When the Social Security Act was passed in 1935, state and local government employees were excluded from Social Security. As a result, some state and local government workers who were not covered by a retirement system were left without benefits when they retired. To help these employees, in 1950, Congress added section 218 to the Social Security Act allowing states to enter into voluntary agreements to provide Social Security coverage to certain state and local government employees. Section 218 authorizes the 50 states, Puerto Rico, and the Virgin Islands to enter into these agreements. Although under section 21 of the Act, the District of Columbia, Guam, the Commonwealth of the Northern Mariana Islands, and American Samoa are excluded from the definition of “state,” employees within these territories can have Socia l Security coverage under other provisions of the Act. Within a year of this amendment, about 30 states had executed section 218 agreements with t Social Security Administration. Subsequently, additional amendments to the Social Security Act changed Social Security and Medicare coverage for state and local government workers. Starting in 1991, the Social Security Act required all state and local government employees to be covered by Social Security if they were not covered by a qualifying state or local retirement system. Table 1 describes some of these amendments relating to the coverage of state and local government workers. More recently, Social Security has projected future financial shortfalls in its programs. According to Social Security’s Board of Trustees, the program’s annual surpluses of tax income over expenditures are expected to turn to cash flow deficits this year before turning positive again in 2012. In addition, all of the accumulated Treasury obligations held by the trust funds are expected to be exhausted by 2037. Once exhausted, annual program revenue will be sufficient to pay only about 78 percent of scheduled benefits in 2037 (and gradually declining to 75 percent by 2084), according to the Social Security trustees’ 2010 intermediate assumptions. Many options have been proposed to help assure the financial stability of Social Security, among them requiring all newly hired public employees to participate in the program. Although this approach could improve Social Security’s finances at least temporarily and would simplify Social Security as it pertains to public employees, we have previously reported that such a change could also result in increased costs for the affected governments and their employees. The extent to which public employees are covered by Social Security varies greatly from state to state. For example, according to SSA data, in Vermont, 98 percent of public employees are covered, but in Ohio, only about 3 percent are covered. Figure 1 shows the variation in Social Security coverage of public employees among states, and appendix II provides the amount of covered and noncovered earnings by employees in each state. Within states, there is also variation in Social Security coverage among public employees working for the same employer. Some public employers provide a retirement system for some of their employees who meet certain criteria. If employees do not meet these criteria and are ineligible for the retirement system such as a pension system, they are covered by Social Security. In other instances, public employers may choose to provide only Medicare coverage rather than both Social Security and Medicare. All states have a section 218 agreement with the SSA that allows them to extend Social Security and/or Medicare coverage to designated public employees. With an agreement in force, SSA and the state can coordinate and ensure that granting coverage to public employees complies with applicable state and federal laws, since according to SSA and state officials, state laws can restrict certain employees who are members of other retirement plans from receiving Social Security coverage. SSA requires states to designate a state employee as a state Social Security administrator and establishes the basic roles and responsibilities for these administrators. For example, the guidance outlines that state administrators should serve as a bridge between state and local public employers and federal agencies, as well as administer and maintain the Social Security coverage agreement. If public employers within the states wish to extend Social Security coverage to their employees, their state administrator files a draft amendment to the coverage agreement—known as a modification—with their SSA regional office. After the state process is completed and the SSA Regional Office approves the modification, the public employer should begin withholding Social Security and Medicare taxes for the employee positions that are covered and send information on earnings to SSA. SSA is required by law to maintain accurate earnings records for all workers. SSA uses an employee’s earnings record to calculate the amount of Social Security benefits—retirement, disability, or survivor benefits—for an individual or their dependents. Covered earnings, which are posted to the earning record, are subject to Social Security and Medicare taxes paid by employers and employees. IRS is responsible for assuring state and local government employers are properly paying Social Security and Medicare taxes (also known as FICA taxes). Figure 2 shows the major responsibilities for these government partners. SSA has an established process for working with states to approve coverage. This approval process is intended to ensure that public employers follow applicable state and federal laws regarding Social Security coverage, as some state laws exclude certain types of employees from receiving Social Security coverage, according to SSA and state officials. For example, current New Hampshire law prohibits Social Security coverage for police and fire fighters, who belong to a distinct, more generous pension plan than other public employees in New Hampshire, according to state officials. To obtain Social Security coverage, public employers first contact their state Social Security administrator who files an amendment—known as a modification—to the state’s coverage agreement with SSA. Because all states already have an approved agreement with SSA, any changes to include additional public employers are modifications to the agreement. If the coverage is proposed for employees who are members of a retirement system, then a favorable vote of eligible employees is required. The SSA regional office reviews the modification to ensure that it complies with all relevant laws and procedures. If it is determined these public employees are authorized for coverage, the regional office approves the modification and transmits it back to the state. After coverage has been approved, the public employer begins withholding Social Security and Medicare taxes for the employees in covered positions. Under certain circumstances, SSA may approve retroactive coverage, which is effective prior to the date that SSA approves the modification. Figure 3 shows the modification approval process. States may file modifications to their coverage agreement on behalf of public employers under a variety of circumstances. For example, SSA guidance specifies that a state is to amend its agreement to (1) extend coverage to new groups of employees, (2) identify new public employers joining a public retirement system, (3) correct errors in coverage, (4) implement changes in federal or state law, and (5) in very limited circumstances, make certain exclusions to previously covered services or positions. According to our survey of state Social Security administrators, we found that administrators in 36 states had approved a modification in the last 5 years. Of these 36 states, the most commonly cited reasons for approving a modification were to include additional coverage groups (23 states), followed by correcting coverage errors (20 states), and notifying SSA of new public employers joining a retirement system that SSA has already approved for coverage on a statewide basis (19 states). States do not always notify SSA of changes to covered public employ which can lead to errors in the accuracy of SSA records. Under SSA guidance, state administrators are to provide notice and evidence to SSA y when a public employer legally ceases to exist, or dissolves. Our surve of state administrators showed that SSA does not consistently rece information from states about dissolutions. Only 9 states reported collecting information on all dissolutions among their public employers, while 16 states reported collecting little or none of this information. For example, in one state we visited, over 100 school employees were granted retroactive coverage a decade after their school district had been formed. The new school district was formed by consolidating two school districts that had dissolved, but an amendment to the state’s coverage agreement had not been approved at the time of the consolidation to reflect the change. Also, when existing employers legally consolidate, anoth modification may be necessary to provide coverage for the new consolidated employer. While 11 states responded that they collect er information on all consolidations that occur among their public employers, 14 states responded that they collect little to none of this information. Another 7 states reported that they did not know how much information they collect on dissolutions or consolidations. If states do no collect information on dissolutions or consolidations, they do not know about these changes to public employers and are unable to work with SSA to approve coverage and prevent errors. All states have a state Social Security administrator who is respons managing Social Security coverage for both state and local public employers, but state administrators vary in their efforts to implement S guidelines. SSA has established the basic roles and responsibilitie s for these administrators by providing guidance on administering the provisions of the state Social Security agreement (see app. IV). However SSA’s guidance is broad and does not specify how a state administrator should fulfill these responsibilities. As a result, state administrators vary in the extent to which they meet their responsibilities. For example, whi SSA’s guidance notes that state administrators are to administer and maintain the coverage agreement, the guidance does not provide detail on the types of activities that are necessary for meeting this responsibility— the types of activities that are necessary for meeting this responsibility— such as the frequency with which modifications should be reviewed t such as the frequency with which modifications should be reviewed t determine whether changes to public employers have occurred. For o determine whether changes to public employers have occurred. For o example, as noted above, both New York and Missouri were unclear on example, as noted above, both New York and Missouri were unclear on their administrative responsibility, resulting in both states bein their administrative responsibility, resulting in both states bein coverage errors. Additionally, SSA’s guidance notes that state g at risk for coverage errors.