What is a Section 218 Agreement?

What is a Section 218 Agreement?

Under the original U.S. Social Security Act of 1935, state and local government (public) employees were excluded from Social Security coverage because of state sovereignty guaranteed by the Tenth Amendment of the U.S. Constitution and concerns about the federal government’s authority to impose taxes on state and local governments and their employees.  To overcome that issue, the U.S. Social Security Act was amended by Congress in 1950 to allow each state to enter into voluntary Social Security coverage agreements on behalf of the state and any of its political subdivisions that wanted Social Security coverage.   

Beginning in 1950, states were allowed to enter into voluntary agreements with the federal government to provide Social Security coverage to public employees. These arrangements are called “Section 218 Agreements” because they are authorized by Section 218 of the Social Security Act.  

When Medicare was established in 1966 any public employee who was covered under a Section 218 Agreement also became covered by Medicare.  As of April 1, 1986, all newly hired public employees were mandated to pay into Medicare even if they were not covered by a Section 218 Agreement.  Public employees who were “in continuous employment” with the same employer prior to April 1, 1986, were exempt from Medicare-only coverage if they were not under a Section 218 Agreement.  

Any Medicare exempt public employees who want Medicare coverage must participate in a referendum election that is conducted by the State Social Security Administrator’s office.  If the referendum election passes a “Modification” to the State’s master Section 218 Agreement (established in 1951) is entered into between the State of Colorado and the U.S. Social Security Administration.  Medicare-only Section 218 Agreements do not extend full Social Security (Old Age, Survivor, Disability Insurance) coverage to those employees.

A copy of the State of Colorado’s master State-Federal Agreement (Section 218 Agreement) and a sample of a Plan and Agreement that was entered into between the State and one of its Towns extending full Social Security coverage is available by accessing this Analysis of Section 218 Agreement with Sample Plan and Agreement.  That document also includes a cover page that explains how some of the original terms and conditions in the Section 218 Agreements are no longer in force and effect because of changes to federal laws.

For additional information, go to the Government Finance Review article entitled “Common Errors in State and Local Government FICA and Public Retirement System Compliance”  and the Federal-State Reference Guide (IRS Pub. 963) or contact the Colorado State Social Security Administrator at:  303-318-8060 or joann.state@state.co.us.