Social Security Coverage Agreements with States

The extent to which public employees are covered by Social Security  varies greatly from state to state. SSA is  required by law to maintain accurate earnings records for all workers. SSA Has a Process to Approve Coverage, but Faces Challenges in Ensuring Accurate Coverage

		SSA Works with States to Approve Social Security Coverage, but It Is Unclear If Public Employers Always Know When to Seek Approval

SSA has an established process for working with states to approve  coverage. The SSA regional office reviews the  modification to ensure that it complies with all relevant laws and  procedures. However SSA’s guidance is broad and does not specify how a state administrator  should fulfill these responsibilities. SSA Has Limited Management Oversight of Public Employee Wage Reporting

SSA relies primarily on public employers to correctly interpret their  coverage and accurately report covered wages of public employees,  according to SSA officials. For example, a small fire district in one state reported  Social Security wages for more than a decade without approved coverage  to do so, not realizing coverage under an agreement between SSA and the  state was required. 6) to report Social Security  covered wages. Given its  responsibility, SSA conducted compliance reviews and collected data on  public employers, such as lists of which public employers were part of the  coverage agreement. However, SSA does not track the number of  public employers that are under a state’s approved coverage agreement or  various activities that could expose public employers to greater risk of  committing coverage errors. SSA officials told us that the agency does not use existing information to  assess the extent to which coverage errors are occurring and the risk that  these errors pose to the accuracy of public employer wage reporting. A list of the 11 committees and their objectives is  in appendix V.

	IRS’s Compliance Efforts Are Limited by a Lack of Social Security Coverage Information

		IRS Is Responsible For Ensuring Public Employers Pay Social Security Taxes but Determining Coverage Is Challenging

Since 1987, IRS has been the primary agency responsible for ensuring that  public employers are accurately paying Social Security and Medicare  taxes, and its level of enforcement has increased over the years. For  each examination, the IRS examiner is supposed to obtain information  about the applicable Social Security coverage agreement and determine  the employees that are covered. However, IRS does not know what percent  of the employers did not comply with their state’s Social Security coverage  agreement. Recommendations for Executive Action

To improve SSA’s management oversight of retirement benefits for public  employees, we recommend that the Commissioner of Social Security, in  consultation with IRS, state administrators, and public employers, develop  procedures for monitoring the accuracy of Social Security earnings  records. To improve the process for identifying and correcting errors, we  recommend that the Commissioner of Internal Revenue track errors found  through its compliance efforts on Social Security and Medicare taxes and  share results with SSA, to the extent permitted by federal law. IRS Identification of Incorrect Social Security Taxes

To understand how IRS identifies incorrect Social Security taxes for  public employees, we held interviews with IRS managers in the Federal,  State and Local Governments office (FSLG), which is responsible for the  tax compliance of federal, state, and local government employers,  including their Social Security coverage. Appendix IV: SSA’s Guidance Related to the Responsibilities of State Social Security Administrators

	Serve as a bridge between state and local public employers and federal agencies, including SSA and IRS.
Why GAO Did This Study

In 2007, 73 percent of state and local government employees were covered by Social Security. Unlike the private sector where most employees are covered by Social Security, federal law generally permits each public employer to decide which employees to cover. The Social Security Administration (SSA) is responsible for facilitating Social Security coverage for these employers through agreements with states. SSA is also responsible for maintaining accurate earnings records, while IRS is responsible for ensuring Social Security taxes are paid. Because of the need to ensure Social Security coverage is administered accurately, GAO was asked to review (1) how SSA works with states to approve Social Security coverage and ensure accurate coverage of public employees, and (2) how IRS identifies incorrect Social Security taxes for public employees. GAO reviewed procedures of federal agencies and selected states; surveyed all state administrators; and reviewed IRS case files.

What GAO Found

Although SSA approves Social Security coverage on behalf of state and local government employers, it faces challenges in ensuring accurate reporting of Social Security earnings. SSA works with states to establish and amend Social Security coverage agreements, but public employers do not always know that SSA's approval is required. For example, a small fire district in one state reported Social Security wages for more than a decade without approved coverage to do so, not realizing a coverage agreement between SSA and the state was required. While state administrators are responsible for managing the approved coverage agreements for public employers, SSA's guidance does not specify how states should go about fulfilling this responsibility, leading to variation in the extent to which states meet their responsibility. SSA lacks basic data on which public employers have approved coverage and relies on public employers to comply with coverage agreements voluntarily. SSA officials told us that the agency does not use existing information, such as lessons learned from prior coverage errors, to assess the risks that these errors pose to the accuracy of public employer wage reporting. IRS conducts compliance checks and examinations of public employers; however, examining Social Security coverage for employees is challenging due to limited data and the difficulties of determining whether employees are covered. To obtain needed data, one IRS field office sent its examiners to the SSA regional office to make copies of Social Security coverage agreements. Some other IRS field offices do not have copies of all their respective agreements. IRS tracks the results of its examinations to identify the number of public employers that need tax adjustments; however, IRS does not track whether the tax adjustments relate to Social Security coverage agreement errors even though this information is available during examinations. SSA could benefit from such information so that it could help public employers identify and correct errors. As a result, IRS's and SSA's ability to fully understand problems related to Social Security coverage is limited.

What GAO Recommends

GAO recommends that SSA work with IRS, state administrators, and public employers to improve management oversight and monitoring of public employer reporting of Social Security wages and that SSA clarify its guidance on state administrator responsibilities. GAO also recommends that IRS track errors found through compliance efforts and share results with SSA to the extent permitted by law. SSA and IRS reviewed the report and agreed with the recommendations.