20 CFR 404.1201 et seq.

SSR 80-3c

VILLAGE OF PALATINE V. CALIFANO, Civ. No. 77 C 2285 (N.D. ILL. June 28, 1979).

The State of Illinois and the Social Security Administration extended Social Security coverage under an agreement entered into under section 218 of the Social Security Act to employees of the plaintiffs, three villages in Illinois, who were serving in positions that were and covered under a retirement system at the time the coverage was extended. At the time the coverage was extended, the policemen and firemen of the villages were not covered under any retirement system. Because the population of each of the villages subsequently grew to over 5,000, the plaintiffs were required under Illinois law to establish and administer pension funds for the benefit of their policemen and firemen. This created a "double deduction" from the employees' paychecks and double contributions from the plaintiffs. The plaintiffs charged that the requirement of making Social Security contributions infringed upon various constitutional rights and impermissibly interfered with the conduct of municipal business. The court in its decision held: 1) that Social Security coverage of policemen and firemen is not precluded by the Social Security Act if these employees were not under a pension plan or system on the date the coverage agreement became applicable to their municipal employers; (2) that since participation in the Social Security system is wholly voluntary for the plaintiffs and can be terminated for their employees as a coverage group after giving the State 2 years notice, there is no impermissible Federal interference in local government operations; and (3) that the definition of a coverage group as generally including all employees of a municipality and the strictness of procedures for terminating coverage are not unconstitutional.

GRADY, District Judge:

Plaintiffs in this action[1] are the Villages of Palatine, Carol Stream and County Club Hills. Defendants are the Secretary of Health, Education and Welfare, the Social Security Administration's Bureau Director of Retirement and Survivors Insurance, and the Secretary and Supervisor of the State Employees Retirement System of Illinois. Plaintiffs collect Social Security taxes from their policemen and firemen and pay these taxes, together with the employers' contributions, to the Social Security Administration. Pursuant to Illinois law, plaintiffs also administer an independent pension fund for their policemen and firemen. The complaint charges that by exacting Social Security payments for plaintiffs' policemen and firemen, defendants violate plaintiffs' rights to due process and equal protection, and usurp their powers as "home rule" units under Ill. Const. art. VII, § 6(a). Defendants move to dismiss for failure to state a claim upon which relief can be granted. The motion is granted.

Under Articles 3 and 4 of the Illinois Pension Code, municipalities with populations in excess of 5,000 are required to establish and administer pension funds for the benefit of their policemen and firemen. Ill. Rev. Stat. ch 108½, §§ 3-101 et seq., 4-101 et seq. Plaintiffs Village of Palatine and Village of Carol Stream first became subject to these provisions in 1955 and 1972, respectively, when their populations reached the 5,000 mark.[2] Under the Pension Code, policemen are required to contribute 8.5 per cent of their monthly salary to a pension fund and firemen must make monthly contributions equal to 6.75 per cent of their salaries. Ill. Rev. Stat. ch. 108½, §§ 3-125, 4-124. Plaintiff municipalities make annual contributions to these funds.

Plaintiffs are also currently making contributions under the Social Security Act. The 1950 amendments to the Act authorized the Federal Security Administrator (now the Social Security Administrator) to enter into voluntary agreements with the states, extending coverage to all state and local employees serving in positions that were not covered under a state retirement system on the date an agreement was made applicable to such positions. 42 U.S.C. § 418(d)(1).[3] In 1953, the State of Illinois and the Federal Security Administrator executed an agreement which extended coverage to state employees who were not already "covered by a pension, annuity and benefit, retirement or similar fund or system, which has been or is hereafter established by such employer prior to the date an agreement is entered . . . ." Under Illinois law, a municipality could participate in the Social Security system through the Federal/state agreement only if it executed a similar agreement with the state. Ill. Rev. Stat. ch. 108½, § 21-101 et seq. Such an agreement was entered into by the Village of Palatine in 1953 and by the Village of Carol Stream in 1961, when, it will be recalled, their respective populations had not yet reached 5,000. Thus, these municipalities were already participants in the Social Security system when they became subject to the Illinois Pension Code. Plaintiffs currently take "double deductions" from the paychecks of their policemen and firemen, and make corresponding double employer contributions, under the requirements of the two retirement systems. This, they charge, infringes various constitutional rights and impermissibly interferes with the conduct of municipal business.

Due Process

Plaintiffs first argue that the Social Security Act does not authorize coverage of their policemen and firemen, and that their contributions to the Administrator violate due process. in support of their argument, plaintiffs rely on 42 U.S.C. § 418(d)(5)(A), which provides, "Nothing in paragraph (3) of this subsection shall authorize the extension of the insurance system established by this subchapter to service in any policeman's or fireman's position."[4] Plaintiffs contend that this paragraph either expressly prohibits the inclusion of policemen and firemen within the Social Security system, or demonstrates a legislative intent that policemen and firemen be excluded from coverage. We disagree.

The original version of the Social Security Act did not provide for coverage of employees of states and their political subdivisions. Section 210(b)(6) of the Act, 49 Stat. 625 [now § 210(a)(7), 42 U.S.C. § 410(a)(7)]. The 1950 amendments, however, enabled those states which so desired to bring their employees and the employees of their political subdivisions, including policemen and firemen, within the Social Security system, provided those employees were not already covered by another retirement plan. 42 U.S.C. § 418(d)(1). Then in 1954, Congress enacted paragraph 3, referred to in paragraph 5(A) above, to provide for the voluntary participation in the Social Security system of state and local employees already covered by a pension plan. Paragraph 3 permits eligible employees in a particular coverage group to vote on whether their state's agreement with the Federal Security Administrator should be made applicable to them. Rather than prohibiting coverage under the Social Security system for all policemen and firemen, therefore, paragraph 5(A) merely prohibits their coverage by means of the referendum procedures set forth in paragraph 3. In other words, paragraph 5(A) merely continued the exclusion from coverage of all policemen and firemen who were already covered by a state or local retirement system at the time an agreement was made applicable to them.

Since the population of plaintiff municipalities had not yet reached 5,000 at the time they executed agreements with the State, they were not yet subject to the mandatory policemen's and firemen's pension fund provision of Illinois law. Their firemen and policemen, therefore, were not yet covered by a state retirement system and thus became covered under Social Security when plaintiffs voluntarily entered their respective agreements with the State. And, since none of plaintiffs' employees were yet covered by a state retirement system, they became covered under Social Security without the need for a referendum under paragraph 3. Payments to the Social Security Administrator for plaintiffs' policemen and firemen, therefore, could not run afoul of paragraph 5(A).

Plaintiffs next argue that this interpretation of the Act renders § 218(p)(1), 42 U.S.C. § 418(p)(1), superfluous.[5] That section provides that subsection (d)(5)(A) shall not apply to certain states which specifically requested exemptions from Congress. According to plaintiff, if subsection (d)(5)(A) did not prohibit all policemen and firemen from participating in the Social Security system, subsection (p)(1) was unnecessary. Again, we disagree. Subsection (p)(1) was needed because certain states desired that their policemen and firemen who were already covered by another pension plan be allowed entry into the system. Relief from (d)(5)(A) was essential because these policemen and firemen could being themselves within the coverage of Social Security only by utilizing the referendum procedures set forth in paragraph 3, 42 U.S.C. § 418(d)(3).

Finally, plaintiff contends that this reading of the statute confuses the terms "covered" and "eligible." Plaintiff argues that Articles 3 and 4 of the Illinois Pension Code extend coverage, as the term is used in the Social Security Act, to all policemen and firemen in the State of Illinois, but that only those policemen and firemen in cities of more than 5,000 people were eligible to share in retirement benefits under the state program. Since covered but ineligible employees are nonetheless prohibited from being covered under a Federal/state agreement, 42 U.S.C. § 418(d)(1),[6] plaintiffs' interpretation of Illinois law would bar any Illinois policemen or firemen from participating in Social Security. But we find the proffered interpretation of the relevant Illinois statutes wholly unpersuasive. Under the Social Security Act, an employee is "covered" if he is a member of a coverage group; coverage depends on group-wide characteristics. Eligibility, on the other hand, depends upon the particular characteristics of the individual, including, for instance, age and years of creditable service. See generally, Handbook for State Social Security Administrators, at page 115. Thus, we reject this "covered but ineligible" argument.

Plaintiffs argue alternatively that policemen and firemen become covered under the Illinois Pension Code when they accumulate the requisite number of years of creditable service. Thus, a policeman or fireman could be covered but ineligible if he had served for 20 years on the police force of a municipality of less than 5,000 residents. As plaintiffs point out, in computing an individual fireman's or policeman's length of creditable service those years served on the force before the municipal pension fund came into existence, including years served before the employer's municipality's population, exceeded 5,000, are all counted. Ill. Rev. Stat. ch. 108½, §§ 3-110, 4-108; see also, Donahue v. Board of Trustees, 263 Ill. App. 568 (1931). But to equate "coverage" with "years of service," as plaintiffs do (Memorandum in Opposition to Motion to Dismiss, at 5), is to ignore the Illinois statutory design. Until a municipality reaches a population of 5,000, or until it conducts the necessary referendum, Articles 3 and 4 of the Illinois Pension Code are just "not applicable" to that municipality. See People ex. rel. Nicholson v. Board of Trustees of Police Pension Fund of Village of Hinsdale, 15 N.E. 2d 113 (1938); see also, People v. Board of Trustees of Police Pension Fund of Village of Hinsdale, 281 Ill. App. 394 (1936). To assert that an individual policeman or fireman can be "covered" by a pension plan which is created by a statute not yet applicable to that individual's employer, which is funded by a pension fund not yet in existence, and which is administered by a board of trustees not yet selected, is not tenable. For these reasons, we reject this variation of the "covered but ineligible" argument also.

Thus, we conclude that nothing in the Social Security Act prohibits coverage for all policemen and firemen.[7] The Act only prohibits their coverage if they were already covered under another retirement plan on the date the respective agreements were made applicable to their municipal employers. At the time plaintiffs entered agreements with the State, their policemen and firemen were not covered by the Illinois Pension Code and they therefore became covered under Social Security. Since plaintiffs' policemen and firemen are covered, plaintiffs' contributions to the Administrator do not amount to a taking without due process. Additionally, plaintiffs cannot complain of a taking when their continued participation in the Social Security system is wholly voluntary.

Equal Protection

Plaintiffs next argue that the Social Security Act violates their rights to equal protection of the laws,[8] because it disadvantages them vis a vis municipalities whose policemen and firemen are not required to participate in two retirement systems. We believe that if plaintiffs are disadvantaged, however, the source of the disadvantage is not the Social Security system itself, but plaintiffs' voluntary participation in it. Even now, plaintiffs can terminate their agreements with the State after giving two years' notice. (Agreement, ¶ G, Attachment to Complaint.)

Of course, plaintiffs may terminate their agreements with the State only on a group-wide basis -- i.e., coverage for an entire group, and not merely for particular services, may be terminated. See 42 U.S.C. § 418(g)(1), (b)(5)(B). Plaintiffs could remove their policemen and firemen from Social Security coverage, therefore, only by similarly removing all their municipal employees. This, plaintiffs argue, is unconstitutional. Apparently, plaintiffs contend that the Social Security Act is unconstitutional not because it treats similarly situated municipalities differently, but because it treats differently situated municipalities the same. In other words, the same definition of coverage group applies to municipalities whose policemen and firemen are not covered by any other retirement system, and those municipalities whose policemen and firemen have become covered under another system since the 1954 amendments to the Act.

Perhaps plaintiffs are correct that Congress should have foreseen that some policemen and firemen would become covered under another retirement system, and should have allowed a municipality to terminate its agreement with a State for such services only, leaving the coverage for other municipal employees intact. But our inquiry is limited to whether or not the classifications embodied in the legislation are reasonable.[9] Dandridge v. Williams, 397 U.S. 471, 485 (1970). When it enacted the SSA and its amendments, Congress obviously intended to prevent individual selection against Social Security coverage. The concept of a coverage group, as opposed to covered individuals, was necessary to make the Social Security system manageable. Furthermore, the vitality of the system of the system depended on its stability. For this reason, Congress sought to discourage rapid movement into and out of the system. See generally, S. Rep. No. 1669, 81st Cong., 2d Sess., reprinted in [1950] U.S. Code Cong. & Ad. News 3287, 3301, 3409. Thus, the definition of coverage group, which includes with very few exceptions all employees of a municipality, is rationally related to a legitimate governmental interest. The strictness of the procedures for terminating the municipal/state agreements does not render the Act unconstitutional.

Intergovernmental Immunity

The amended complaint alleges that "the established constitutional doctrine of intergovernmental immunity bars Congress from passing laws which interfere with normal operations of local governments within the State." (Complaint, ¶ 25). In support of this "established doctrine," plaintiffs cite only the case of National League of Cities v. Usery, 426 U.S. 833 (1976). There, the Supreme Court held unconstitutional 1974 amendments to the Fair Labor Standards Act that extended the Act's minimum wage and maximum hour provisions to almost all employees of states and their political subdivisions. Writing for the majority, Justice Rehnquist stated: One undoubted attribute of state sovereignty is the States' power to determine the wages which shall be paid to those whom they employ in order to carry out their governmental functions, what hours those persons will work, and what compensation will be provided where these employees may be called upon to work overtime.

* * * * *

If Congress may withdraw from the States the authority to make those fundamental employment decisions upon which their systems for performance of these functions must rest, we think there would be little left of the States' "separate and independent existence." (cite omitted).

426 U.S. at 845, 851.

Had Congress amended the Social Security Act to require the participation in the system of state and municipal employers and employees, this case might approach the "impermissible burden" on the functioning of the state qua state that the Supreme Court prohibited in Usery. But here the Federal and state legislatures have merely permitted plaintiffs to participate in the Social Security system. Plaintiffs elected to bring their municipal employees within Social Security. They need not have, and even now they can withdraw by following the proper procedures, including two years notice to the Social Security Administrator. Thus, National League of Cities is inapposite.

Plaintiff's Home Rule Powers

Plaintiff Village of Palatine also argues that the agreement to which it is a party, and the Federal/state agreement which the state/municipal agreement tracks, are "contrary to the . . . grant of home rule power under the Illinois Constitution," (Complaint, ¶ 36, at 19). Plaintiff refers to Ill. Const. art. VII, § 6(a) (1970), which provides:

A County which has a chief executive officer elected by the electors of the country and any municipality which has a population of more than 25,000 are home rule units. Other municipalities may elect by referendum to become home rule units. Except as limited by this Section, a home rule unit may exercise any power and perform any function pertaining to its government and affairs including, but not limited to, the power to regulate for the protection of the public health, safety, morals and welfare; to license; to tax; and to incur debt.

We need not decide the precise scope of plaintiff's home rule powers, for it is apparent that plaintiff seeks to use these powers to amend the definition of coverage group in its agreement with the state in a manner inconsistent with Federal law. See 42 U.S.C. § 418(g)(1), (b)(5)(B). This the supremacy clause forbids. U.S. Const. art. VI, § 2. See Carleson v. Remillard, 406 U.S. 598 (1972) (Court held unconstitutional a California regulation which denied AFDC benefits to a mother and her child who satisfied the Federal eligibility criteria). Here, both the state and its political subdivisions are powerless to amend in effect the Federal statute by re-defining "coverage group" to exclude policemen and firemen.

Plaintiff relies on Stryker v. Oak Park, 62 Ill. 2d 523, 343 N.E. 2d 919 (1976), but we find that case distinguishable. There, Oak Park police officers brought an action seeking a declaration that certain city ordinances were unconstitutional. The ordinances, which provided for the appointment and suspension of police officers, conflicted with Article 3-14-1 of the Illinois Municipal Code. Nevertheless, the Illinois Supreme Court held that they were constitutional. Relying on the Village's expanded powers as a home rule unit under the 1970 constitution, the court held that the ordinances superseded the pre-existing state statute.

Stryker is inapplicable here, because plaintiff does not appear to challenge a state statute, but rather a Federal law. The home rule provision of the Illinois constitution transferred to municipalities some powers which had earlier rested with the state; it did not and could not affect the legislative supremacy of the Federal government over either the state or one of its political subdivisions.


Plaintiffs next contend that the parties to the agreements between the State of Illinois and its respective political subdivisions intended that should a subsequent retirement system cover employees of that subdivision, Social Security coverage for those employees would cease. Plaintiffs now propose a "reformation" of the agreements to reflect this alleged intention of the parties. We note only that such a "reformation" would violate provisions of the Social Security Act which we have deemed constitutional. See also, 42 U.S.C. § 418(c)(4). What plaintiffs actually are requesting is that we rewrite the Act, which we are unable to do.

The 1958 Modification

Plaintiff Village of Palatine's final argument is based upon an alleged 1958 modification of the Palatine/State agreement which allegedly violated the following provision of that agreement:

(C) Services covered
This agreement includes all services performed by individuals as employees of the POLITICAL SUBDIVISION and instrumentalities thereof, except: (1) Any service performed by an employee in a position which, on the date specified under part (J) of this agreement, or on the effective date of any modification thereof, whichever is later, is covered by a retirement system.

Plaintiff argues that a 1958 modification to the agreement prohibited the continued coverage under the system of Palatine policemen, who were then covered under the Illinois Pension Code. We disagree. The "modification" alluded to by plaintiff was merely a substitution of the Illinois Municipal Retirement Fund for the State Employee's Retirement System, the original party to the agreement. The type of substantive modification referred to in ¶ C, we believe, is one which would add employees to the coverage group. This conclusion is supported by ¶ F of the agreement which sets forth the procedure for modifying the agreement:

This agreement will be modified at the request of the POLITICAL SUBDIVISION to include additional employees or additional services not now included in this agreement, such modification to be consistent with the provision of Section 218 of the Social Security Act.

Section 218, referred to in ¶ F, provides that the Secretary shall modify an agreement with the State, if the State requests, only to include new employees. 42 U.S.C. § 418(c)(4). We note also that, for reasons already discussed, ¶ C could not be given the interpretation plaintiffs suggest consistent with the Act.


For the foregoing reasons, the motion to dismiss the complaint is granted.

[1] This case was originally brought as class action by individual policemen and firemen as well as their municipal employers. On January 27, 1978, we dismissed the action for lack of subject matter jurisdiction. In a Memorandum Opinion entered on July 12, 1978, we vacated our earlier decision with respect to the municipalities, and affirmed with respect to the individuals.

[2] Absent from the complaint, amended complaint, and the attachments to each are allegations or facts concerning the date on which the Village of Country Club Hills became subject to the Illinois Pension Code or the Social Security Act. For purposes of this motion, we presume that Country Club Hills is situated similarly to its co-plaintiffs.

[3] That section provides:

No agreement with any state may be made applicable (either in the original agreement or by any modification thereof) to any service performed by employees as members of any coverage group in positions covered by a retirement system either (A) on the date such agreement is made applicable to such coverage group, or (B) on September 1, 1954 (except in the case of positions which are, by reason of action by such State or political subdivision thereof, as may be appropriate, taken prior to September 1, 1954, no longer covered by a retirement system on the date referred to in clause (A), and except in the case of positions excluded by paragraph (5)(A) of this subsection). The preceding sentence shall not be applicable to any service performed by an employee as a member of any coverage group in a position (other than a position excluded by paragraph (5)(A) of this subsection) covered by a retirement system on the date an agreement is made applicable to such coverage group if, on such date (or, if later, the date on which such individual first occupies such position), such individual is ineligible to be a member of such system.

[4] Paragraph 3 of subsection (d) provides in part:

Notwithstanding paragraph (1) of this subsection, an agreement with a State may be made applicable (either in the original agreement or by any modification thereof) to service performed by employees in positions covered by a retirement system (including positions specified in paragraph (4) of this subsection but not including positions excluded by or pursuant to paragraph (5)), of the governor of the State designated by him for the purpose, certifies to the Secretary that the following conditions have been met:

(A) A referendum by secret written ballot was held on the question of whether service in positions covered by such retirement system should be excluded from or included under an agreement under this section;

(B) An opportunity to vote in such referendum was given (and was limited) to eligible employees;

(C) Not less than ninety days' notice of such referendum was given to all such employees;

(D) Such referendum was conducted under the supervision of the governor or an agency or individual designated by him; and

(E) A majority of the eligible employees voted in favor of including service in such positions under an agreement under this section.

[5] Subsection (p) of Section 418 provides in part:

(1) Any agreement with the State of Alabama, California, Florida, Georgia, Hawaii, Idaho, Kansas, Maine, Maryland, New York, North Carolina, North Dakota, Oregon, Puerto Rico, South Carolina, South Dakota, Tennessee, Texas, Vermont, Virginia, or Washington entered into pursuant to this section prior to August 1, 1956, may, notwithstanding the provisions of subsection (d)(5)(A) of this section and the references thereto in subsections (d)(1) and (d)(3) of this section, be modified pursuant to subsection (c)(4) of this section to apply to service performed by employees of such State or any political subdivision thereof in any policeman's or fireman's position covered by a retirement system in effect on or after August 1, 1956, but only upon compliance with the requirements of subsection (d)(3) of this section. For the purposes of the preceding sentence, a retirement system which covers positions of policemen or firemen, or both, and other positions shall, if the State concerned so desires, be deemed to be a separate retirement system with respect to the positions of such policemen or firemen, or both, as the case may be.

[6] A 1954 amendment to the Social Security Act permitted the extension of coverage to "covered but ineligible" state or local employees, provided the Federal/state agreement specified whether such individuals would remain in the Social Security system or withdraw upon becoming eligible for membership in the state retirement system. 42 U.S.C. § 418(c)(4), (c)(7).

[7] Our conclusion that the Social Security Act does not prohibit the coverage of policemen and firemen in states other than those listed in 42 U.S.C. § 418(p)(1) is supported by the legislative history also. See Senate Report No. 1987, July 27, 1954, reprinted in 2 [1954] U.S. Code Cong. and Admin. News, at 3750.

[8] Although the Equal Protection Clause of the Fourteenth Amendment applies only to state and not Federal action, the Due Process Clause of the Fifth Amendment has been construed to incorporate equal protection guarantees. Weinberger v. Salfi, 422 U.S. 749, 770 (1975); Richardson v. Belcher, 404 U.S. 78, 81 (1971).

[9] Since plaintiffs have not argued that the Social Security Act infringes on a fundamental right or disadvantages a suspect class, only minimal scrutiny is required. See generally, San Antonio School District v. Rodriguez, 411 U.S. 1, 17 (1973). Plaintiffs might argue that their right to conduct municipal affairs free from impermissible Federal interference constitutes a fundamental right. We need not reach this question, however, for as set forth in text at pp. 9-11, we find no impermissible Federal interference in local governmental operations here.

Back to Table of Contents