AR 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.

AR 98-5(8)

EFFECTIVE/PUBLICATION DATE: 10/30/98

Acquiescence Ruling 98-5(8)

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 residents

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:

Applicability of Ruling:

Description of Case:

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.

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: (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:

ppeals 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:

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. §

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 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

overage 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]

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.

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

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.

cal

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.

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.

2 State and Local Coverage

Handbook for the Social Security Administration and State Social Security

Administrators, section 530.