[Federal Register Volume 63, Number 210 (Friday, October 30, 1998)]
[Notices]
[Pages 58444-58446]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-29177]


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SOCIAL SECURITY ADMINISTRATION

Social Security Acquiescence Ruling
98-5(8)


State of Minnesota v. Apfel; Coverage for Employees Under a 
Federal-State Section 218 Agreement or Modification and Application of 
the Student Services Exclusion From Coverage to Services Performed by 
Medical Residents--Title II of the Social Security Act

AGENCY: Social Security Administration.

ACTION: Notice of Social Security Acquiescence Ruling.

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SUMMARY: In accordance with 20 CFR 402.35(b)(2), the Commissioner of 
Social Security gives notice of Social Security Acquiescence Ruling 98-
5(8).

EFFECTIVE DATE: October 30, 1998.

FOR FURTHER INFORMATION CONTACT:
Gary Sargent, Litigation Staff, Social Security Administration, 6401 
Security Boulevard, Baltimore, MD 21235, (410) 965-1695.

SUPPLEMENTARY INFORMATION: Although not required to do so pursuant to 5 
U.S.C. 552(a)(1) and (a)(2), we are publishing this Social Security 
Acquiescence Ruling in accordance with 20 CFR 402.35(b)(2).
    A Social Security Acquiescence Ruling explains how we will apply a 
holding in a decision of a United States Court of Appeals that we 
determine conflicts with our interpretation of a provision of the 
Social Security Act (the Act) or regulations when the Government has 
decided not to seek further review of that decision or is unsuccessful 
on further review.
    We will apply the holding of the Court of Appeals' decision, as 
explained in this Social Security Acquiescence Ruling, at all levels of 
administrative adjudication within the Eighth Circuit. This Social 
Security Acquiescence Ruling will apply to all determinations or 
decisions made on or after October 30, 1998. If we made a determination 
or decision between July 6, 1998, the date of the Court of Appeals' 
decision, and October 30, 1998 the effective date of

[[Page 58445]]

this Social Security Acquiescence Ruling, you may request application 
of the Social Security Acquiescence Ruling if you first demonstrate, 
pursuant to 20 CFR 404.985(b), that application of the Ruling could 
change our prior determination or decision.
    If this Social Security Acquiescence Ruling is later rescinded as 
obsolete, we will publish a notice in the Federal Register to that 
effect as provided for in 20 CFR 404.985(e). If we decide to relitigate 
the issue covered by this Social Security Acquiescence Ruling as 
provided for by 20 CFR 404.985(c), we will publish a notice in the 
Federal Register stating that we will apply our interpretation of the 
Act or regulations involved and explaining why we have decided to 
relitigate the issue.

(Catalog of Federal Domestic Assistance Program Nos. 96.001 Social 
Security - Disability Insurance; 96.002 Social Security - Retirement 
Insurance; 96.003 - Special Benefits for Persons Aged 72 and Over; 
96.004 Social Security -Survivors Insurance.)

    Dated: October 9, 1998.
Kenneth S. Apfel,
Commissioner of Social Security.

Acquiescence Ruling 98-5(8)

    State of Minnesota v. Apfel, 151 F.3d 742 (8th Cir. 1998)--Coverage 
for Employees Under a Federal-State Section 218 Agreement or 
Modification and Application of the Student Services Exclusion From 
Coverage to Services Performed by Medical Residents--Title II of the 
Social Security Act.
    Issue: Whether, in determining coverage of services performed by 
State and local government employees under the provisions of a Federal-
State agreement or modification under section 218 of the Social 
Security Act (the Act), the Social Security Administration (SSA) must 
consider the original intent and understanding of the parties to the 
agreement as controlling unless the agreement and modification is 
altered or amended by statutory law. Whether the student services 
exclusion from Social Security coverage under section 210(a)(10) of the 
Act can apply to services performed by medical students and whether, in 
applying the exclusion, SSA must make a case by case examination of the 
medical residents' relationship with the employer school, college or 
university.
    Statute/Regulation/Ruling Citation: Sections 210(a)(10) and 218 of 
the Social Security Act (42 U.S.C. 410 (a) (10) and 418), 20 CFR 
404.1028(c), 404.1209, 404.1210, 404.1214, 404.1215. 404.1216, Social 
Security Ruling 78-3.
    Circuit: Eighth (Arkansas, Iowa, Minnesota, Missouri, Nebraska, 
North Dakota, South Dakota).
    State of Minnesota v. Apfel, 151 F.3d 742 (8th Cir. 1998).
    Applicability of Ruling: This Ruling applies to all determinations 
or decisions at all administrative levels (e.g., initial, 
reconsideration, Administrative Law Judge hearing and Appeals Council).
    Description of Case: In 1950, Congress enacted section 218 of the 
Act which allows States to enter into agreements with SSA (section 218 
agreements) to obtain Social Security coverage for State and local 
government employees. In accordance with the provisions of section 218, 
a State designates coverage groups for Social Security coverage by 
choosing to cover nonretirement system groups of employees of the State 
or political subdivision of the State or retirement system groups, or 
both. Under section 218(c)(6), certain services are required to be 
mandatorily excluded from coverage. In addition, there are specific, 
limited optional exclusions under section 218(c) that the State may 
elect to take to exclude certain services from coverage.
    In 1955, the State of Minnesota and SSA executed a section 218 
agreement for Social Security coverage. The agreement initially applied 
to a few coverage groups but the State subsequently executed a 
modification in 1958 to extend coverage to services performed by 
individuals as employees of the University of Minnesota. The 
modification excluded ``any service performed by a student'' pursuant 
to the optional exclusion provided by section 218(c)(5) of the Act. The 
University did not withhold Social Security contributions from the 
annual stipends paid to medical residents at its teaching hospital. It 
also did not pay the employer's share of the contributions. This 
practice continued for more than 30 years.
    On September 13, 1990, SSA issued a formal notice of assessment 
holding the State liable for unpaid contributions totaling nearly $8 
million based on stipends paid to medical residents during 1985 and 
1986.1 The State requested administrative review and on 
January 11, 1994, SSA's Deputy Commissioner for Programs affirmed the 
assessment. The State of Minnesota then sought judicial review. The 
district court granted the State's motion for summary judgment and 
overturned the assessment. The district court held that:
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    \1\ Under the Omnibus Budget Reconciliation Act of 1986, Pub. L. 
No. 99-509, the Internal Revenue Service determines liability for 
Social Security taxes pursuant to a section 218 Federal-State 
agreement for coverage and its modifications for wages paid after 
December 31, 1986.
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    (1) the medical residents were not ``employees'' of the University 
within the meaning of the 1958 modification; and
    (2) even if they were employees, they were excluded from coverage 
based upon the modification's student exclusion. SSA appealed this 
decision to the United States Court of Appeals for the Eighth Circuit.
    The United States Court of Appeals for the Eighth Circuit affirmed 
the district court's alternative holdings and further stated that the 
regulatory approach set forth in 20 CFR 404.1028(c) prevents SSA from 
summarily concluding that medical residents never qualify for the 
student services exclusion without a case by case examination of the 
nature of the medical residents' relationship with their employer.
    Holding: After considering the Supreme Court's decision in Bowen v. 
Public Agencies Opposed to Social Security Entrapment, 477 U.S. 41 
(1986), the Eighth Circuit found that the Federal-State section 218 
agreement for coverage and the 1958 modification were ``contractual 
arrangement[s].'' Accordingly, the court quoted from the district 
court's decision and held that ``the meaning of section [2]18 
agreements cannot be altered `through ruling by the the [sic] SSA or 
through subsequent case law developments regarding the employment 
status of medical residents.''' The court also held that ``[t]he power 
to alter the terms of section [2]18 agreements lies exclusively with 
Congress'' and that because Congress did not change ``the meaning of 
the State's 1958 modification, the parties' [original] intent is 
controlling.'' The court agreed with the district court that medical 
residents were not employees of the University under the terms of the 
1958 modification and therefore were not covered for Social Security 
purposes by that modification.
    The Eighth Circuit also held that the general student services 
exclusion in section 210(a)(10) of the Act applied to medical residents 
participating in the University's medical residency program because 
``[t]he bright-line rule of SSR 78-3 is inconsistent with the approach 
set forth at 20 C.F.R. Sec. 404.1028(c), which contemplates a case-by-
case examination to determine if an individual's relationship with a 
school is primarily for educational purposes or primarily to earn a 
living.''
    The circuit court focused on the nature of the medical residents' 
relationship with the University, and

[[Page 58446]]

observed the undisputed facts that the medical residents were enrolled 
in the University, paid tuition and were registered for approximately 
15 credit hours per semester. The court concluded that the primary 
purpose for the residents' participation in the program was to pursue a 
course of study rather than to earn a living.

Statement as to How State of Minnesota Differs From SSA Rules

    A section 218 agreement establishes Social Security coverage for 
State and local government employees, and the terms of the section 218 
agreement between SSA and the State are governed by the provisions of 
section 218 of the Act. Under SSA's regulations implementing section 
218 (20 CFR 404.1214 and 404.1215), the written agreement and 
subsequent modifications to that agreement establish the continuing 
relationship between SSA and the State. SSA's regulations (20 CFR 
404.1215) provide that a State may modify in writing its section 218 
agreement to include additional coverage groups consistent with the 
provisions of section 218. Generally, SSA does not consider the 
original intent of the parties to the section 218 agreement and its 
modifications, by itself, to be controlling. The error modification 
procedure at 20 CFR 404.1216, however, provides that a section 218 
agreement or modification may be modified to correct an error upon 
submittal of evidence establishing that an error actually occurred. 
Under this procedure, SSA may consider evidence such as minutes of 
meetings or statements by appropriate officials to establish the intent 
of the parties at the time Social Security coverage was requested, and 
SSA also considers whether the State's wage reporting practices were 
consistent with its intent.2
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    \2\ State and Local Coverage Handbook for the Social Security 
Administration and State Social Security Administrators, section 
530.
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    In construing a modification which was ambiguous as to whether 
medical residents were considered to be employees for purposes of that 
modification, the Eighth Circuit concluded that the original intent and 
understanding of the parties executing the section 218 agreement for 
coverage and its subsequent modifications is controlling for 
establishing coverage for State and local employees unless the original 
intent or understanding was contrary to the provisions of section 218, 
or unless the agreement is altered or amended by statutory law.
    Section 210(a)(10) of the Act provides for a general exclusion from 
Social Security coverage for services performed for a school, college 
or university by a student who is enrolled and regularly attending 
classes there. Section 218(c)(5) provides States with the option of 
excluding such services by students. If the exclusion is not taken, 
services performed by students are covered even though they would be 
excluded pursuant to section 210(a)(10) if performed for a private 
school, college or university. Under SSA's regulations implementing 
section 210 (20 CFR 404.1028(c)), the determination of whether an 
individual is a student depends on the relationship with his or her 
employer and whether the focus of that relationship is pursuing a 
livelihood or pursuing a course of study. SSR 78-3 provides that 
resident physicians are not ``students'' for purposes of the student 
services exclusion under section 210(a)(10) of the Act. Under SSA 
rules, the services performed by medical residents do not qualify for 
the student exclusion.
    The Eighth Circuit concluded that SSR 78-3 is inconsistent with 
SSA's student services exclusion regulation (20 CFR 404.1028) which 
requires a case by case examination to determine if an individual's 
relationship with the employer meets the requirements for that 
exclusion to apply.

Explanation of How SSA Will Apply The State of Minnesota Decision 
Within The Circuit

    This Ruling applies to Federal-State agreements for coverage and 
subsequent modifications under section 218 of the Act involving 
Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota or South 
Dakota. It also applies to services performed by medical residents for 
a school, college or university located in Arkansas, Iowa, Minnesota, 
Missouri, Nebraska, North Dakota or South Dakota.
    In establishing coverage for State and local employees under an 
ambiguous provision of a section 218 agreement or a modification to 
that agreement, unless the original intent or understanding of the 
parties was contrary to the provisions of section 218, SSA must 
consider that intent and understanding controlling unless the agreement 
and modification is altered or amended by law. SSA may consider the 
terms of the agreement or modification in determining the intent and 
understanding of the parties.
    In applying the student services exclusion from Social Security 
coverage under section 210(a)(10) of the Act and under 20 CFR 
404.1028(c), SSA must consider whether medical residents who are paid 
stipends qualify for the exclusion. When applying the student services 
exclusion to medical residents, SSA must make a case by case 
examination of the relationship of the residents with the employer 
school, college or university to determine whether the residents meet 
the statutory criteria of being enrolled and regularly attending 
classes and whether they meet the regulatory criteria. In evaluating 
the relationship, SSA will consider all relevant facts and 
circumstances.
[FR Doc. 98-29177 Filed 10-29-98; 8:45 am]
BILLING CODE 4190-29-F