What Is a Section 218 Agreement for Social Security?
Understand the purpose of a Section 218 Agreement and the considerations for state and local governments seeking to extend Social Security coverage to their employees.
A Section 218 Agreement is a formal, voluntary arrangement between a state and the Social Security Administration (SSA) that provides Social Security and Medicare coverage to employees of state and local governments. When the Social Security Act was passed in 1935, it did not include these public employees due to legal questions about the federal government’s ability to tax state entities. The 1950 amendments to the Act introduced Section 218, creating the legal pathway for states to opt into this coverage.
These agreements are made at the state level, and all 50 states, Puerto Rico, and the Virgin Islands have one in place. They cover positions rather than specific individuals, meaning any employee who fills that role is subject to Social Security and Medicare taxes. This provides them the same benefit rights as private-sector employees. These agreements are irrevocable and cannot be terminated once a state enters into one.
Employee Groups Covered by an Agreement
A Section 218 Agreement defines groups of employees for coverage, known as “coverage groups,” which fall into two primary categories. The category an employee belongs to dictates the process for extending Social Security and Medicare benefits.
The first category is the “absolute coverage group,” which consists of employees whose jobs are not covered by a public retirement system. Because there is no existing pension plan to consider, the governmental entity can include these positions under the state’s master Section 218 Agreement without requiring an employee vote.
The second category is the “retirement system coverage group,” which includes employees who are already members of a public retirement system. Extending Social Security and Medicare to these employees requires a formal process to coordinate benefits with their existing retirement plan and ensure employees have a voice in the decision.
Section 218 also has specific rules for certain groups. Police officers and firefighters who are part of a public retirement system can be covered if state law authorizes it and the members vote in favor of it through a referendum. Other services that may be optionally excluded from an agreement include those performed by election workers paid below a certain annual threshold or services performed by students who work for the school they attend.
Key Decisions and Information for an Agreement
Before a government entity can extend coverage, it must make several decisions. The entity must identify its official legal name, determine the exact coverage group to be included, and specify the desired effective date for coverage, which can be set retroactively under certain conditions.
For retirement system coverage groups, a referendum is a required step. This is a formal vote by all eligible members of the public retirement system to determine if they wish to be covered by Social Security and Medicare. The vote is administered by the State Social Security Administrator to ensure it is conducted properly.
For the referendum to be successful, a majority of all eligible employees in the retirement system must vote in favor of coverage. If this majority is achieved, all current and future employees in positions under that retirement system will be covered by Social Security and Medicare, as the outcome is binding for the entire group.
The Agreement Process
Once a local government entity has completed its internal decisions and a successful referendum if needed, the formal agreement process begins. The political subdivision, such as a city or county, submits a formal request for coverage to the State Social Security Administrator, who is the state’s official liaison with the SSA.
The State Administrator works with the local government entity to execute the legal documentation. This document, called a “modification,” officially alters the state’s master Section 218 Agreement to include the new coverage group. The administrator ensures all federal and state requirements are met and confirms the positions to be covered.
After the modification is finalized, the State Administrator submits it to the SSA for final approval. Once the SSA approves the modification, the agreement becomes effective. The public employer must then begin withholding Federal Insurance Contributions Act (FICA) taxes from the paychecks of covered employees and remit these taxes, along with the employer’s matching share, to the IRS.