# AR 98-5(8): 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

> Federal · Rulings · In force

URL: https://www.frixlaw.com/law-library/statutes/SSA_SSR_AR_AR_98_5_8

## Section

- **Citation:** AR 98-5(8)
- **Heading:** 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
- **Jurisdiction:** Federal
- **Kind:** Rulings
- **Status:** In force
- **Text as of:** August 14, 2026
- **Source:** Compiled text
- **Location:** Social Security Rulings / AR / Eighth Circuit Court / AR 98-5(8)

## Text

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.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/statutes/SSA_SSR_AR_AR_98_5_8. Check the current official text before relying on it. Not legal advice.