Louisiana established Firefighters’ Retirement System in La. R.S. 11:2251, et. seq., which provides a pension and disability program and is funded by employee and parochial and municipal contributions. The option of whether or not to include public employees in Social Security was given to local officials nearly 70 years ago. As a result, many parishes and municipalities throughout the state of Louisiana have excluded their firefighters from participation in Social Security. This is the reason that many firefighters don’t have payroll taxes deducted from their paychecks. It has recently come to light that local governments have failed to abide by the decisions which they made decades ago, and the Internal Revenue Service has required that these issues be corrected. Unfortunately, the actions of local government has cost employees a significant amount of money.
Section 218 Agreements
Section 218 Agreements were voluntary agreements between states and the Social Security Administration to provide state and local government employees with Social Security and/or Medicare Hospital Insurance. Absolute coverage groups were comprised of those positions which are not part of a government retirement system. Retirement system coverage groups were those positions which, as the name suggests, were covered by a state or local government retirement system. Amendments to the Social Security Act allowed retirement system coverage groups to make the decision through a majority vote in a referendum to also have Social Security coverage.
Louisiana entered a Section 218 Agreement on December 10, 1952. Act 204 of the Regular Session of the Louisiana Legislature of 1952 established a system whereby retirement system coverage groups could obtain Social Security Coverage. Parishes and municipalities across Louisiana entered agreements with the state to either provide coverage or exclude their employees from coverage. Under the Social Security Act, firefighters and police who were part of a government retirement system were not allowed to obtain Social Security Coverage in most states, including Louisiana. Because the Louisiana Firefighters’ Retirement System (FRS) was not established until 1980, this exclusion did not apply to most Louisiana firefighters, and many were considered an absolute coverage group.
After the FRS’ creation in 1980, firefighters originally covered under their local government’s agreement with the state would remain covered by Social Security and would also be a part of the FRS. A local government also had the option to amend or opt out of that coverage at that time. However, there were no more opt-outs or amendments allowed to Section 218 agreements since 1983, and thus any groups covered or excluded at that time remain covered or excluded to this day. What was once voluntary became permanent and binding.
Unauthorized Termination of Social Security Coverage and the Impacts
For unknown reasons, some local governments with 218 agreements covering firefighters stopped providing coverage for their firefighters around the time the FRS was established. Absent an amendment to the agreement prior to 1983, the government had no authority to do so, and firefighters should have continued to be covered by both Social Security and the FRS. While this sometimes went unnoticed for several decades, recent audits by the Internal Revenue Service have resulted in some local governments having to start covering firefighters again. Penalties, interest, and back-FICA are within the IRS’ authority in such situations, and local governments have been forced to mediate their way into reduced-penalty resolutions. While this may remedy the situation with the IRS, employees are often impacted and have been asked to simply deal with it.
There are a few ways that firefighters are impacted by the sudden and unexpected collection of FICA and coverage by Social Security. The first thing employees would notice is an up to 6.2% tax (FICA) being withheld from their paychecks. Some would argue that this is simply the same FICA requirement which most Americans face. However, it is indisputable that the employees affected were offered a certain wage, connected to certain benefits and tax requirements, and that Social Security and FICA were not part of those taxes or benefits at the time of their hire. Presumably, the government considered the estimated “take home” wage when fixing firefighters’ wages in order to keep them competitive and appropriate when compared to cost-of-living in that parish or city. Likewise, firefighters faced with already low wages considered their after-tax pay when deciding to accept employment, and have fixed their families’ budgets based upon the amount they have netted each month since.
Equally as important is the impact upon longer-tenured firefighters who have spent their entire careers working without having access to the Social Security benefit to which they were legally entitled. In the face of volatile financial markets, a guaranteed federal benefit would be welcome to most. Additionally, those who are nearing retirement may not have enough months left of Social Security contributions to be eligible for benefits upon retirement. As such, some are losing 6.2% of their pay to a benefit program for which they are not eligible. Others who have enough time left to contribute to receive benefits may still see a reduced benefit as a result of not paying in each year of their employment.
It is important to remember that these sudden changes did not come about because Congress passed new legislation, or because tax rates were increased. These changes are all the result of local governments’ negligence and mismanagement. The employees should not bear financial responsibility for this.
Rodrigue & Arcuri recently filed suit against Terrebonne Parish, where firefighters suddenly began having FICA taken out of their paychecks after Terrebonne and Houma had considered firefighters excluded for over 30 years. This directly contradicted their Section 218 agreements, as well as subsequent correspondence with the State, where both indicated that firefighters were included in Social Security coverage. The IRS audited and found that the Houma Fire Department should have been covered, and those firefighters began experiencing an additional 6.2% tax last July. The suit filed in the 32nd Judicial District Court demands that firefighters be made whole for the Parish’s negligence. The Petition can be viewed here.
There is reason to believe that other agencies, including fire departments, police departments, and other political subdivisions and government offices are impacted by similar situations, and there is more litigation to come. In some cases, the issue may be investigated by civil service. Others may require formal litigation. If you believe you or your office may be affected, contact us to allow us to investigate and discuss your options.