[Federal Register Volume 70, Number 139 (Thursday, July 21, 2005)]
[Rules and Regulations]
[Pages 41954-41956]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-14385]



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SOCIAL SECURITY ADMINISTRATION

20 CFR Part 404

[Regulations No. 4]
RIN 0960-AG18


Update to Divided State Retirement Systems Coverage Group List 
and Technical Coverage Corrections Required by the Social Security 
Protection Act of 2004

AGENCY: Social Security Administration (SSA).

ACTION: Final rules.

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SUMMARY: We are issuing these final rules to reflect in our regulations 
four self-implementing provisions in the Social Security Protection Act 
of 2004 (SSPA). One provision adds two States (Kentucky and Louisiana) 
to a list of States that are permitted to divide public employee 
retirement systems based on whether the State and/or local employees in 
positions under the systems want Social Security and/or Medicare 
coverage or not. The other three provisions make technical corrections 
to the Social Security Act (the Act) and the Internal Revenue Code 
(IRC) regarding various Social Security coverage issues.

DATES: These regulations are effective July 21, 2005.

FOR FURTHER INFORMATION CONTACT: Cynthia Johnson, Social Insurance 
Specialist, Office of Income Security Programs, Social Security 
Administration, 6401 Security Boulevard, Baltimore, MD 21235-6401, 
(410) 965-7959 or TTY (410) 966-5609. For information on eligibility, 
claiming benefits, or coverage of earnings, call our national toll-free 
number, 1-800-772-1213 or TTY 1-800-325-0778.

SUPPLEMENTARY INFORMATION:

Electronic Version

    The electronic file of this document is available on the date of 
publication in the Federal Register on the Internet site for the 
Government Printing Office, http://www.gpoaccess.gov/fr/index.html. It 
is also available on the Internet site for SSA (i.e., Social Security 
Online) at http://policy.ssa.gov/pnpublic.nsf/LawsRegs.

Background

    Under section 218 of the Act, 42 U.S.C. 418, the Commissioner of 
Social Security has an agreement with each State allowing for the 
extension of Social Security coverage to services performed by 
individuals as State and local employees. Under section 218(d) of the 
Act, 42 U.S.C. 418(d), provisions of these agreements may extend 
coverage, on the basis of referendums provided for in that section, to 
services by employees participating in retirement systems (i.e., State 
or local pension, annuity, retirement, and similar funds or systems), 
or to services by a subgroup of employees in such a system. See also 42 
U.S.C. 418(a), (b)(4) and (b)(5); 20 CFR 404.1202, 404.1206 and 
404.1214.
    The SSPA, Public Law 108-203, was enacted on March 2, 2004. Section 
416 of the law, effective January 1, 2003, amends section 218(d)(6)(C) 
of the Act by adding Louisiana and Kentucky to a list of States that 
are permitted to divide their public employee retirement systems based 
on the employees' desire for coverage. In the 23 ``divided retirement 
system'' States, the State has the option to extend Social Security 
and/or Medicare coverage by referendum to the affected services of only 
those employees, in a particular voting group of employees, who vote to 
be covered, with services of all future employees who join the group 
being covered automatically. Employees under a retirement system who 
participate in such a group referendum and do not wish their services 
to be covered under Social Security could vote to be (and are) 
excluded. (In other States, a majority vote in favor of Social Security 
coverage by a group of employees in a retirement system results in 
coverage of the affected services of all employees in the voting 
group.)
    Section 422 of the SSPA, applicable to years beginning before, on 
or after December 31, 1994, conforms section 211(a)(7) of the Act, 42 
U.S.C. 411(a)(7), to a corresponding provision of IRC, 26 U.S.C. 
1402(a)(8), by excluding certain retirement income and benefits, 
received after retirement by duly ordained, commissioned, or licensed 
ministers or members of religious orders, from the definition of net 
earnings from self-employment.
    Section 423 of the SSPA is effective upon enactment and clarifies 
that, for purposes of the definitions of wages in sections 209(a) of 
the Act and 3121(a) of the IRC, cash remuneration for domestic 
employment performed in a private home of the employer on a farm 
operated for profit is considered wages when it exceeds an applicable 
dollar threshold in section 3121(x) of the IRC, 26 U.S.C. 3121(x). See 
42 U.S.C. 409(a)(6)(B); 42 U.S.C. 3121(a)(7)(B). Section 423 also 
amends section 210(f)(5) of the Act and section 3121(g)(5) of the IRC 
to clarify that domestic service in the private home of an employer on 
a farm operated for profit is not included within the definition of 
agricultural labor under those statutory sections.
    Section 425 of the SSPA, also effective upon enactment, clarifies 
that, for purposes of the definitions of net earnings from self-
employment under section 211(a)(5)(A) of the Act and section 
1402(a)(5)(A) of the IRC, non-partnership income from a trade or 
business which is community income under the laws of a community 
property State is treated as the gross income and deductions of the 
spouse carrying on the relevant trade or business. If the spouses 
operate the trade or business jointly, such self-employment income is 
treated as the gross income and deductions of each spouse on the basis 
of his or her respective share of the gross income and deductions. We 
are revising our regulations as explained below to conform to the 
statutory changes.

Explanation of Changes

Sec. Sec.  404.1055 and 404.1056

    We are revising Sec.  404.1055, per SSPA section 423, by deleting 
the last sentence of paragraph (a) which refers to domestic services 
performed on a farm. We are revising Sec.  404.1056 by deleting all 
references to domestic employment in paragraph (a)(6). We are also 
fixing a typographical error in paragraph (a)(11) by correcting the 
spelling of ``commercial''.

Sec.  404.1086

    We are revising Sec.  404.1086, per SSPA section 425, by revising 
existing paragraph (a)(1) and removing paragraphs (a)(2) and (b). The 
paragraphs being removed discuss the meaning of ``management and 
control'' for a business (other than a partnership) operated by a 
husband and wife in a community property State and the treatment of 
partnership income derived in a community property State by a husband 
or wife who is a partner in a partnership or a husband and wife who are 
both partners in the same partnership, which are no longer applicable 
policies. The new language provides that the gross income and 
deductions derived from a trade or business in a community property 
State will be taxed and credited to the spouse who is carrying on the 
trade or business or to each spouse based on his or her distributive 
share of the gross income and deductions if the trade or business is 
jointly operated.

Sec.  404.1091

    We are revising Sec.  404.1091, per SSPA section 422, to provide 
that ministers and members of religious orders should

[[Page 41955]]

exclude any parsonage or housing allowances included in retirement pay 
after the minister retires or any other retirement benefit received 
after retirement pursuant to a church plan as defined in section 414(e) 
of the IRC, when computing net earnings from self-employment. This 
provision is effective for years beginning before, on or after December 
31, 1994. This technical correction in the SSPA conforms provisions in 
the Act to an IRC change made via section 1456(a) of Public Law 104-
188. We are also fixing a typographical error in existing paragraph 
(c), which is being redesignated as paragraph (d), by removing the word 
``one'' from the first sentence.

Sec.  404.1207

    We are revising Sec.  404.1207(a), per SSPA section 416, to include 
the States of Kentucky and Louisiana in the list of States that are 
permitted to divide public employee retirement systems based on whether 
the employees in positions under the systems want Social Security and/
or Medicare coverage or not.

Regulatory Procedures

    Pursuant to section 702(a)(5) of the Social Security Act, 42 U.S.C. 
902(a)(5), SSA follows the Administrative Procedure Act (APA) 
rulemaking procedures specified in 5 U.S.C. 553 in the development of 
its regulations. The APA provides exceptions to its prior notice and 
public comment procedures when an agency finds there is good cause for 
dispensing with such procedures on the basis that they are 
impracticable, unnecessary, or contrary to the public interest.
    In the case of these final rules, we have determined that, under 5 
U.S.C. 553(b)(B), good cause exists for dispensing with the notice and 
public comment procedures on these rules because such procedures are 
unnecessary. Good cause exists because these regulations merely reflect 
the self-implementing provisions in sections 416, 422, 423 and 425 of 
Public Law 108-203 that we have been following operationally since 
enactment. Therefore, opportunity for prior comment is unnecessary, and 
we are issuing these regulations as final rules.
    In addition, we find good cause for dispensing with the 30-day 
delay in the effective date of a substantive rule, provided for by 5 
U.S.C. 553(d). These revisions reflect the provisions enacted in the 
SSPA. However, without these changes, our rules will conflict with 
current law and may mislead the public. Therefore, we find that it is 
in the public interest to make these rules effective upon publication.

Executive Order 12866

    We have consulted with the Office of Management and Budget (OMB) 
and determined that these final rules meet the criteria for a 
significant regulatory action under Executive Order 12866, as amended 
by Executive Order 13258. Thus, they were subject to OMB review. We 
have also determined that these rules meet the plain language 
requirement of Executive Order 12866, as amended by Executive Order 
13258.

Regulatory Flexibility Act

    We certify that these final regulations will not have a significant 
economic impact on a substantial number of small entities. Therefore, a 
regulatory flexibility analysis as provided in the Regulatory 
Flexibility Act, as amended, is not required.

Paperwork Reduction Act

    These final rules impose no additional reporting or recordkeeping 
requirements subject to OMB clearance.

(Catalog of Federal Domestic Assistance Program Nos. 96.001, Social 
Security-Disability Insurance; 96.002, Social Security-Retirement 
Insurance; 96.004, Social Security-Survivors Insurance)

List of Subjects in 20 CFR Part 404

    Administrative practice and procedure, Blind, Disability benefits, 
Old-age, survivors and disability insurance, Reporting and 
recordkeeping requirements, Social Security.

    Dated: April 15, 2005.
Jo Anne B. Barnhart,
Commissioner of Social Security.

0
For the reasons set out in the preamble, we are amending subparts K and 
M of part 404 of chapter III of title 20 of the Code of Federal 
Regulations as set forth below:

PART 404--FEDERAL OLD-AGE, SURVIVORS AND DISABILITY INSURANCE 
(1950--)

Subpart K--[Amended]

0
1. The authority citation for subpart K of part 404 is revised to read 
as follows:

    Authority: Secs. 202(v), 205(a), 209, 210, 211, 229(a), 230, 
231, and 702(a)(5) of the Social Security Act (42 U.S.C. 402(v), 
405(a), 409, 410, 411, 429(a), 430, 431, and 902(a)(5)) and 48 
U.S.C.1801.


0
2. Section 404.1055 is amended by removing the last sentence of 
paragraph (a).

0
3. Section 404.1056 is amended by revising paragraphs (a)(6) and 
(a)(11) to read as follows:


Sec.  404.1056  Explanation of agricultural labor.

    (a) * * *
    (6) If you do nonbusiness work, it is agricultural labor if you do 
the work on a farm operated for a profit. A farm is not operated for 
profit if the employer primarily uses it as a residence or for personal 
or family recreation or pleasure. (See Sec.  404.1058(a) for an 
explanation of nonbusiness work.)
* * * * *
    (11) Work connected with the commercial canning or freezing of a 
commodity is not agricultural labor nor is work done after the delivery 
of the commodity to a terminal market for distribution for consumption.
* * * * *

0
4. Section 404.1086 is revised to read as follows:


Sec.  404.1086  Community income.

    If community property laws apply to income that an individual 
derives from a trade or business (other than a trade or business 
carried on by a partnership), the gross income and deductions 
attributable to such trade or business shall be treated as the gross 
income and deductions of the spouse carrying on such trade or business 
or, if such trade or business is jointly operated, treated as the gross 
income and deductions of each spouse on the basis of his or her 
respective distributive share of the gross income and deductions.

0
5. Section 404.1091 is amended by redesignating existing paragraph (c) 
as paragraph (d), adding a new paragraph (c) and removing the word 
``one'' from the first sentence of the redesignated paragraph (d) to 
read as follows:


Sec.  404.1091  Figuring net earnings for ministers and members of 
religious orders.

* * * * *
    (c) Housing allowance when included in retirement pay. You must 
exclude any parsonage or housing allowance included in your retirement 
pay or any other retirement benefit received after retirement pursuant 
to a church plan as defined in section 414(e) of the Internal Revenue 
Code when computing your net earnings from self-employment. For 
example, if a minister retires from Church A and the rental value of a 
parsonage or any other allowance is included in his/her retirement pay, 
the parsonage allowance must be excluded when determining net earnings 
from self-employment. However, if this same retired minister goes to 
work for Church B and is paid a parsonage allowance by Church B, this 
new income must be

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included when computing net earnings from self-employment.
* * * * *

Subpart M--[Amended]

0
6. The authority citation for subpart M of part 404 continues to read 
as follows:

    Authority: Secs. 205, 210, 218, and 702(a)(5) of the Social 
Security Act (42 U.S.C. 405, 410, 418, and 902(a)(5)); sec. 12110, 
Pub. L. 99-272, 100 Stat. 287 (42 U.S.C. 418 note); sec. 9002, Pub. 
L. 99-509, 100 Stat. 1970.


0
7. Section 404.1207 is amended by revising the second sentence of 
paragraph (a) to read as follows:


Sec.  404.1207  Divided retirement system coverage groups.

    (a) General. * * * The States having this authority are Alaska, 
California, Connecticut, Florida, Georgia, Hawaii, Illinois, Kentucky, 
Louisiana, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, 
New York, North Dakota, Pennsylvania, Rhode Island, Tennessee, Texas, 
Vermont, Washington, and Wisconsin.
* * * * *
[FR Doc. 05-14385 Filed 7-20-05; 8:45 am]
BILLING CODE 4191-02-P