Member Article

CalPERS Announces New Administrative Fees for Section 218 Agreements

The California Public Employees' Retirement System (CalPERS), the California State Social Security Administrator (SSSA), announced in July that it will begin charging new administrative fees to public agencies for Section 218 Agreements to pay the cost of administering the SSSA program. Effective July 1, 2019, the new fees apply to any public agency that currently has a voluntary Section 218 Agreement in place, establishes a new agreement, or amends an existing agreement, including agencies that don't contract with CalPERS for pension or health benefits.

Background

A Section 218 Agreement is a voluntary agreement under Section 218 of the Social Security Act between a state and the Social Security Administration (SSA) to provide Social Security and Medicare coverage to state and local government employees. This term also refers to a state or local government agency's agreement with CalPERS to modify the state's Section 218 Agreement to cover the agency's employees.

In its role as California's designated SSSA, CalPERS is primarily responsible for administering Section 218 Agreements for all California public agencies. CalPERS's other responsibilities in that role include processing agreement modifications, educating employers about Social Security and Medicare coverage, and collecting and reporting coverage information to the SSA through the annual information request (AIR).

Since 1987, CalPERS has been paying for the cost of providing those services using interest from the Social Security and Medicare tax holding account. However, according to CalPERS, that fund has diminished to the point that it can no longer be used to pay those expenses. In addition, the SSA does not fund the SSSA program, and CalPERS is prohibited from using any retirement funds for that purpose. As a result, CalPERS must collect fees to pay the administrative expenses required to continue the program.

New Section 218 Agreement Contracting and Maintenance Fees

Effective July 1, 2019, CalPERS implemented two new types of fees.

First, CalPERS will assess a contracting fee of $650 to establish a new Section 218 Agreement or to amend an existing Section 218 Agreement for Social Security or Medicare coverage.

Second, CalPERS will assess an annual maintenance fee for all employers with an existing Section 218 Agreement. The annual maintenance fee is based on the number of employees currently working for the public agency according to the following table:

If only a portion of the employer's workforce is covered by the Section 218 Agreement in place, CalPERS will still assess the annual maintenance fee for the employer based on the total number of employees. Public employers will receive an invoice for the maintenance fee annually when CalPERS sends the AIR and may submit payment via electronic funds transfer (EFT), automated clearing house (ACH), or by check. Beginning in August 2019, CalPERS is set to assess approximately 600 employers per month in alphabetical order.

For questions about the new fees or Section 218 Agreements generally, please contact the Hanson Bridgett Employee Benefits Group.