How to Utilize the New Entity Notification Procedure
This course explains the new entity notification procedure and addresses why a new modification may be unnecessary.
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- What is the new entity notification procedure?
- What is an example of a new component that has been formed by a political subdivision?
- What are the required steps to the new component notification procedure?
- What is acceptable evidence of the establishment of a new government component?
- I'm not sure if my situation involves a new component or something else. What else could it be?
- When is the notification procedure not the correct course of action for a new entity?
- What methods can I use to determine if an entity is a new political subdivision?
- If the entity is a new political subdivision what are the steps for providing full Social Security coverage?
1. What is the new entity notification procedure?
The new entity notification procedure insures accurate SSA and IRS Section 218 coverage records by requiring the State to notify SSA and the IRS of the creation or existence of a component that is an integral part of a political subdivision. Usually, the component is created by an existing political subdivision, such as a city or county, which has previously covered all services (except services that are mandatorily or optionally excluded) of employees under a Section 218 agreement. However, it is possible, that unlike other integral parts in the political subdivision, this component has its own payroll, bookkeeping, tax reporting system, EIN, etc. Despite this component's degree of autonomy, there is no need for a new modification, as the new component is covered under the political subdivision's existing modification.
2. What is an example of a new component that has been formed by a political subdivision?
A State has executed a modification that covers all services performed by a city. The city subsequently creates a recreation board to oversee the city's recreational facilities. The recreation board is not considered a separate political subdivision under State statute, but constitutes a department of the city. The recreation board has a separate payroll system from the city, applies for and receives an EIN, withholds the appropriate employment taxes and reports such taxes and wages to the SSA and IRS.
3. What are the required steps to the new component notification procedure?
Step 1. The political subdivision should inform the state administrator of the new component's name, address, the modification that covers the component, the component's EIN and the effective date of coverage. In addition, the political subdivision must submit evidence of the establishment of the component (See SL 40001.477 Reporting New Government Components). If this evidence is not provided, then the State must obtain it.
Step 2. The State completes and sends the Notification of a New Government Component form (See SL 400101.490F, Exhibit 24, View PDF Version), with ink signatures, along with the establishing evidence to the RO for technical and legal review and clearance. If the State wants more than one signed copy, it must provide the extra copies.
Step 3. The RO reviews the evidentiary documentation and verifies the information shown on the Notification of a New Government Component form.
Step 4. When the RO completes its review of the notification and accompanying legal documentation, it either notifies the State that the legal documentation is acceptable or asks for additional information.
Note: The RO should follow steps similar to those found in the course on the modification process. This entails the RO specialist referring the notification to OGC for their review of the supporting legal documentation. OGC should verify that the entity only underwent a name change and that there was no change in composition.
Step 5. Once approved, a copy of the notification form is sent to the IRS via fax at 855-243-4014.
4. What is acceptable evidence of the establishment of a new government component?
The State must submit evidence legally sufficient to substantiate the establishment of a new government component which is an integral part of the political subdivision. The evidence may be in the form of a copy of the legal authority under which the new government component was established. This could be a copy of a city ordinance or a copy of the order of an authorized official which effectuated the establishment of the new government component. Where legislative authority is involved, either a reference to it or a copy of the legislation should be provided along with proof that this authority has been exercised. The documentation provided must show that the new government component is an integral part of the existing political subdivision.
5. I'm not sure if my situation involves a new component or something else. What else could it be?
It could be that the entity has undergone a name change, only? If only a name change occurred and the entity's composition remains the same or the entity merely annexes or gives up territory and its legal status is not changed, a written notice of the name change with legal documentation for the name change is sufficient. In this situation there is also no need for a new modification.
The notice should include:
- prior name of the entity,
- modification number that covers the entity,
- entity's new name and EIN,
- legal documentation for the name change, and
- a statement concerning whether there has been a change in the entity's composition.
The RO will update its files and send a copy of the notice of name change to the IRS. The RO will attach the notice of name change to the modification that covered the "old name" entity. The RO will contact the State official if additional information is necessary. (See the training course: When an entity changes name)
6. When is the notification procedure not the correct course of action for a new entity?
The notification procedure is only used when a component is created by an existing political subdivision, and the State has previously covered all their employees under a Section 218 agreement, and there is no need for a new modification. A new modification, on the other hand, is generally necessary when an entirely new political subdivision is created.
7. What methods can I use to determine if an entity is a new political subdivision?
The term “political subdivision” includes not only cities and counties, but also boards of education, libraries, housing authorities, water districts, police and fire districts, airports, etc. As a general rule of thumb, if an entity is created by an act of the legislature, by a vote of the public, or by another political entity—it is a political subdivision.
8. If the entity is a new political subdivision what are the steps for providing full Social Security coverage?
Step 1: First, the state administrator obtains legal documentation that formed the entity. Then, make a determination based on the documentation and State statute of whether the entity is a political subdivision of the State.
Step 2: If you determine that the entity is a political subdivision, notify the employer of their Social Security options:
Option 1: Full FICA coverage (Social Security and Medicare) through a Section 218 Agreement.
Option 2: For services performed after July 1, 1991, full FICA coverage is required for employees whose services are not covered under an existing Section 218 Agreement or by a qualified retirement system.
Option 3: For services performed after March 31, 1986, Medicare coverage is required for employees whose services are not covered under an existing Section 218 Agreement or by Mandatory FICA.
Step 3: If State statute requires, submit a referendum resolution to the governing board or council of the political subdivision. The representative of the board or council must certify that __% of the eligible employees have requested such a referendum.
Consider scheduling an in-person or video conference to explain the process and to answer questions.
Step 4: Set a referendum date, time, and place. Be sure that the referendum date is scheduled at least 90 days after the notice of referendum. Send a referendum notice to the employer and employees. Consider scheduling an in-person or video conference to explain the process and to answer questions from the eligible voters.
Step 5: Obtain a referendum register containing the approximate number and list of eligible employees that will be participating in the referendum.
Step 6: Prepare referendum ballots and the tally sheet (Certificate of Referendum). Remind the entity that the only employees that have the right to vote are members of the retirement system for which the referendum is being held.
Step 7: Shortly before the scheduled referendum, prepare a memo to the entity transmitting some of the ballots for use in absentee balloting. Absentee ballots must be returned to the address on the ballot on or before the date of the referendum.
Step 8: Conduct the referendum.
Step 9: Issue a post referendum resolution for the governing body of the political subdivision to sign. Remind the entity that they must provide the resolution requesting that the entity go forward with the Agreement and Modification.
Step 10: Prepare the modification packet to send to SSA for its approval to include the entity under the State's Section 218 Agreement. (See the training course: The Modification Process)
Step 11: Upon approval and return of the Modification by SSA, notify the entity that the modification was approved, and reiterate the effective date of coverage.