Oregon Section 218 Social Security coverage

A Section 218 Agreement, authorized by Section 218 of the Social Security Act, is an agreement between a state and the Social Security Administration (SSA) to provide Social Security coverage for state and local-government employees.  

Social Security coverage

There are two basic types of coverage: mandatory coverage and voluntary coverage.  

• Mandatory coverage: State and local government positions that are not covered under a public retirement system must pay Social Security taxes and receive those benefits.

• Voluntary coverage: State and local government positions that are covered under a public retirement system may voluntarily pay Social Security taxes and receive those benefits.  

  To offer voluntary coverage, an organization must hold a referendum (i.e., vote) allowing employees to specify whether they choose to pay for Social Security coverage. If a majority of eligible members vote in favor of coverage, all current and future employees in positions under the retirement system will be covered.  

Medicare coverage

Medicare withholding is mandatory. Medicare coverage used to be included in Section 218 agreements, but in 1986 it was removed from Section 218 agreements and made mandatory for all public sector employers.  

The United States Social Security Administration (SSA) requires that each state designate at least one official to oversee the state’s Section 218 Agreement. Oregon’s official is responsible for the following:  

• Administering the state’s Social Security Section 218 agreement.
• Serving as a liaison between the state of Oregon and the SSA.
• Supervising an organization’s referendum or voting process.
• Informing and advising public employers about Social Security and Medicare coverage for their employees.
• Ensuring Section 218 compliance.
• Collecting the Social Security administration fee from Section 218 employers.

Oregon SSA resides in the Oregon Public Employees Retirement System (PERS) agency and is overseen by the PERS Board. An employer does not need to participate in Oregon PERS to participate in the SSA program.  

The original Social Security Act (1935) excluded state and local government entities from Social Security coverage. This was due to a question about the federal government’s power to tax state and local governments.  

In 1951, the Social Security Act was amended with Section 218 to allow states to enter into voluntary agreements with the SSA to provide Social Security coverage to state and local government employees. However, this amendment excluded employees covered under an existing retirement system.  

In 1955, the Social Security Act was amended again to allow states to extend Social Security coverage to employees who were covered under a retirement system. However, they were required give those employees the option to approve or reject coverage. This was to protect people from having to pay into two retirement systems.  

In 1986, Medicare withholding for state and local government employees became mandatory.  

In 1991, state and local government employees became subject to mandatory Social Security coverage unless they are one of the following:  

• Members of a qualifying public retirement system.
• Covered under a Section 218 agreement.

Voluntary employers may enroll their employees in Social Security even if they are already enrolled in a qualified public retirement system.  

A political subdivision is a separate legal entity created for a specific governmental function. Examples include a county, city, town, village, school district, or commission or a special district like a utility, reclamation, drainage, or flood control.  

Oregon political subdivisions are covered by modifications

Modifications to the state’s original Section 218 Agreement allow state political subdivisions to voluntarily enter into Social Security coverage. As of 2024, Oregon has more than 680 modifications to its original agreement and more than 1,000 public employers enrolled in Social Security.  

If an entity dissolves or merges with another entity

Modifications cannot be terminated. As of 1983, coverage under a Section 218 agreement cannot be terminated unless the entity is legally dissolved.  

If two entities merge, their modifications may dissolve, too. The new entity must be assessed by the Social Security Administration to determine if the existing Social Security coverage transfers to the new entity or if there must be a vote of retirement system employees.  

To find out if your organization has a modification, email the Social Security administrator at oregon.socialsecurityprogram@pers.oregon.gov.  

The Federal Insurance Contributions Act (FICA) was created to fund the Social Security Act. Today, employers report their Social Security and Medicare withholding to the Social Security Administration (when you file your W2 totals at year end) and pay their Social Security and Medicare taxes to the Internal Revenue Service (when you file quarterly 941 reports).  

The Social Security administrator can help answer questions about which positions should be paying FICA taxes and which ones should not.  

1. The public organization’s board passes a resolution to hold a referendum.
2. The public organization creates a list of employees who are PERS members, including new members serving their six-month wait time. (For information on membership eligibility, read employer reporting guide 7, Reporting a New Employee, section “Qualifying for PERS Membership.”)
3. The upcoming vote is noticed to the list of PERS-covered employees created in step 2.
4. A 90-day education period starts upon employee notification.
   • During the education period, the Social Security Administration gives a presentation about Social Security coverage to employees at the organization. This includes an opportunity to ask questions.
   • At the end of the 90-day period, the organization creates another list of PERS-covered employees. Only those employees who were working at the organization at the start and end of the 90-day period are eligible to vote.
5. The state Social Security administrator directs a secret ballot vote.
   • Employees can all vote onsite or via USPS mail.
   • The vote is majority rules. Majority is equal to at least half plus one of eligible voters — not a majority of the employees who vote.
   • A missed vote is a “no” vote.
6. Depending on the outcome:
   1. If majority (i.e., at least half + 1 of eligible voters) vote for coverage, employees either enter into or remain in Social Security coverage.
      • State Social Security administrator writes the modification and sends it to the SSA for approval. This usually takes about six months, but the effective date of the modification is retroactive.
   2. If majority do not vote for coverage, after a one-year waiting period, the board can pass another resolution to hold another vote.

Section 218 voluntary employers have rules for Social Security withholding with which they must comply. These rules are explained in the following two publications.  

• IRS Publication 963, Federal-State Reference Guide (specifically written for state and local government employers).
• Social Security Administration Section 218 Agreements website.

Medicare withholding for state and local government employees is mandatory.  

The Oregon Department of Human Services (DHS) Senior Health Insurance Benefits Assistance (SHIBA) program has trained counselors who can help Oregonians with Medicare questions. https://shiba.oregon.gov  

Per Oregon law, political subdivisions must pay a fee to help cover some of the cost of administering Social Security coverage to Section 218 employees.  

The contributions (charged on a pro-rated basis to each agency) are deposited into the state’s Social Security Revolving Account and used by the PERS Board to administer Social Security coverage.  

• PERS-participating employers: Your Social Security fee appears on an Employer Data Exchange (EDX) statement every summer. You pay it with your regular invoice through Automated Clearing House (ACH). The invoice for this fee is manually generated outside of EDX and is emailed to you separately.
• Non PERS-participating employers: If you are not a PERS-participating employer, your Social Security fee invoice is emailed, and you remit payment manually.

For more information, read OAR Chapter 459 Division 20, “Old-Age and Survivors Insurance,” and the PERS Employers webpage Employer Invoicing, Special Charges, “Social Security administrative fee.”  

The Windfall Elimination Provision (WEP) is a formula used to adjust Social Security worker benefits for people who receive “non-covered pensions” and qualify for Social Security benefits based on other Social Security–covered earnings. A non-covered pension is a pension paid by an employer who does not withhold Social Security taxes from an employee’s salary — typically, state and local governments or non–United States employers.  

Congress passed the WEP to prevent workers who receive non-covered pensions from receiving higher Social Security benefits as if they were long-time, low-wage earners.  

Learn more on the Social Security Administration Windfall Elimination Provision 2024 handout.  

The Government Pension Offset (GPO) is a law that affects the Social Security benefits received by employees’ spouses and surviving spouses. Spousal benefits were originally designed to support spouses who were financially dependent on the working spouse. In the 1980s, the law was amended to account for marriages with two working spouses. The GPO requires that a spouse’s or surviving spouse’s benefit be offset by the amount of the recipient’s own retirement benefit. If an employee receives a retirement or disability pension from a federal, state, or local government based on their own work for which they did not pay Social Security taxes, their Social Security benefits may be reduced, or they may not receive any payment at all.  

Learn more on the Social Security Administration Government Pension Offset 2024 handout.  

Email  

To ask questions or request more information, email the Social Security administrator at oregon.socialsecurityprogram@pers.oregon.gov.  

Webpages  

Social Security Administration Program Operating Manual System: State and Local Coverage Handbook.  

State and Local Government Employees Social Security and Medicare Coverage | Internal Revenue Service (irs.gov).  

National Conference of State Social Security Administrators.  

Form  

SSA Form 1945 for employees, Statement Concerning Your Employment in a Job Not Covered by Social Security.