system
As of April 20, 1983, Section 218 Agreements are irrevocable. Once coverage is provided, it cannot be terminated.
In California, contracting for a Section 218 Agreement provides Social Security and/or Medicare coverage in conjunction with an already established qualifying public retirement system.
There are two methods to contract for a Section 218 Agreement:
- Majority — Social Security and/or Medicare is determined by the majority of eligible voters. If the majority votes in favor, all current and future employees in positions under the retirement system will be covered. All new employees are also subject to coverage on the date they become members of the retirement plan. If the majority votes against, no employees will be covered at this time. After a "no" vote, another referendum could be held at a later date.
- Division — Social Security and/or Medicare coverage is determined on an individual basis. The eligible member of the retirement system makes an individual choice. A "yes" vote means employees and all future employees will be covered. New employees are subject to coverage on the date they become members of the retirement plan. A "no" vote means employees will not be covered as long as they maintain continuous employment in a position within the same public retirement system.
In all cases, the first step in the contracting process is for an agency to adopt a formal resolution (documents provided by SSSA) requesting permission to conduct a referendum or division among eligible employees. In addition, the agency will provide detailed demographic information specific to affected employees, status of retirement system, and governing body of agency.
Public agency employers interested in contracting for a Section 218 Agreement can email the State Social Security Administrator Office.
A Section 218 Agreement may be made retroactively, up to five coverage years from the date of federal approval of the agreement. It takes approximately six months to receive federal approval. For example, if a request for retroactivity is submitted in 2017, and is approved in 2018, coverage could be applied retroactively to the 2013 coverage year.
If retroactive coverage is applied, the contributions for both employers and employees must be paid.
There are types of services that are mandatorily excluded from coverage under Section 218. These positions cannot be offered voluntary coverage by way of a Section 218 modification.
The following services are required to be excluded from Section 218 coverage:
- Services performed by individuals hired to be relieved from unemployment. (This does not include many programs financed from federal funds where the primary purpose is to give the employee work experience or training.)
- Services performed in a hospital, home or other institution by a patient or inmate thereof as an employee of a state or local government employer;
- Services performed by an employee on a temporary basis in case of fire, storm, snow, earthquake, flood or other similar emergency;
- Transportation services covered under Section 210(k) of the Act (see SL 30001.365);
- Services that would be excluded if performed for a private employer because the work is not defined as employment under Section 210(a) of the Act (e.g., non-resident aliens with F-1, J-1, M-1, and Q-1 visas - (See RS 01901.740)).
In addition, there are certain services and positions that can be optionally excluded from Social Security coverage under the Section 218 Agreement. Exclusions are limited to the services listed as “optional exclusions” in Section 218 of the Social Security Act and must be identified in the modification.
The optional exclusions are:
- Agricultural labor, but only those services that would be excluded if performed for a private employer
- Elective positions
- Election workers and election officials whose pay in a calendar year is less than the amount mandated by law, unless Section 218 agreement covers election workers
- Part-time positions (as defined by the employer in terms of hours per week/month/year)
- Positions compensated solely by fees that are subject to Self-Employment Contributions Act (SECA), unless Section 218 Agreement covers these services
- Students enrolled and regularly attending classes at the school, college, or university where they are working
Generally, a Section 218 Agreement may be modified to increase the extent of coverage (e.g., to remove certain optional exclusions), but not to reduce the amount of coverage (e.g., exclude future hires or add a new optional exclusion).
Section 218 Agreements can be modified to:
- Cover additional services in a group already covered (e.g., services previously optionally excluded)
- Cover employees changing to the "yes" group in a divided retirement system within two years of the original federal approval date
- Cover previously terminated groups
- Include additional coverage groups
- Correct erroneous reporting
Contact us in advance of any proposed mergers, reorganizations, transfers, etc., so we can make a determination of the employee status of such persons.
Section 218 Agreement Entities
If the name of your entity changes from what is specified on the Section 218 Agreement, contact us and provide documents that note the name change (e.g., minutes from board meetings, resolutions approved, etc.). CalPERS will notify the Social Security Administration of the name change.
If employees are being reorganized/merged into the entity named in the Section 218 Agreement, they are subject to Social Security coverage with the named entity.
Example: The Laguna Lakes Water District transferred in whole to the Water Department of the City of Laguna Lakes, which has a Section 218 Agreement. All employees will now have Social Security. If Laguna Lakes Water District ceased to exist, any Section 218 Agreement would be terminated.
If employees of the named entity are being reorganized/merged (or otherwise transferred) to another governmental entity, they will have the same Social Security status as other similarly situated employees of the other governmental entity.
Example: Some employees of the Water Department of the City of Laguna Lakes have been transferred to the Laguna Lakes Water District. Their coverage depends on whether the Laguna Lakes Water District has a Section 218 Agreement.
County Office of Education
If the County Office of Education has any school district(s) that had or will have organizational changes in the current fiscal year, contact us to provide documentation supporting the changes. Qualifying changes may include name changes, dissolutions, annexations, consolidation, creation, or lapsation.
Joint Powers Authority (JPA)
If employees of the named entity are merged/transferred into an agency (such as a newly formed JPA) that doesn't have a Section 218 Agreement, their Social Security coverage will end. The JPA will have the option of contracting for its own Section 218 Agreement.