    [House Hearing, 115 Congress]
    [From the U.S. Government Publishing Office]

    COMPLEXITIES AND CHALLENGES OF SOCIAL SECURITY COVERAGE AND PAYROLL TAX
                   COMPLIANCE FOR STATE AND LOCAL GOVERNMENTS

    =======================================================================

                                    HEARING

                                   BEFORE THE

                        SUBCOMMITTEE ON SOCIAL SECURITY

                                      AND

                           SUBCOMMITTEE ON OVERSIGHT

                          COMMITTEE ON WAYS AND MEANS
                         U.S. HOUSE OF REPRESENTATIVES

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 JUNE 29, 2017

                                   __________

                              Serial No. 115-SS04

                                   __________

             Printed for the use of the Committee on Ways and Means

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                        U.S. GOVERNMENT PUBLISHING OFFICE
    33-479                      WASHINGTON : 2019

    -----------------------------------------------------------------------------------

                          COMMITTEE ON WAYS AND MEANS

                          KEVIN BRADY, Texas, Chairman

    SAM JOHNSON, Texas                   RICHARD E. NEAL, Massachusetts
    DEVIN NUNES, California              SANDER M. LEVIN, Michigan
    PATRICK J. TIBERI, Ohio              JOHN LEWIS, Georgia
    DAVID G. REICHERT, Washington        LLOYD DOGGETT, Texas
    PETER J. ROSKAM, Illinois            MIKE THOMPSON, California
    VERN BUCHANAN, Florida               JOHN B. LARSON, Connecticut
    ADRIAN SMITH, Nebraska               EARL BLUMENAUER, Oregon
    LYNN JENKINS, Kansas                 RON KIND, Wisconsin
    ERIK PAULSEN, Minnesota              BILL PASCRELL, JR., New Jersey
    KENNY MARCHANT, Texas                JOSEPH CROWLEY, New York
    DIANE BLACK, Tennessee               DANNY DAVIS, Illinois
    TOM REED, New York                   LINDA SANCHEZ, California
    MIKE KELLY, Pennsylvania             BRIAN HIGGINS, New York
    JIM RENACCI, Ohio                    TERRI SEWELL, Alabama
    PAT MEEHAN, Pennsylvania             SUZAN DELBENE, Washington
    KRISTI NOEM, South Dakota            JUDY CHU, California
    GEORGE HOLDING, North Carolina
    JASON SMITH, Missouri
    TOM RICE, South Carolina
    DAVID SCHWEIKERT, Arizona
    JACKIE WALORSKI, Indiana
    CARLOS CURBELO, Florida
    MIKE BISHOP, Michigan

                         David Stewart, Staff Director

                     Brandon Casey, Minority Chief Counsel

                                     ______

                        SUBCOMMITTEE ON SOCIAL SECURITY

                          SAM JOHNSON, Texas, Chairman

    TOM RICE, South Carolina             JOHN B. LARSON, Connecticut
    DAVID SCHWEIKERT, Arizona            BILL PASCRELL, JR., New Jersey
    VERN BUCHANAN, Florida               JOSEPH CROWLEY, New York
    MIKE KELLY, Pennsylvania             LINDA SANCHEZ, California
    JIM RENACCI, Ohio
    JASON SMITH, Missouri

                                     ______

                           SUBCOMMITTEE ON OVERSIGHT

                        VERN BUCHANAN, Florida, Chairman

    DAVID SCHWEIKERT, Arizona            JOHN LEWIS, Georgia
    JACKIE WALORSKI, Indiana             JOSEPH CROWLEY, New York
    CARLOS CURBELO, Florida              SUZAN DELBENE, Washington
    MIKE BISHOP, Michigan                EARL BLUMENAUER, Oregon
    PAT MEEHAN, Pennsylvania
    GEORGE HOLDING, North Carolina

                                C O N T E N T S

                                   __________
                                                                       Page

    Advisory of June 29, 2017 announcing the hearing.................     2

                                   WITNESSES

    Marianna LaCanfora, Acting Deputy Commissioner, Office of
      Retirement and Disability Policy, Social Security
      Administration.................................................     8
    Sunita Lough, Commissioner, Tax Exempt and Government Entities
      Division.......................................................    19
    Maryann Motza, Ph.D., Legislative Committee Chair and Past
      President, National Conference of State Social Security
      Administrators.................................................    27

                            QUESTIONS FOR THE RECORD

    Questions from The Honorable Sam Johnson and Vern Buchanan, to
      Marianna LaCanfora.............................................    59
    Questions from The Honorable Jim Renacci, to Marianna LaCanfora..    60
    Questions from The Honorable Sam Johnson and Vern Buchanan, to
      Sunita B. Lough................................................    70
    Questions from The Honorable Tom Rice, to Sunita B. Lough........    71
    Questions from The Honorable Sam Johnson and Vern Buchanan, to
      Maryann Motza..................................................    78
    Questions from The Honorable Tom Rice, to Maryann Motza..........    80
    Questions from The Honorable Jim Renacci, to Maryann Motza.......    83

                       PUBLIC SUBMISSIONS FOR THE RECORD

    Rincon Band of Luiseno Indians, statement........................   105

    COMPLEXITIES AND CHALLENGES OF SOCIAL SECURITY COVERAGE AND PAYROLL TAX
                   COMPLIANCE FOR STATE AND LOCAL GOVERNMENTS

                                  ----------

                            THURSDAY, JUNE 29, 2017

                 U.S. House of Representatives,
                           Committee on Ways and Means,
                Subcommittee on Social Security, joint with the
                                     Subcommittee on Oversight,
                                                        Washington, DC.
        The subcommittees met, pursuant to call, at 10:00 a.m., in
    Room 1100, Longworth House Office Building, Hon. Sam Johnson
    [chairman of the Subcommittee on Social Security] presiding.
        [The advisory announcing the hearing follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman JOHNSON. Good morning, and welcome to today's
    hearing on the complexities and challenges of ensuring Social
    Security coverage and payroll tax compliance for State and
    local government employees.
        Before we begin, I would like to take a moment to say a few
    words about my friend and former Social Security Subcommittee
    Chairman Jim Bunning. You remember him?
        Mr. LARSON. Absolutely.
        Chairman JOHNSON. Sadly, Jim passed away just a few weeks
    ago. Chairman Bunning was a member of the Ways and Means
    Committee for four Congresses, and he chaired this
    Subcommittee. While many will remember Chairman Bunning as a
    baseball Hall of Famer--who pitched two no-hitters, by the
    way--I will always remember him as the guy who showed me the
    ropes on serving as Chairman on Social Security.
        Among many other bills, he introduced the Rehabilitation
    and Return to Work Opportunity Act of 1996, that ultimately
    became the basis of the Ticket to Work Act of 1999.
        More than 20 years later, this Subcommittee continues to
    look for ways to help those beneficiaries who can return to
    work. And I look forward to having another hearing on that
    topic later this year.
        Jim Bunning was a patriot, a strong supporter of Social
    Security, and a friend. We are thankful for his service and
    keep his wife, Mary, and all his family in our prayers.
        Turning back to today's hearing, usually when we talk about
    State and local workers and Social Security, we talk about how
    many of them aren't covered by Social Security. But today we
    are going to focus on the close to three-quarters of State and
    local workers who are covered and figuring out why their Social
    Security coverage and payroll tax compliance is so complicated.
        When Social Secuity was created, State and local government
    employees were excluded due to constitutional concerns. Over
    time the law was changed to allow State and local governments
    to extend Social Security coverage to their employees. Today,
    all States have at least some employees who are covered by
    Social Security and pay Social Security taxes on their
    earnings. But who is covered can vary by State and even
    locality.
        With all this complexity, it is up to Social Security, the
    IRS, and the States to work together to get it right. But as we
    will hear, that doesn't always happen.
        Back in 2010, the Government Accountability Office found
    that both Social Security and the IRS have trouble identifying
    problems with Social Security coverage for State and local
    government employees and, instead, must rely on public
    employers to ensure compliance. Not much has changed, has it?
        Social Security still does not have the ability to verify
    that State and local governments are properly reporting wages
    for covered workers, and the IRS still doesn't know whether the
    employer has reported and paid the correct amount of payroll
    tax without doing an audit. Even though payroll taxes are the
    biggest tax most people pay, efforts to improve compliance
    generally focus on other taxes.
        These problems, like the one in Missouri that we will hear
    about today, can go undetected for years and have real
    consequences for Americans' retirement security and for Social
    Security's Trust Funds. If someone thinks they are covered, but
    aren't, according to Social Security they may not qualify for
    the Social Security benefits that they have been counting on.
    And if an individual receives benefits without having paid the
    correct amount of Social Security tax, the Social Security
    Trust Funds and taxpayers are left to make up the difference.
        Let me be clear. The answer here isn't mandatory coverage,
    but Social Security and the IRS need to get their act together.
    At the end of the day, we need to be sure that State and local
    employees pay the right amount of taxes and receive the Social
    Security benefits they are counting on, and that the Social
    Security Trust Funds get the taxes that they are owed. The
    American people deserve nothing less.
        I thank our witnesses for being here today, and I look
    forward to hearing their testimony.
        I now recognize Mr. Larson for his opening statement.
        Mr. LARSON. Thank you, Mr. Chairman.
        And thank you Chairman Buchanan and my distinguished
    colleague, Mr. Lewis.
        I would like to welcome back Chairman Johnson. As often as
    I get to say this, I will, but to be seated at this dais
    between two iconic American heroes in Sam Johnson and John
    Lewis is in and of itself, I think for every member of this
    committee and the body in general, an honor to serve with
    perhaps two of the greatest Americans in the history of our
    Nation.
        With that, Mr. Chairman, I am also going to renew my
    pledge--or request, I would say, is better put--to have a
    hearing down in Plano, Texas. Inasmuch as--and I know you have
    had hearings there before--but inasmuch as this is your last
    term, I only think it fitting that we have a hearing down in
    Plano, Texas, preferably during the winter up here, but I am
    not saying--whenever you call for that.
        Chairman JOHNSON. Thank you.
        Mr. LARSON. Listen, also, a sad note on Jim Bunning. I
    would also like to note, not of the stature of Jim Bunning, but
    equally important to me and many people in the State of
    Connecticut, Lillian Marlow passed last evening as well. Not
    known to many at this dais.
        She was, like so many people who work on this staff, just
    an extraordinary person who kept government running with her
    hard work and wit and dedication. And I just wanted to
    recognize her here today.
        Social Security is important to all Americans. And as I
    like to say when we are out talking about it, where could you
    find in the private sector guaranteed retirement income that
    cannot be outlived, protection in the event of a career-ending
    disability, life insurance for families of a worker who dies, a
    full cost-of-living adjustment to combat the effects of
    inflation? Social Security is also portable and goes with you
    everywhere. There simply is nothing on the private sector
    market that can even remotely come close to touching Social
    Security.
        Today, 94 percent of workers in the United States are
    covered by Social Security. They and their employers contribute
    to the trust fund and earn their benefits with every paycheck,
    with half of the contributions coming from the employee and
    half coming from the employer, the employer side being tax
    deductible. But it is the responsibility of the employer to
    ensure that they are in compliance with payroll taxes.
        The only large group of workers that are outside Social
    Security are some State and local government workers who have
    their own pension plan in place of Social Security. About
    three-quarters of the State and local workers participate in
    Social Security, but about a quarter don't. In my own State of
    Connecticut, teachers have a separate retirement plan and are
    not participating in Social Security, but they have an
    alternative plan that they pay for, regardless.
        The fundamental principle is one way or another, every
    American should have basic retirement coverage at work. Our job
    today is to make sure that that is the case.
        For the 90,000 units of State and local government in the
    United States, it can be complicated sometimes to determine
    which employees are participating in Social Security and who
    pays into the State plan, as Mr. Johnson has already outlined.
    But when mistakes are made, workers' financial security is at
    stake.
        That is why this hearing today is so vitally important. I
    thank our witnesses for being here.
        It is also why we have introduced the Social Security 2100
    Act, because we believe so strongly that Social Security needs
    to be expanded and needs to be made solvent into the next
    century, and so that it is there for every single American and
    providing the kind of benefits with the greatest efficiency.
        And with that, Mr. Chairman, I will yield back my time.
    And, again, it is great to see you.
        Chairman JOHNSON. Thank you. I appreciate that. Thank you
    very much.
        Would you like to make an opening statement?
        Chairman BUCHANAN. Yes. Thank you, Mr. Chairman.
        And I also would like to comment on Jim Bunning. As a young
    kid growing up in Detroit, he was a hero to a lot of us. He was
    an incredible pitcher. And I know he served here in Congress.
    So I share your thoughts with him.
        Good morning. I want to thank the panel for coming today
    and I look forward to the hearing. I also want to thank
    Chairman Johnson for his important oversight work.
        Today we are looking to better understand the challenge
    that State and local governments face when applying Social
    Security coverage to their workers. While many states and local
    government workers rely on their own retirement plans, others
    rely on Social Security through voluntary arrangements between
    the State and the Social Security Administration.
        Giving states flexibility on coverage decisions is
    important. However, it often leads to complication, individual
    coverage situations for State and local employees. This creates
    a unique challenge for State and local employees as well as the
    Social Security Administration, and the IRS, who oversees these
    programs.
        Nearly 70 percent of the $3.3 trillion collected by the IRS
    comes from employment-related taxes, like those for Social
    Security and Medicare. These contributions must be accurate.
        However, the complexity of the coverage issue for State and
    local governments requires a combined effort in terms of the
    Social Security Administration, the IRS, and the Social
    Security administrators to provide State and local employers
    with appropriate guidance and oversight.
        I look forward to the hearing, and also look forward to our
    witnesses, so we can assist them to ensure that we better work
    together. Also, I would like to just add, I want to make sure
    that the information we get today, that we can clearly work
    with you.
        I yield back.
        Chairman JOHNSON. Thank you, sir.
        I now recognize Mr. Lewis for any opening statement you
    wish to make.
        Mr. LEWIS. Thank you very much, Mr. Chairman.
        Chairman Johnson, Chairman Buchanan, Ranking Member Larson,
    and fellow members, good morning. And good morning to our
    witnesses. Thank you for being here.
        Chairman Johnson, thank you for remembering Jim Bunning. We
    came in the same class.
        Chairman JOHNSON. Did you?
        Mr. LEWIS. In the same class. Wonderful, wonderful man. He
    played well, baseball well, but he played well as a Member of
    the House and the Senate. And our prayers go out to his family.
        Every working American should have basic retirement
    coverage. This can be provided through Social Security or
    through a State's retirement system for public sector
    employees. These benefits help ensure that Americans maintain a
    basic standard of living during their retirement.
        Ninety-four percent of American workers receive their basic
    retirement coverage through Social Security. However, about six
    million State and local government employees do not. These
    workers participate in their State's retirement system and
    generally include teachers, firefighters, and police officers.
    In my home State of Georgia, more than 180,000 State and local
    employees are not covered by Social Security.
        State and local governments often have their own retirement
    system. However, these governments have the option to enter
    into voluntary agreements with the Social Security
    Administration to have their employees covered by Social
    Security. If a local government decides to provide coverage
    through Social Security, its employees must pay Federal payroll
    taxes just like every other American worker.
        Today's hearing will look at how Federal and State agencies
    work together to provide Social Security coverage to State and
    local government employees and ensure compliance with payroll
    tax requirements. We will learn from the witnesses more about
    how the Internal Revenue Service, the Social Security
    Administration, and State Administrators work together to
    ensure governments comply with payroll tax requirements.
        I look forward to receiving recommendations from all of our
    witnesses on how to improve compliance. And, again, I want to
    thank you for being here this morning.
        I yield back, Mr. Chairman.
        Chairman JOHNSON. Thank you.
        As is customary, any Member is welcome to submit a
    statement for the hearing record.
        Before we move on to our testimony today, I want to remind
    our witnesses to please limit your oral statements to 5
    minutes. However, without objection, all of the written
    testimony will be made a part of the hearing record.
        We have three witnesses today. Seated at the table are
    Marianna LaCanfora, Acting Deputy Commissioner, Office of
    Retirement and Disability Policy, Social Security
    Administration.
        Sunita Lough, Commissioner, Tax Exempt and Government
    Entities Divison, Internal Revenue Service.
        Maryann Motza, Legislative Committee chair and past
    president, National Conference of State Social Security
    Administrators.
        Please proceed, Ms. LaCanfora.

     STATEMENT OF MARIANNA LACANFORA, ACTING DEPUTY COMMISSIONER,
      OFFICE OF RETIREMENT AND DISABILITY POLICY, SOCIAL SECURITY
                             ADMINISTRATION

        Ms. LACANFORA. Chairman Johnson, Chairman Buchanan, Ranking
    Member Larson, Ranking Member Lewis, and members of the
    subcommittees, thank you for inviting me to discuss Social
    Security coverage for State and local employees. I am Marianna
    LaCanfora, Social Security's Acting Deputy Commissioner for
    Retirement and Disability Policy.
        About 94 percent of employees in the United States are
    covered by Social Security. That is, they pay Federal Insurance
    Contributions Act, or FICA, taxes on their earnings up to a
    certain limit. Those earnings can qualify them and their
    families for benefits under our retirement, disability, and
    survivors insurance programs.
        There are approximately 23 million State and local
    employees, and about one-fourth of them are not covered by
    Social Security. My written testimony provides the long history
    of coverage-related laws for this group. But in short, when
    Social Security was enacted in 1935, no State or local
    employees were covered.
        Over time, Congress amended the Social Security Act to
    allow States to decide whether to cover employees who fall
    under a State retirement system, and to require coverage for
    those who do not. The method used by the States to establish
    coverage is called a 218 Agreement, after the authorizing
    section of the act. These Agreements specify which positions
    are covered.
        Every State, Puerto Rico, the Virgin Islands, and 60
    interstate instrumentalities have a 218 Agreement with us. Over
    the years, each Agreement has been modified numerous times as
    political subdivisions, positions, and retirement systems have
    been created and as groups of employees have petitioned their
    States to obtain Social Security coverage.
        Under current law, there is tremendous variability in which
    positions are covered between and even within the same State.
    For example, if two teachers are working in the same position
    in the same school district, one might be covered while the
    other is not.
        Each State and local employer is responsible for applying
    the terms of their State's 218 Agreement, accurately reporting
    earnings to SSA, and appropriately withholding FICA taxes for
    covered employees.
        Each State has a designated State Social Security
    Administrator. This State official is critical in ensuring that
    the State get its employees' coverage status right. The
    Administrator performs many functions, such as being the point
    of contact with the SSA and the IRS, interpreting the 218
    Agreement, and educating State employers and employees. They
    also hold referendums and notify us of the creation or
    dissolution of State entities.
        The IRS also plays a critical role in this process by
    performing compliance checks to ensure that States have
    appropriately withheld and remitted FICA taxes for covered
    employees.
        Given the complexity involving State and local employee
    coverage, it is no surprise that employers sometimes make
    mistakes. SSA is committed to working closely with our State
    partners and the IRS to provide the tools and training that
    States need to get these decisions right from the start and to
    address issues when they arise.
        I would like to highlight some of the actions SSA has taken
    to improve this process since GAO's last review.
        We worked with the IRS to develop a tool that States can
    use to ensure compliance with Federal tax requirements. We
    designated an employee in each of our regional offices to serve
    as an expert and point of contact. We scanned nearly all of our
    agreements and modifications, including tens of thousands of
    pages, into a central database to allow for ease of access and
    search.
        We modernized the system our employees use to resolve
    differences between the earnings reports sent to SSA and the
    IRS. We updated and clarified our policy guidance based on our
    experience and feedback from State Administrators. We developed
    comprehensive training materials and resources for the
    Administrators and provided training sessions to State and
    local employees.
        We established standing meetings with representatives from
    the IRS and the National Conference of State Social Security
    Administrators to share information and best practices and
    identify challenges and solutions to issues that arise.
        In addition, we recently started a project to compile and
    maintain lists of covered positions based on the 218
    Agreements, which will be a valuable tool and quick reference
    for the Administrators to identify coverage issues. We are also
    reviewing our regulations to identify areas that we might
    streamline or clarify.
        We remain open to ideas regarding how to further enhance
    our valuable relationship with the States and the IRS as we
    work together on these issues.
        Thank you for the opportunity to describe the history and
    complexity of Social Security coverage for State and local
    employees. I would be happy to answer any questions.
        [The prepared statement of Marianna LaCanfora follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman JOHNSON. Thank you, ma'am.
        Ms. Lough, welcome. Please, proceed.

        STATEMENT OF SUNITA LOUGH, COMMISSIONER, TAX EXEMPT AND
                      GOVERNMENT ENTITIES DIVISION

        Ms. LOUGH. Chairman Johnson, Chairman Buchanan, Ranking
    Member Larson, Ranking Member Lewis, and members of the
    subcommittees, thank you for the opportunity to testify on
    issues surrounding the proper withholding and payment of Social
    Security and Medicare taxes in regard to State and local
    government employees.
        Mandatory Social Security and Medicare coverage for State
    and local employees is a relatively recent development. Under
    the original Social Security Act of 1935, State and local
    government employees were excluded from Social Security
    coverage. Beginning in 1951, 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 the Section 218 of the Social Security Act.
        In 1991, Congress made Social Security coverage mandatory
    for State and local government employees who were not already
    covered by a Section 218 agreement. But this mandate does not
    apply to employees participating in a qualifying public
    retirement system sponsored by their government employer. So
    today Social Security coverage of Government employees varies
    greatly among State and local employers.
        In general, employers are required to withhold Social
    Security and Medicare taxes from employees' wages and also pay
    the employer's share of these taxes. Employers are responsible
    for furnishing Form W-2 Wage and Tax Statement annually to each
    employee when income, Social Security, or Medicare tax was
    withheld. Employers above a certain size report quarterly to
    the IRS on total wages, wages subject to Social Security and
    Medicare taxes, and Federal income taxes using the Form 941,
    Employer's Quarterly Federal Tax Return. Smaller employers file
    annually using Form 994, Employer's Annual Federal Tax Return.
        For State and local employers, determining proper
    withholding of FICA taxes for employees is especially
    challenging because some or all employees may or may not be
    covered by Social Security. For example, a school district may
    provide a qualifying retirement system only for a particular
    group of employees who meet certain criteria, not just
    teachers, making that group of employees exempt from Social
    Security coverage.
        The IRS has the responsibility for ensuring that all
    employers, both public and private, properly withhold and pay
    Social Security and Medicare taxes for their employees. The IRS
    and the SSA routinely match Social Security and Medicare wages
    on Form 941 with amounts reported on Form W-3, the Transmittal
    of Wage and Tax Statements, and follow up where there are
    discrepancies.
        In addition, the IRS reviews employment tax return
    information to classify returns for potential discrepancies
    that would indicate compliance action should be taken,
    including an audit. The IRS, through our Federal, State, and
    local function, has provided extensive outreach services and
    training to units of State and local governments. As indicated
    above, we conduct audits to evaluate employment tax and
    information reporting compliance at the State and local level.
        The IRS also works with the SSA and State Social Security
    administrators on an ongoing basis on significant issues
    related to Social Security and Medicare coverage of public
    employees. This includes coordinating, when necessary, with the
    SSA or State Administrators when there is an audit of a public
    employer.
        We look forward to continuing collaboration with State and
    local government employers, the SSA, and the State Social
    Security Administrator, to ensure that Social Security earnings
    are accurately reported for public employers.
        This concludes my statement. I would be happy to answer
    your questions.
        [The prepared statement of Sunita Lough follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman JOHNSON. Thank you, ma'am.
        Ms. Motza, is that correct pronunciation?
        Ms. MOTZA. It is Motza, but that is close enough.
        Chairman JOHNSON. Thank you. You are recognized. Please,
    proceed.

    STATEMENT OF MARYANN MOTZA, PH.D., LEGISLATIVE COMMITTEE CHAIR
        AND PAST PRESIDENT, NATIONAL CONFERENCE OF STATE SOCIAL
                        SECURITY ADMINISTRATORS

        Ms. MOTZA. Thank you.
        Chairman Johnson, Chairman Buchanan, Ranking Member Larson,
    Ranking Member Lewis, and members of both subcommittees, thank
    you for inviting the National Conference of State Social
    Security Administrators, or NCSSSA, to testify about the
    States' perspectives on Social Security coverage and payroll
    tax compliance by State and local government.
        To supplement our written testimony, I want to provide
    Members of Congress with a couple of examples of the types of
    issues and concerns the State Social Security administrators
    deal with.
        A small town calls the State Administrator in utter panic.
    The IRS' service center in Cincinnati is about to seize all of
    the town's police and fire vehicles for failure to pay FICA on
    their police officers and firefighters. The service center
    assumes Social Security payments were owed based on its review
    of 941 filings.
        The State Administrator's record show that a town has a
    Section 218 agreement that covers civilian employees under
    Social Security, but excluded police officers and firefighters.
    The State Administrator intervenes and provides the accurate
    coverage and tax obligation information to the IRS, and they
    reverse their erroneous assessment. The town can continue
    protecting and serving the public.
        Another example is that in the early 1950s a State provides
    public pension plan coverage for their employees, but not for
    employees of its cities and towns. State legislature authorizes
    voluntary Social Security coverage for employees of cities and
    towns. The city of last resort enters into a Section 218
    agreement in 1954. In 1961, the State legislature establishes a
    separate public pension plan for employees of cities and towns.
        The next year, the city asked the State Administrator to
    file the necessary paperwork with the Social Security
    Administration to withdraw from the Section 218 agreement so
    they can join the new public pension plan. SSA approves the
    withdrawal from Social Security in 1965. If the city had waited
    to request permission to withdraw until the mid-1980s, the
    State Administrator would not have even contacted SSA and
    instead would have advised the city that withdrawal from Social
    Security was no longer an option.
        These two examples show how the State Administrator is the
    critical bridge or liaison and facilitator between the Federal
    Government, both SSA and IRS, and States, public employers,
    employees, and pension systems. Rather than being a one-way
    street and just sending information from the Federal Government
    down to the State and local governments, the Social Security
    State Administrator is the key conduit of information both
    ways.
        The proper performance of that facilitator role, however,
    has been problematic since 1987, in part because of how the
    Treasury Department and IRS interpreted an IRC Section 6103.
    The State Administrators are no longer aware of noncompliant
    public employers. The lack of communication between the IRS and
    State Administrators results in erroneous Social Security and
    Medicare coverage and benefits, as well as incorrect FICA tax
    assessments by the IRS.
        Since 2012, the IRS has identified approximately 10 major
    risk areas nationwide among State and local governments. The
    IRS cannot, however, tell State Administrators what specific
    issues exist in their individual States. Thus, the State
    Administrator cannot assist the public employers to voluntarily
    comply like they did prior to 1987.
        The valued partnership with SSA also needs to be renewed
    and reinvigorated. Prior to 1987, the States and SSA worked
    closely together to ensure proper coverage and collection of
    contributions. Since 1987, the efficiency and effectiveness of
    that partnership has been erratic and has even at times
    resulted in inconsistent advice from different regional offices
    and the headquarters policy office.
        A further complicating factor is that the Government
    Accounting Standards Board, GASB, disclosure standards and
    other auditing oversight organizational guidance standards do
    not test for Social Security or Medicare. As a result, when
    public employers receive a so-called clean audit, they have no
    idea that a potentially significant noncompliance area isn't
    even being examined. A FICA standard will account for 71
    percent of State and local government employees' earnings
    nationwide that are currently not even reported on financial
    statements.
        In conclusion, the irony of the State Administrator job is
    that when our role is performed properly and completely, it
    gives the impression that either nothing is being done or the
    job is minimal. To me, the job of State Social Security
    administrator is like a duck on a pond, everything looks smooth
    and unlabored on the surface, but underneath you are padding
    like crazy. NCSSSA would appreciate congressional, SSA,
    Treasury Department, and IRS help with the paddling.
        I am happy to answer questions. Thank you.
        [The prepared statement of Maryann Motza follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman JOHNSON. Thank you. I thank you for your
    testimony.
        We will turn to questions now. As is customary for each
    round of questions, I will limit my time to 5 minutes, and I
    will ask my colleagues to also limit their questioning time to
    5 minutes as well.
        Ms. LaCanfora, this clearly is a complicated topic, and I
    want to be sure we all understand Social Security's role in
    this process with a few yes-or-no questions. Our time is
    limited, so just answer yes or no, if you can.
        Is Social Security responsible for making sure that workers
    receive the correct Social Security benefit amount?
        Ms. LACANFORA. Yes.
        Chairman JOHNSON. Is the amount of benefit a worker
    receives based on his average lifetime earnings?
        Ms. LACANFORA. Yes.
        Chairman JOHNSON. And to determine a person's benefit
    accurately, does the person's earnings record need to be
    correct?
        Ms. LACANFORA. Yes.
        Chairman JOHNSON. You have said yes to these questions, and
    it is clear that earnings information is the basis for the most
    important thing Social Security does, paying the right amount
    of benefits to the right person. Yet, in your testimony you say
    Social Security's role in the 218 coverage and compliance
    process is limited.
        Why is your role limited when these processes are at the
    very heart of your mission when it comes to correctly paying
    benefits for State and local workers?
        Ms. LACANFORA. Our role at the Social Security
    Administration is limited only to the extent that we cannot
    operate alone. But our role is both substantive and integral to
    making this process work. We just have to do so in conjunction
    with the IRS and the State Administrator.
        Chairman JOHNSON. So you think the IRS--does the IRS have a
    collar around your neck?
        Ms. LACANFORA. I wouldn't say that, no. I would say it is a
    partnership between the three entities that are here testifying
    today. I think Dr. Motza in her testimony said that the State
    Administrators have a profoundly important role, and I would
    agree with that. the State Administrator role is sort of the
    lynchpin to making this process work. But the Social Security
    Administration, as I said, also has a very substantive integral
    role that we take very seriously.
        Chairman JOHNSON. Okay. Do you think the system is working
    properly right now?
        Ms. LACANFORA. I think, as you will find out through this
    hearing, the statutory construct is extremely complicated,
    making it a challenge to administer perfectly, and thus,
    employers do make mistakes in this area. And I am sure that we
    can all improve. But I think we are all doing due diligence to
    make sure that we are having this process work as well as
    possible.
        Chairman JOHNSON. Thank you.
        Ms. LaCanfora, the bedrock of Social Security is that an
    earned benefit, workers pay taxes on their hard-earned wages
    for the promise of future benefits. But in your testimony you
    said what matters is that a worker had earnings, not that they
    properly paid taxes on their earnings. Why is that?
        Ms. LACANFORA. The law stipulates that the way in which we
    credit earnings is based on the money that is earned as opposed
    to the taxes that are paid.
        Chairman JOHNSON. Well, that has to be a drain on the trust
    fund since benefits are being paid without taxes ever being
    received. How often do you think that happens?
        Ms. LACANFORA. I don't know how often we have errors, but I
    think it is safe to say that we uncover them rarely, and when
    we do, we try to address them in collaboration with our
    partners expeditiously.
        Chairman JOHNSON. Mr. Larson, do you care to question?
        Mr. LARSON. Thank you, Mr. Chairman.
        I want to thank all of our witnesses as well.
        And along the same line of questioning that the chairman
    had, Ms. LaCanfora, Social Security is widely known as being
    the most efficient governmental program that we have. I believe
    your loss ratio, a term that is used in the private sector
    frequently, is at 1 percent. Is that correct?
        Ms. LACANFORA. That is a fair characterization.
        Mr. LARSON. Could you explain what that means in terms of
    the delivery of service and what that means in the private
    sector? In the insurance industry in the private sector, they
    say between 70 and 75 percent loss ratio is a good mark to
    achieve.
        Ms. LACANFORA. I think a simple way of explaining it would
    be to say that our administrative expenditures, that is, the
    money that it takes to actually run the agency, hire employees,
    and so forth, our administrative budget is less than 1 percent
    of our outlays or what we pay out in benefits.
        Mr. LARSON. That is correct. And along those same lines,
    and yet, what we have seen consistently is that the budget for
    Social Security has fallen by 10 percent since 2010, while the
    number of beneficiaries, primarily the often referred to baby
    boomers, has increased by 13 percent. Has that placed a strain
    on the ability of Social Security to administer this very
    complicated program that we have been talking about this
    morning?
        Ms. LACANFORA. I think, like all Federal agencies, we have
    challenges. Our objective is really to try to operate as
    efficiently as we can within the constraints of the budgetary
    environment, and to try to automate where we can, and to try to
    improve processes and policies, which I think is what we are
    trying to do today.
        Mr. LARSON. Is there anywhere in the private sector where
    you could pick up an insurance plan that is as comprehensive as
    Social Security?
        Ms. LACANFORA. I am probably not well-qualified to answer
    that question.
        Mr. LARSON. Ms. Lough or Ms. Motza, if you want to answer
    that?
        Ms. LOUGH. I wouldn't know.
        Ms. MOTZA. No.
        Mr. LARSON. I can answer it for you: There is not. But,
    nonetheless, I raised that point because this is an insurance
    program.
        The last time there was a premium increase in this
    insurance program was 1983. I ask everybody in the audience and
    all of our panelists up here, have any of your other insurance
    programs gone up since 1983? Have any of you seen an increase
    in what you have to pay in terms of a premium?
        I think we all know what the answer is, it is a resounding
    yes, they have. And yet, Social Security, what we have managed
    to do, is cut it back in terms of the services that we provide,
    while baby boomers are coming through the process.
        And we know from previous testimony that oftentimes the
    best individuals that are equipped to detect fraud are those
    that are in the front lines, who are in there doing the actual
    screening of citizens that take up Social Security. That is
    why, Ms. Motza, you were able to say that you are like a duck
    that keeps in calm water, but there is an awful lot of paddling
    that goes on underneath.
        The point that I would like to make is this. We do have to
    continue, and I applaud the chairmen, both chairmen, because we
    have to be persistent to make sure that we are wringing out any
    kind of fraud, abuse and waste. But in the process, we
    shouldn't throw the baby out with the bathwater. Meaning, we
    shouldn't be cutting back on quality employees that can
    actually assist and help better navigate these very complicated
    waters and do it in an efficient matter with a 1 percent loss
    ratio that also provides these kinds of benefits.
        And I think when there is a final examination about what
    insurance is, and to look at the fact that there hasn't been an
    increase since 1983, and to understand that if you were making
    $400,000 a year, about six-tenths of 1 percent of the American
    people do, it would cost you less than this Starbucks latte to
    make Social Security solvent into the next century. And I know
    that is a goal of everybody on this committee.
        It is our goal on this side to talk about how we make it
    more efficient, how we root out any kind of fraud and
    inefficiencies, but how also we expand this program, the most
    efficient Government program that is run, so that it assists
    the American people in a way that they have become accustomed
    to, so that no one, especially women, can retire into poverty,
    that they got the COLA that they deserve. And, yeah, even so
    that many seniors, because we haven't indexed this right, get a
    tax break as well.
        And with that, I will yield back my time.
        Chairman JOHNSON. Thank you.
        Mr. Buchanan, you are recognized.
        Chairman BUCHANAN. Thank you, Mr. Chairman.
        And I want to thank our witnesses today.
        Ms. LaCanfora, let me mention, you said, just so I get a
    sense of this, you said that there are 23 million people part
    of this program, now there are 6 million. Explain exactly what
    you mean. There are six million who are still involved where
    the funds are being managed on a State or a local basis? Is
    that what you are referring to?
        Ms. LACANFORA. There are 23 million people who are State or
    local employees in total.
        Chairman BUCHANAN. Okay.
        Ms. LACANFORA. Of that 23 million, about a fourth of them,
    about 6 million, are not covered by Social Security. And the
    reason for that is because the law gives States discretion
    about which of those public employees to cover or not to cover,
    and there is a wide variety of different scenarios across the
    states.
        Chairman BUCHANAN. Okay. So they are paying into some
    various state, county. Who is managing the funds?
        Ms. LACANFORA. Well, all of the public pension systems at
    the State level are different. Some of them are statewide, some
    of them are not, so there is great variation there.
        Chairman BUCHANAN. How big of a problem do you think there
    is? I mean, with someone managing the fund, let's say someone
    puts in their--35 years they pay in--I grew up in the Detroit
    area and Detroit went bankrupt--what happens to the funds and
    what risk does the Federal Government have if somehow it is
    mismanaged or the funds there aren't for a worker's retirement?
        Ms. LACANFORA. I think that might be a question better
    addressed by the IRS.
        Chairman BUCHANAN. Okay. Well, let me ask you.
        Ms. LOUGH. So the State employees, if they are covered by a
    qualifying public retirement plan and they don't have a 218
    agreement, they don't pay into Social Security. So the question
    I think is whether the plan is a qualifying retirement plan or
    is it solvent? I think that is the question.
        Chairman BUCHANAN. The question is, is it solvent? It is
    kind of like what we did with Social Security in the mid-1960s,
    we commingled the funds into general funds and we have a trust
    fund but there is no money in there. What happens locally if it
    gets mismanaged, there is not the funds? What responsibility
    does the Federal Government have with those workers?
        Ms. LOUGH. Just like any other qualifying plan, if it is
    covered by the PBGC or--it is a question of whether it is--it
    is fully funded is----
        Chairman BUCHANAN. In other words, if you have six million
    people with their funds are being managed at the State or local
    level, if somehow they don't get what they expected or what was
    going to be paid out to them over time--that is what happened
    in the Detroit area, my understanding--what happens, what
    responsibility does the Federal Government have, if any?
        Ms. LOUGH. So the IRS looks at the plans to see if they are
    run properly according to the requirements of the Tax Code. But
    if the funds are not properly funded, the responsibility is
    outside the IRS' purview.
        Chairman BUCHANAN. Ms. Motza, let me ask just quickly. You
    mentioned about the firefighters as one example. How big of a
    problem is it for these six million workers?
        I am concerned that at the end of the day they paid in,
    their employer probably paid in, there was some kind of match,
    those funds need to be managed, you want to make sure it is
    there. I agree with my friend, Mr. Larson, that Social
    Security, I think, is one of the best programs on the planet.
    You can count on it.
        I am worried, frankly, about cities, counties, and states
    mismanaging funds and there being some question about whether
    they are going to get paid out. I have seen that happen on a
    local level. So I wanted to get your sense of it. How big of a
    problem or challenge is this?
        Ms. MOTZA. Thank you, Chairman Buchanan. I would be happy
    to address it.
        I actually--one of my hats I wore before I retired from the
    State in January was to serve as a trustee for the Colorado
    Public Employees' Retirement Association, the biggest public
    pension plan in Colorado and one of the biggest in the Nation.
    And we recognized when the financial downturn occurred that the
    way the benefit structure was configured and the contribution
    rates were configured, we couldn't sustain it. And so we
    actually went to our State legislature, we came up with a game
    plan----
        Chairman BUCHANAN. We are going to run out of time. I want
    to ask you one other question along those lines.
        Ms. MOTZA. Okay. But basically most pension funds in the
    Nation are not in dire straits. Unfortunately, Illinois is one
    of the worst----
        Chairman BUCHANAN. Okay. But let's say Illinois has got a
    problem. Do they look to the Federal Government? Does the
    Federal Government, in your opinion, have liability if somehow
    it gets mismanaged for a worker in Illinois?
        Ms. MOTZA. Not that I know of under current law.
        Chairman BUCHANAN. Thank you. I yield back.
        Chairman JOHNSON. Thank you. Good question.
        Mr. Lewis, you are recognized.
        Mr. LEWIS. Thank you very much, Mr. Chairman.
        Let me thank each of you for being here and for your
    testimony.
        My question is for the panel, for each one of you. I
    understand that the Tax Code, Section 6103, does not allow the
    IRS to share the name with the local government, the State
    Administrator when requesting information to ensure payroll
    compliance, tax compliance.
        Would each of you please share with us how the law makes
    compliance difficult?
        Ms. LOUGH. Section 6103 of the code, you are absolutely
    right, doesn't allow us to share--unless there is an exception
    in there--specific taxpayer information with other Federal
    agencies. But there is an exception in 6103 for us to share
    information with the Social Security----
        Mr. LEWIS. You said there is an exception?
        Ms. LOUGH. There is an exception under 6103(l) for us to
    share that with the Social Security Administration, and we do
    share information when it becomes necessary with the Social
    Security Administration with regard to specific public
    employers. But we are not permitted to share that with the
    State Social Security administrators.
        Mr. LEWIS. Ms. Motza, would you like to comment?
        Ms. MOTZA. Yes, please. This is an area that has been
    problematic ever since 1987, since the Federal responsibility
    for FICA tax collection went to the IRS, and previously State
    and local government contributions to Social Security were
    collected by the State Administrator.
        NCSSSA believes that it was inadvertent oversight when the
    Treasury regulations related to 6103 were adopted, because when
    6103 was originally adopted by Congress, the State
    Administrator was collecting the contributions. So it wasn't
    even thought that they would need to have them carved out as a
    separate classification.
        The fact that IRS cannot talk with State Administrators and
    find out what information we have, which is extensive in our
    records, we have lots of interpretative documents and legal
    opinions that don't exist anywhere else. As a matter of fact,
    many of our public employers think that the 218 agreements and
    documents they have can be thrown out. We know they can't be,
    they are permanent binding agreements and all the important
    information is in those files.
        The IRS when they are--because of 6103, they can't reach
    out to us and find out all the coverage requirements for that
    particular entity. It would be far more efficient and effective
    for everybody, including the Federal and State and local
    governments, as well as save taxpayers' dollars, if the IRS was
    able to contact the State Administrator initially, find out
    exactly what the coverage requirements are under that
    particular 218 agreement, and also the particular pension
    systems that exist in that State, and any other nuances that
    exist. They can't do that.
        So it has really been a significant hampering of the
    efficiency and effectiveness of administering this program, in
    my opinion.
        Mr. LEWIS. So you are suggesting that as Members of the
    Congress and members of the Ways and Means Committee, we can
    fix it?
        Ms. MOTZA. You can fix it. You absolutely can, and we would
    definitely appreciate it. And we would encourage you to work
    with the Treasury Department and NCSSSA and all of us. And I
    think everybody on this panel would recognize that that would
    be a vast improvement because it would make all the difference.
    It would save tons of time and effort, and it would reduce the
    error rate dramatically, I am convinced.
        Mr. LEWIS. The other two members of the panel, are you
    prepared to say yes?
        Ms. LOUGH. So implementing the tax law, we implement the
    law as currently written. If it is a matter of policy we defer
    that to the Treasury Department.
        Mr. LEWIS. Thank you very much.
        Do you want to respond?
        Ms. LACANFORA. I think my colleagues summed it up well. I
    would say generally that information sharing is absolutely
    critical to making this process work well.
        Mr. LEWIS. Thank you. I yield back.
        Chairman JOHNSON. Thank you. Thanks for your question.
        Mrs. Walorski, you are recognized.
        Mrs. WALORSKI. Thank you, Mr. Chairman.
        Thank you to our witnesses for being here and lending your
    expertise, I appreciate it.
        Ms. Lough, I just wanted to walk back through your
    testimony to make sure I understand exactly what we are talking
    about here.
        When the IRS receives tax information for a public
    employee, does the IRS know whether the employee is covered by
    Social Security? And then my question is, if not, so is there
    additional information that could help? And how would the IRS
    or other parties go about getting or setting up that line of
    communication? Is it just the line of communication that you
    are talking about here between the sharing that you have done?
    Help me understand.
        Ms. LOUGH. So the IRS receives from the employers Form 941
    and W-3 statements, and we can match to look to see if the
    amounts that are listed on the 941 and W-3 match. We also get
    W-2 returns for each employee. And based on the percent of
    Social Security listed on the W-2 and the wage amount, we can
    guess whether the employee has paid the correct amount of
    Social Security.
        But my office looks at the 941s and W-3s because we have
    jurisdiction over the employers, not the employees. And so we
    look at that, and if there is a mismatch between what they told
    us in the 941 and the W-3 filed, then they get an automatic
    reconciliation notice, depending on the difference between the
    mismatch.
        But we also look at the 941s and W-3s to see why there is
    less Social Security or the percent is so little. And then we
    look to see, in our database that Marianna just talked about,
    whether there is a 218 agreement or not. And based on those
    filters, we make a determination whether the employer may be
    potentially noncompliant, and we reach out with regard to some
    compliance action, which could be a compliance check or an
    audit.
        But on the face of the returns, we can't with certainty
    tell whether all the employees of that public employer were
    appropriately covered or not.
        Mrs. WALORSKI. You can or can't?
        Ms. LOUGH. Cannot.
        Mrs. WALORSKI. Cannot. Okay. So short of an audit that you
    just mentioned, you really don't know whether an employer
    reported and paid the correct amount of FICA taxes without an
    audit? And is an audit the only fail-safe mechanism here?
        Ms. LOUGH. Short of an audit, that is the only way for us
    to know certainly, by 100 percent certainty whether the
    employer is covering all the employees appropriately.
        But we do provide extensive outreach, and we have a
    questionnaire and an assessment tool that the employers can use
    to have a checklist to make a determination whether a group of
    employers should or shouldn't be covered. We do webinars.
        And for the most part, this is a very compliant employer
    base. If they do make errors, like my colleague from Social
    Security Administration said, most of the time it is because of
    the complexity of the laws and the lack of understanding.
        In my opinion, there is no aggressive noncompliance or
    trying to hide. It is basically an education up front by all of
    us, and also an audit at the back end to do the checks.
        Mrs. WALORSKI. So since there is not an audit on every
    single person, since you do some of the sharing of information
    back and forth, and it is the result of this massive complexity
    of how this thing is tied together, which I think reiterates,
    again, how badly we need reform in a much more simple kind of
    system than we have now, so short of an audit there is really
    no way to tell for sure if these records actually match.
        And what do you think the error rate is, I mean, that comes
    through your office? Is it 10 percent of people that never get
    matched up? Or is it 5 percent of people that don't get matched
    up and don't have an audit? How many just percentage do you
    think are out there where we never actually get this right?
        Ms. LOUGH. I really don't have the percent. I will be happy
    to get back with you on the exact change rates that we have in
    an audit. But I do want to reiterate that the changes we do see
    are generally as a result of not understanding the rules.
        Mrs. WALORSKI. . . . But, so short of an audit, there's
    really no way to tell, for sure, if these records actually
    match and what you think the error rate is, I mean, that comes
    through your office? Is it 10 percent of people that never get
    matched up or is it five percent of people that never--that
    don't get matched up and don't have an audit? How many, just
    percentage, do you think are out there where we never actually
    get this right?
        Ms. LOUGH. I really don't have the percent. I'll be happy
    to get back with you on the exact change rate that we have, in
    an audit.
        Public as well as private employers are responsible for
    reporting Social Security coverage on Forms 941 and W-3, which
    are mechanically matched. For both public and private
    employers, Federal Insurance Contributions Act (FICA) and
    unemployment tax are about 3 percent of the tax gap for under-
    reporting (TY 2008- 10 annual average). https://www.irs.gov/
    pub/newsroom/
    tax%20gap%20estimates%20for%202008%20through%202010.pdf, Table
    2.
        The IRS audited approximately 0.6 percent of all returns
    (including income, employment, and other taxes) filed in CY
    2015. IRS Pub. 55-B, Data Book (2016) at pg. 21, https://
    www.irs.gov/pub/irs-soi/16databk.pdf.
        Each year, the IRS Federal, State & Local (FSL) function
    selects for audit a few hundred from tens of thousands of
    public employers. In FY 2016, of 362 audits, FSL proposed
    adjustments to taxable wages in 254, 78 of which related to
    FICA, including but not limited to Section 218 coverage.
        Mrs. WALORSKI. Of the complexity, right?
        Ms. LOUGH. The complexity of the laws. And not only the
    complexity, but also the various timings in which the laws came
    and when the employer came on board--the employee came on
    board. So that makes a difference also.
        Mrs. WALORSKI. I got it and I appreciate it.
        Thank you, Mr. Chairman, I yield back.
        Chairman JOHNSON. Thank you.
        Ms. Sanchez, do you care to question?
        Ms. SANCHEZ. Thank you, Mr. Chairman.
        And I want to thank the witnesses for being here today to
    provide us with some insight as to what you deal with.
        Social Security lifts many millions of Americans out of
    poverty, and after a lifetime of hard work, every American
    deserves the peace of mind to know that they are going to be
    able to retire with a little bit of financial security and a
    little bit of dignity.
        For 94 percent of American workers, knowing that Social
    Security is going to be there when they retire is a great peace
    of mind that they can carry with them. But Social Security
    generally doesn't cover State and local employees.
        For example, in my home State of California, there are 1.3
    million Californians who are not covered by Social Security,
    who likely participate in the California State Retirement Plan
    or CalPERS, as it is known. For them, knowing that CalPERS will
    be there in retirement provides them with the same sense of
    security.
        But there are cities or school districts that can sign
    agreements with the Social Security Administration which
    specify that certain State and local employees will be covered
    by Social Security. And these agreements might say that
    principals are not covered by Social Security, but
    administrative staff is. And so they can get a little
    complicated. And the IRS is tasked with enforcing these
    agreements, but they aren't always able to take proactive steps
    if they think that there is a problem.
        I know that this particular case happened in D.C., but I
    can't imagine how troubling it would be for a worker to find
    out that after 10 years of work they had not been paying into
    State retirement or into the Federal Social Security program.
    And I am glad that D.C.'s own audit discovered that and they
    quickly corrected that.
        Most of us here today just want to make sure that this
    isn't happening in our districts or that our constituents
    aren't similarly affected by technical mistakes like this. And
    it is our job to try to figure out ways to make it easier to
    identify these issues early on to prevent that kind of
    situation from happening again.
        So I will begin with Ms. Lough. In the 218 agreement
    assessment project the IRS identified some risk areas. I
    understand that the IRS can't work directly with the State
    Social Security agencies. So how does the IRS handle those
    situations? What kind of proactive steps is the IRS able to
    take? And are you able to inform the cities so that they can
    take some remedial action?
        Ms. LOUGH. With the risk areas, our first step is to try to
    educate and do outreach on areas where we see that employers
    are having noncompliance as a result of not understanding the
    rules. So we do webinars. We have very robust education tools
    on our IRS.gov. And we also have a Desk Guide that we have. It
    is pretty lengthy. We worked with the Social Security
    Administration on the Desk Guide, which is on our website.
        And then we have approximately 50 agents that are spread
    throughout the country.
        They build good relationships with their State Social
    Security Administrators and the employers, and they are
    available to answer questions when employers have those
    questions. Although we can't talk to State Social Security
    Administrators about specific taxpayers, we do have
    conversations with them on general questions when they reach
    out to us. We have quarterly meetings with the Social Security
    Administration. Regularly, we attend meetings with the National
    Council of State Social Security Administrators. So our first
    preference is always outreach and education.
        Ms. SANCHEZ. Okay. Do you know roughly how many 218
    Agreements the IRS helps to administer?
        Ms. LOUGH. We are not party to the 218 Agreements. We just
    get copies, and we look at them to see who is covered or not.
    So I wouldn't know the answer.
        Ms. SANCHEZ. You don't have an answer.
        Can you just tell me, in the little remaining time that I
    have, how have budget cuts impacted your agents' ability to
    perform compliance check?
        Ms. LOUGH. So resources are always an issue. We have had
    attrition in resource, but we do the best we can. And as I
    stated, the best way to make sure there is voluntary
    compliance, which is the Federal tax system, is that employers
    voluntarily do their correction and comply with the rules of
    education and outreach. So we do that with the best use of
    resources, like doing a webinar. Do it once and put it out so
    people can listen to it. And so resource is always an issue,
    and we try to allocate them appropriately.
        Ms. SANCHEZ. Great. Thank you so much for your testimony
    and for your answers.
        And I yield back.
        Chairman JOHNSON. Mr. Bishop, do you care to question?
        Mr. BISHOP. Thank you, Mr. Chairman. Yes.
        Ms. Motza, I understand that, under section 218 of the
    Social Security Act, State/local governments may extend social
    security benefits to their employees. Can you give us more
    information about exactly what a 218 agreement is, what is in
    it, and what type of information is included in an agreement
    like that?
        Ms. MOTZA. Certainly. I would be happy to.
        The basic information is that the section 218 agreement
    with each State was entered into originally, usually in the
    fifties. And that is what we commonly call the 218, Main Master
    218 agreement. Modifications to that agreement are made to add
    employers and their employees.
        The agreements are contracts effectively between the State
    and the Social Security Administration. No individual State or
    local government can enter into a 218 agreement independent of
    going through the State, because of section 218 of the Social
    Security Act. And that is why the State Administrator is such a
    key liaison with administering those.
        The agreements basically outline that the employer
    understands and appreciates that, since 1983, once they enter
    into a section 218 agreement, it is a permanent, binding
    agreement. They can no longer withdraw. Prior to that, they
    could withdraw from coverage with the 2-year period and
    approval from Social Security Administration.
        It includes what positions that are employed by that
    employer are to be covered under Social Security. Sometimes
    there are optional exclusions that they choose. Some of the
    most common ones are student optionally excluded. And there are
    obvious things, like mandatory exclusions, that are just in
    Federal law. Like emergency workers during a flood, for
    example, are automatically excluded. It includes the effective
    date. It includes, you know, basically, you know, typical terms
    and conditions of a contract, saying, going forward, this is
    how it is going to be.
        And then we submit the agreements. The State Administrator
    does all the work up front, works with the employer, educates
    them about what they need to know to make an informed decision,
    because of the mandatory Social Security provisions of OBRA-90.
    And that they don't have to be permanently bound to Social
    Security if they fall under OBRA-90. So, basically, it is a
    contract that outlines, you know, who is covered, who is not,
    and effective dates and agreeing to be taxed.
        Mr. BISHOP. Okay, thank you for that. So there are a lot of
    subentities, local governments. Each State has one agreement
    then with several sub----
        Ms. MOTZA. It is a master agreement that has been modified
    over the years. For example, in Colorado, where I am from,
    there are about 750 agreements. There are States--I can't think
    of some of the numbers, but, you know, there are States, like
    the GAO report in appendix II documented that virtually every
    public employee in Vermont--there are some exceptions--is
    covered under, you know, Social Security.
        Mr. BISHOP. But it is one agreement per State, and then
    subsections to each.
        Ms. MOTZA. There is one--that is exactly right, yes, uh-
    huh.
        Mr. BISHOP. What triggers a modification? Exactly what is
    the process?
        Ms. MOTZA. It can be a variety of things. It can be a
    change in State law, for example, where a--let's say a State
    that has added a new pension plan, they decide that, in
    addition to the pension plan, they also want Social Security
    coverage. So, in that case, the State Administrator would amend
    or modify the agreement.
        Mr. BISHOP. Okay, thank you. That is helpful. I have so
    little time, but----
        Ms. MOTZA. I know.
        Mr. BISHOP.--I would love to hear more.
        Ms. Lough, a 2010 GAO report on Social Security coverage
    for the State and local governments noted that the IRS has a
    database of public employees. I just wondered how the Social
    Security Administration validates that database and what it is
    used for.
        Ms. LOUGH. So we have a database, like my colleague from
    Social Security Administration said, of the modifications and
    the master agreement. So we know, to the best that we can, when
    we are provided the modifications every time there is a
    modification that occurs, but we can't be 100 percent certain
    we have all of them. So we have created a database. And if
    there is a mismatch, if the 941 shows very little Social
    Security coverage, we look to see if there is a 218 agreement
    or not, whether we should do a compliance action or not. Now,
    we don't validate with the Social Security Administration. It
    is a matter of resources for the Social Security Administration
    and IRS to go over that. Given the fact that this is a largely
    compliant taxpayer base, it just comes down to resources.
        Mr. BISHOP. Thank you.
        And I yield back, Mr. Chairman.
        Chairman JOHNSON. Thank you.
        Mr. Pascrell, you are recognized.
        Mr. PASCRELL. Thank you, Mr. Chairman. Great to see you.
        Mr. Chairman, I want to commend this panel, particularly
    when public employees have been under so much of an assault--I
    mean assault--over the last several years. You come before us,
    objectively, knowing that everybody on this panel is on some
    bill or other to cut waste and fraud in government. That is a
    given. But you stood tall today.
        I really appreciate what you have done and what you are
    doing. And at the same time, we know that the Social Security
    Administration's phone service has so deteriorated over the
    last 10 years. Why? Because they don't have enough people. I
    mean, they didn't decide to talk to one another and say: I will
    only take two phone calls today; I will be busy the rest of the
    day.
        No, they have their schedule every day, I know this.
        So, to get back to the major topic, retirement security is
    essential for all Americans. I think Mr. Larson pointed that
    out dramatically. For those workers who rely on retirement
    funds other than Social Security, which you are talking about
    today, they need that certainty. They need predictability about
    their retirement income. So ensuring compliance with agreements
    about how State and local government employees participate in
    Social Security can help provide this certainty.
        In order to have robust oversight of compliance, you have
    to have well-trained personnel in place to do it. You have got
    to have training programs. You have got to make sure that
    people participate in those training programs.
        So this is not a sexy discussion today. I don't know if the
    media will even cover it, because to them, it is immaterial
    because it is not sexy. But this is critical to a lot of
    people. And I thank you for what you are doing. Many times I
    have said this: In the context of the IRS, Medicare, Social
    Security, my friends on the other side--and I call them my
    friends, and they know that--cannot continue to make deep cuts
    in agencies' operating budgets, or the resources, and
    simultaneously expect to have a world-class service. That is
    what we want. That is what you are capable of. So training for
    the administration of State and local coverage and tax
    compliance is critical.
        Dr. Motza, let me ask you this: In your written testimony,
    you discuss a shift in the training in section 218 and the
    oversight in many States as well as within the SSA and the IRS.
    You attribute these changes to funding reductions.
        Can you discuss the shift and give us a sense of how it has
    impacted the quality of this training?
        Ms. MOTZA. Thank you, Congressman.
        Yes, I would be happy to. The lack of resources at SSA and
    IRS, because of limited funding, has dramatically impacted
    their ability to help State and local government employers and
    employees comply voluntarily. And as Ms. Lough indicated, it is
    a group that wants to comply.
        Mr. PASCRELL. You provided in your written testimony, you
    made certain recommendations.
        Ms. MOTZA. Absolutely. We would like to see----
        Mr. PASCRELL. Tell us all.
        Ms. MOTZA. We would like to see grants from Congress that
    go to the States, SSA and IRS, so that we can conduct ongoing
    education outreach to make sure that these employers and
    employees know exactly what they need to do, when and how to do
    it. And they will comply. When Pub 963, IRS Pub 963, the
    Federal-State Reference Guide, was first published in 1995, IRS
    documented that, within the next 4 years, voluntary
    contributions to the Social Security and Medicare trust funds
    skyrocketed. That is important.
        Mr. PASCRELL. Yes. I want to thank the gentleman from
    Georgia who brought up the question about--and you will
    elaborate on--6103, which is my favorite part of the Tax Code.
    I wonder why.
        Ms. MOTZA. It is certainly not our favorite.
        Mr. PASCRELL. I know. Thank you.
        Ms. MOTZA. Unless you change it.
        Mr. PASCRELL. Thank you.
        Chairman JOHNSON. Mr. Rice, you are recognized.
        Mr. RICE. Ms. Motza, who do you work for?
        Ms. MOTZA. I am gloriously retired. I worked for the State
    of Colorado for over 41 years. And yes, I was hired before
    child labor laws went into effect. That is why. But--that is a
    joke.
        But I am here representing the National Conference of State
    Social Security Administrators, because I was the State Social
    Security Administrator for nearly 24 years for Colorado.
        Mr. RICE. Who do the State--who does the Colorado State
    Social Security Administrator work for?
        Ms. MOTZA. It is actually in the Labor and Employment
    Department. It was placed there as a fluke. There was 2 years,
    my understanding, at the beginning of the 1950s, when the
    Social Security Administration at the national level was under
    the U.S. Department of Labor. So I think the State legislature
    there just took the easy out and said: Well, let's throw it in
    the Labor Department.
        Mr. RICE. So that is the Colorado State Labor.
        Ms. MOTZA. Colorado State Labor and Employment.
        Mr. RICE. Not Federal, it is the State. You work for the
    State.
        Ms. MOTZA. It was the State. It is part of the State, yes.
    Department of----
        Mr. RICE. So do all of the State Social Security
    Administrators work for the various States and not the Federal
    Government?
        Ms. MOTZA. Absolutely. And we want to keep it that way,
    because of the 10th Amendment. The independence and State
    sovereignty is important. Each State was given the option,
    under the Social Security Act, based on section 218, to
    determine what the configuration of coverage for their
    employees, their public employees was----
        Mr. RICE. What is the function of the State--does every
    State have a State Social Security Administrator?
        Ms. MOTZA. They are required to under Federal law.
    Unfortunately, because of funding cutbacks and since the
    transfer of responsibility for collecting contributions in
    1987, a number of States, I am sad to say, no longer take that
    job seriously. And that is one of the things we would encourage
    Congress to help us with. We would appreciate a resolution or
    something that gives us clout to say to State officials that
    this is a vital and critical role, an important role that helps
    not only the public employers and employees, but taxpayers.
        Mr. RICE. So not every State has one.
        Ms. MOTZA. They do have a named official. But are they
    active? Not necessarily.
        Mr. RICE. All right. So Federal law requires that every
    State have at least one, but they are not paid for by the
    Federal Government.
        Ms. MOTZA. No. They are----
        Mr. RICE. So, in some States, you say there is only one
    person that works for this entity, this group. And in other
    States, do they have big staffs?
        Ms. MOTZA. No. In most--they used to have big staffs when
    they were collecting the contributions, but most State
    officials, it is one or two people. And in very many States, it
    is a portion of a job. It has been really relegated to----
        Mr. RICE. You are saying some folks don't even have a full-
    time person.
        Ms. MOTZA. No, many do not have a full-time person.
        Mr. RICE. And it is the job of this position to be an
    intermediary between the Federal Government and the State and
    local governments?
        Ms. MOTZA. Absolutely. And to know exactly what is going on
    at the Federal level and within their own State to make sure
    that they are reconciling and they are staying compliant.
        Mr. RICE. When you did it, was it a full-time job?
        Ms. MOTZA. Part of the time, it was a full-time job. Other
    times, I was wearing other hats.
        Mr. RICE. Did you, in the course of your undertaking this
    activity, frequently find municipal governments and county
    governments that thought they were complying with the law but
    weren't, as we have discovered here of late?
        Ms. MOTZA. Yeah. And we--early on, when I took on the job
    in 1993, I was very fortunate to have an excellent executive
    director of that department who did training and outreach.
        Mr. RICE. So that was a frequent thing that you found
    people----
        Ms. MOTZA. It wasn't frequent, but it was enough----
        Mr. RICE. Was it once a year, every 2 years, every 3 years?
        Ms. MOTZA. Pardon me. I am sorry?
        Mr. RICE. Was it annually that you found somebody who
    thought they were complying with the law?
        Ms. MOTZA. Initially, yes. And then, again, once Pub 963
    came out and they had a clear understanding of what was
    necessary and appropriate, the noncompliance was less. And we
    were doing education and outreach jointly with IRS and Social
    Security that really enhanced the improvement rate.
        Mr. RICE. All right.
        Ms. LaCanfora, IRS does most of your compliance testing,
    right?
        Ms. LACANFORA. I am sorry, can you repeat the question?
        Mr. RICE. The IRS does most of your compliance testing, is
    that correct?
        Ms. LACANFORA. That is correct.
        Mr. RICE. I am out of time.
        I yield back, Mr. Chairman.
        Chairman JOHNSON. Well, thank you. You can go ahead and get
    an answer to that question, because I would like to hear it.
        Mr. RICE. Well, my next question was going to be, the way
    that you determine whether or not somebody's in the Social
    Security system is just from their 941s and their W-2s. Is that
    right?
        Ms. LACANFORA. As Ms. Lough described, there is a
    reconciliation process to determine whether the employee wage
    reports match up with the employer tax return.
        Mr. RICE. Well, here is my question: Do you have cases with
    relative frequency where people have not had Social Security
    withheld from their paycheck and that you determined that it
    should have been and you go ahead and pay them their Social
    Security benefits?
        Ms. LACANFORA. Not with relative frequency, no.
        Mr. RICE. Okay. Thank you.
        Chairman JOHNSON. Thank you.
        Ms. DelBene, you are recognized.
        Ms. DELBENE. Thank you, Mr. Chairman, and thank you to all
    of you for being with us today.
        For more than 80 years, Social Security has kept seniors
    out of poverty and provided a vital safety net for our middle
    class. But, unfortunately, due to a legal technicality, Tribal
    governments are currently prohibited from entering into
    agreements with Social Security Administration to allow their
    elected leaders to participate in the program. This makes
    elected Tribal leaders one of the few classes of Americans that
    are prohibited by law from paying into Social Security and
    receiving benefits from it. I believe that is unfair and
    punishes Tribal members who wish to give back to their people
    through government service. And that is why I, along with my
    colleague Congressman Reichert, my Washington State colleague
    Congressman Reichert, introduced the Tribal Social Security
    Fairness Act earlier this year, allowing elected Tribal leaders
    to opt into the Social Security program.
        There is really no reason the same benefit shouldn't be
    extended to Tribal leaders who choose to participate, putting
    them on par with pretty much every other American.
        And so, Ms. LaCanfora, I assume you are very aware of this
    issue, and could you tell us how you feel about allowing
    elected Tribal officials to be able to participate and
    contribute to the Social Security system in the same manner as
    every other American?
        Ms. LACANFORA. I think you explained it very well. The
    legislation that you are referring to would allow Tribal
    governments to voluntarily opt into Social Security coverage,
    and we would be happy to work with the committee to provide any
    technical assistance you may need.
        Ms. DELBENE. And do you agree that this is a technical
    issue, in terms of why they have been excluded?
        Ms. LACANFORA. I think there could be views on various
    sides of the issue. And I don't think we have a particular
    position on it, but we can certainly provide assistance as
    needed.
        Ms. DELBENE. I want to thank--both the IRS and the Social
    Security Administration have provided technical assistance to
    the drafting of legislation we put together.
        Ms. Lough, do you believe this legislation or legislation
    like this would have a positive impact on Indian country?
        Ms. LOUGH. I defer. That is a policy issue, and I defer
    that to the Office of Tax Policy. And we are willing to work
    with them to implement anything that is enacted.
        Ms. DELBENE. Thank you. This legislation is really about
    equity for Tribal nations and removing barriers from talented
    native leaders who really wish to serve their communities. And
    all Americans, I think we can all agree all Americans deserve
    to retire with dignity and economic security.
        And I will continue to work in a bipartisan fashion, like
    this legislation was put together, to advance forward-looking
    reforms to improve Social Security for all Americans.
        Thank you for your time, and I yield back.
        Chairman JOHNSON. Thank you, ma'am.
        Mr. Curbelo, you are recognized.
        Mr. CURBELO. Thank you, Mr. Chairman, for allowing us the
    opportunity of this hearing, and I thank all of the witnesses
    for their testimony today.
        Ms. Lough, 70 percent of taxes collected are payroll taxes.
    Does that sound right?
        Ms. LOUGH. Yes, 70 percent are payroll taxes, but that
    includes individual income tax as well, that 70 percent.
        Mr. CURBELO. Well, given that significant number, it seems
    to me that this should be a compliance priority for the IRS.
    Does that make sense?
        Ms. LOUGH. Again, it is a compliance priority for the IRS,
    the payroll income tax. But 70 percent of the tax that is
    collected--I just want to make sure I understand your
    question--38 percent is the income tax part of it and 32
    percent is the Social Security and Medicare tax part of the 70
    percent.
        Mr. CURBELO. I understand that, but either way, we are
    talking about at least around a third of total collections. So
    my question to you is, what percentage of audits conducted by
    the IRS are related to payroll taxes?
        Ms. LOUGH. So a large number--this also includes public and
    private government, public and private employers. And I have
    jurisdiction over the public employers, which are about 90,000
    government entities. So we do audit. We audit a few hundred per
    year, but we also provide extensive outreach to these
    government entities. That can be small towns or large States
    and cities.
        Mr. CURBELO. So do you have empirical evidence that this
    is, indeed, a compliant group?
        Ms. LOUGH. From the basis of the audits that we have done
    and our relationships that we have with the State and local
    governments, my opinion is that this is largely a compliant
    group. Not that they always meet 100 percent of the
    requirements, but the reason often is because of the complexity
    of the rules and lack of understanding of where the employee
    falls, whether they are covered or they are not, whether they
    are under a qualified retirement plan. When did they start
    working? Was there a break in service? It is an exceedingly
    complex area of the law.
        Mr. CURBELO. Well, we have heard many examples over the
    years of local employers being noncompliant. So I just want to
    make sure--and I understand the issue of resources, and I
    certainly believe that we need to make sure not just the IRS
    but the entirety of our government is adequately resourced. But
    it does seem to me like we are leaving a significant amount of
    money on the table. And I still wonder if there is a focus on
    enforcing compliance in this area, given that it represents
    around a third of collections for the IRS.
        Ms. LOUGH. The IRS does have a robust payroll employment
    tax audit program, whether it is a private or public employer
    program, commensurate to the amount of resources we have. But
    for the public employers, one in five employees works for the
    public employer. So the large portion are private employers.
    And public employers are largely a very compliant taxpayer
    base.
        Mr. CURBELO. Thank you, Ms. Lough.
        Ms. Motza, a question for you. I want to focus on this
    issue of classification. What role specifically do State Social
    Security Administrators play to ensure that workers within the
    State who are covered by Social Security are properly
    classified? What oversight role should State Social Security
    Administrators play in this process?
        Ms. MOTZA. Thank you, Congressman.
        Ideally, the State and local governments should contact the
    State Social Security Administrator to verify what their
    obligations are under both Federal and State laws. You know,
    also, the State Administrator should also monitor changes in
    pension laws in their State to make sure that pension laws that
    are being changed or have been changed aren't causing confusion
    and causing somebody who is under a 218 agreement and must
    continue paying into Social Security to suddenly stop and join
    a pension plan.
        So, as far as classification, it is just a matter of
    advising them that, if they have a 218 agreement, certain
    positions are covered under Social Security and others are
    optionally excluded, or whatever the case may be.
        Mr. CURBELO. And quickly, do you think that SSA and the IRS
    can do more to support States in getting this classification
    issue right?
        Ms. MOTZA. Yeah. I think, again, it is back to our bugaboo,
    1987. If we could communicate more openly and directly upfront,
    I think it would make it easier on all of us and certainly
    would save taxpayers money, because everybody that we are
    dealing with is funded by some form of tax.
        Mr. CURBELO. Thank you very much.
        Chairman JOHNSON. The time of the gentleman has expired.
        Mr. Reichert, do you care to question?
        Mr. REICHERT. I do, Mr. Chairman.
        Chairman JOHNSON. You are recognized.
        Mr. REICHERT. Thank you. I thank Chairman Johnson and
    Chairman Buchanan for allowing me to make a brief appearance
    today at your hearing. I am not on either committee, but I am
    on the Ways and Means Committee, and I chair the Trade
    Subcommittee, so I appreciate this opportunity. Thank you both.
        I want to follow up with a line of questioning that Ms.
    DelBene was pursuing. As we have heard today, State and local
    government employees may participate in Social Security through
    voluntary coverage agreements. However, no such option exists
    for members of Tribal Councils. And I know that has been
    discussed briefly.
        I understand, in 2006, the SSA issued a policy ruling
    clarifying that Tribal Council members cannot receive Social
    Security coverage because of a 1959 IRS ruling which states
    that service performed by Tribal Council members do not
    constitute employment for FICA purposes. While the SSA says
    that this clarification did not represent a policy change, the
    effect was that Tribal Council members could no longer
    contribute to Social Security or have their earnings count
    toward any future benefits.
        And the real question I have, as you might guess, Ms.
    LaCanfora--close enough?--why did it take SSA over 45 years to
    provide clarification on this issue? So, from 2006 to 1959,
    what took so long? What was happening in the meantime?
        Ms. LACANFORA. We periodically put out clarification when
    questions arise. My understanding is that Tribal Council
    leaders were not paid by Tribal Governments until the eighties.
    And we really didn't receive a lot of questions on the issue.
    It was only when questions began to come into the Social
    Security Administration that it was clear that we needed to
    clarify what was always our longstanding policy.
        Mr. REICHERT. You don't do systematic reviews of policy or
    anything that may be controversial or disconnected within the
    organization?
        Ms. LACANFORA. We do. But, again----
        Mr. REICHERT. Audits?
        Ms. LACANFORA.--we generally clarify issues when questions
    arise. And in this case, around 2006 was when it became very
    clear to us that clarification was necessary on that particular
    issue.
        Mr. REICHERT. So now we have a problem. You have identified
    a problem. How do you think this problem should be addressed?
        Ms. LACANFORA. As I mentioned in response to the earlier
    question, we would certainly be pleased to support you with any
    technical assistance on the legislation that you proposed.
        Mr. REICHERT. Okay. So I would guess that you would agree
    this is an unfair policy that has been in existence for these
    past number of years?
        Ms. LACANFORA. We don't have a position on the policy
    itself.
        Mr. REICHERT. But you would be happy to help us correct it.
        Ms. LACANFORA. Absolutely.
        Mr. REICHERT. Whatever the problem is.
        Okay. I think that the situation has created an unfair
    environment for our Tribal friends. And I have heard from
    Tribal Council members, from the Muckleshoot Tribe in
    Washington State and others across the country. They want to
    participate in Social Security, and I think we need to make
    that happen. I have introduced a bill to make this possible. So
    I will have my staff reach out to you and look forward to your
    cooperation in resolving this issue.
        Ms. LACANFORA. Thank you.
        Mr. REICHERT. Thank you. I yield back.
        Chairman JOHNSON. Thank you.
        I appreciate the testimony of everyone. As we have heard
    today, Social Security and the IRS don't have their act
    together when it comes to State and local workers. Social
    Security doesn't know whether State and local governments are
    reporting the right amount of wages, and Social Security counts
    earnings toward future benefits, even if taxes weren't paid.
    The IRS doesn't know whether an employee, employer, or worker
    is paying the right amount of payroll tax.
        When errors go unnoticed for years, like in Missouri, this
    has a real effect on workers' retirement security and on the
    Trust Funds. Social Security, the IRS, and States must accept
    the responsibility for the roles they play in making this
    process work the way it should. I think you all would agree:
    Americans deserve nothing less.
        I want to thank our witnesses for your testimonies. Thank
    you so much. And thank all the Members for being here.
        With that, the Subcommittee stands adjourned.
        [Whereupon, at 11:33 p.m., the subcommittees were
    adjourned.]
        [Member Questions for the Record follows:]
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