Frequently Asked Questions on Section 218

The Missouri State Social Security Administrator has provided a ruling by the Social Security Administration (SSA) that states only members of the Public School Retirement System of Missouri (PSRS) who are employed by public schools in the position of “teacher, teacher-secretary, substitute teacher, supervisor, principal, supervising principal, superintendent, assistant superintendent, nurse or librarian,” are exempt from paying Social Security taxes.

PSRS, along with the educational associations, has sent a letter to elected officials explaining the need for SSA to delay implementing its new guidance and to change their position to reflect SSA’s previous guidance. PSRS will continue to work with the educational associations and Missouri elected officials to resolve this issue with SSA and maintain the current interpretation, but we also need to be prepared should these efforts be unsuccessful. PSRS is deeply committed to its members and will do all it can to help them reach their retirement goals.

Will my position be affected?
PSRS has no authority over whether a position or individual is required to contribute to Social Security. Questions regarding whether specific positions are subject to Social Security withholding must be directed to OA as the State Social Security Administrator at 218agreements@oa.mo.gov.

Will this affect current retirees and their benefits?
No. Section 218 has no impact on current retirees or their benefits.

Will school counselors be exempt from paying into Social Security?
Yes. The Social Security Administration has determined that the “counselor” position is exempt from Social Security.

How will this affect my PSRS eligibility?
SSA’s new ruling will neither affect membership eligibility for PSRS, nor will any member be removed from PSRS as a result of this ruling. Also, credit earned in PSRS prior to July 1, 2009 will not be affected by SSA’s ruling.

How will this affect my retirement date?
SSA’s ruling will not affect a member’s eligibility date for retirement. Age and years of service, regardless of contributions paid, will continue to determine eligibility for service retirement.

Example: A member who was planning to achieve the “Rule of 80” on July 1, 2015 will still be eligible to retire on that date. This assumes she continues to work in her same capacity each year.

How will this affect the contributions that I pay into PSRS, and how will my future benefit be calculated?
If SSA determines that a position is subject to Social Security withholding, Missouri statute section 169.070.9 requires that contributions to PSRS be made at two-thirds (2/3) of the normal PSRS contribution rate for only those years when Social Security taxes are paid. Also, the PSRS benefits attributable to years when Social Security taxes are paid will be calculated at two-thirds of the normal benefit amount.

Several examples are provided below showing how benefits are calculated today and how benefits will be calculated when paying two-thirds contributions on all or part of your salary.

Today’s Benefit Calculation

Example: After 30 years of service a member retires.
$48,000 x .025 x 30 years = $36,000
Total Annual Benefit = $36,000
(75% of Final Average Salary)

Example: After 27 years of service, a member must begin paying Social Security withholding on July 1, 2009 based on her position.

$48,000 x .025 x 27 years = $32,400.00
$48,000 x .025 x 3 years x 2/3 = $2,400.12
Total Annual Benefit = $34,800.12
(72.5% of Final Average Salary)

Example: After 27 years of service, a member is required to pay Social Security tax on his coaching salary beginning July 1, 2009.

$48,000 x .025 x 29.7 years = $35,640.00
$48,000 x .025 x .3 years x 2/3 = $240.01
Total Annual Benefit = $35,880.01
(74.6% of Final Average Salary)

How will purchase costs be calculated for affected members?
Purchase costs will be calculated based on full contribution rates and will result in credit applied in the same manner as service worked while paying full PSRS contributions.

Example: A member applies to purchase 1 year of service. The full employee/employer contribution rate is used in the calculation.

Highest Salary Rate on Record x Current Combined Contribution Rate x Amount of Service = Cost of the Purchase

$48,000 x 27% x 1 year = $12,960

Total Purchase Cost = $12,960

Will I pay full or two-thirds contributions on board-paid insurance premiums?

Example: A member’s position is required to pay into Social Security. Therefore, she contributes to PSRS at two-thirds the normal rate. Her compensation for board-paid insurance is at the full contribution rate.

Full contributions shall be remitted on this compensation because it is not part of taxable income, and therefore not subject to Social Security tax. Board-paid insurance includes employer-paid medical, dental, and vision insurance premiums for the member.

What can members do to keep PSRS members exempt from Social Security?

You should contact your State Representative, State Senator, the Governor, Senator Claire McCaskill, Senator Christopher Bond, and your Missouri member of the U.S. House of Representatives to show your support as they work with the SSA and the IRS. Missouri school districts should be allowed to keep the rules the same as they have been for the last five decades, even if that requires another interpretation by SSA, modification of the Section 218 agreements, or an amendment to federal law.

You should ask the SSA and the elected officials listed above to delay the implementation of SSA’s new guidance until at least July 1, 2010, as this change has a major impact on the career decisions of Missouri educators. More time is needed by the Office of Administration, SSA, and the school districts to fully understand exactly which employees are affected by this decision, and the impact this decision will have on their future retirement income.