2. Payments other than salary from these accounts constitute The Commissioner found, on review pursuant to the State's request, that the payments made under Sections 207(a) and (c) of the General Municipal Law of New York State are not excluded wages as defined in Sections 209(b) and (d) of the Social Security Act. On the basis of this finding the Commissioner cancelled the Social Security Administration's credit allowance. SECTIONS 218(c) (5) and 218(s) (42 U.S.C. 418(c) (5) and 418(s)) STATE AND LOCAL COVERAGE-COMMISSIONER'S RULING-MONIES PAID BY A HOSPITAL TO A RESIDENT DOCTOR - ARIZONA 20 CFR 404.1004 and 404.1026 SSR 78-3 A hospital which had formerly reported its resident physicians and interns as employees asserted that after June 30, 1970: 1) these individuals were independent contractors and not employees; 2) they were students whose services were excluded from coverage under the State's section 218 agreement with the Secretary of Health, Education, and Welfare; and 3) the amounts they received were scholarships or fellowships and not wages. Held, upon review the Commissioner of Social Security found that: 1) the resident physicians and interns were employees under the common-law rules; 2) these individuals were not excluded from coverage under the student exclusion; and, 3) since they were employees of the hospital and were covered under its 218 agreement, the amounts paid constitute wages.* The State of Arizona had timely requested a review of three assessments of contributions under its agreement regarding a resident physician performing services for the Maricopa County General Hospital in the years 1970 through 1974. The hospital had reported both its resident physicians and interns as employees until July 1, 1970. At that time, the hospital entered into written contracts with these individuals describing them as independent contractors. The State's position was that: (a) the individuals were independent contractors and not employees of the hospital; (b) they were students whose services were excluded from coverage under the student exclusion; and (c) the amounts they received were scholarships or fellowships within the meaning of Section 117 of the Internal Revenue Code and not wages. *Under section 218(t) of the Social Security Act, there is a period of two years after the mailing of the notice of the decision of the Commissioner within which a State may file a civil action in the Federal district court for a redetermination of the correctness of the assessment of the amount due. The Commissioner found on review that the resident physicians and interns were subject to the hospital's control as to the manner and means of performance of their services and were, therefore, employees under the common-law rules. They worked full-time at the hospital under the supervision of a staff physician who could change the manner in which they administered medical treatment to patients. Moreover, in the written contracts, they agreed to abide by hospital policies and procedures, medical staff rules and regulations. The Commissioner further found that their services were not excluded from coverage under the student exclusion. The 1965 Amendments to the Social Security Act provided that effective January 1, 1966, the services of medical and dental interns would no longer be excluded from coverage. These individuals would be covered on the same basis as other employees working for the same employer. The Social Security Administration has always held that resident physicians are not students. This position was supported by a decision of the U.S. Court of Appeals (St. Luke's Hospital Association of Cleveland, Ohio, of the Methodist Church v. U.S., 333 F. 2nd 157 (6 Cir. 1964), cert. denied 379 U.S. 963 (1965)). The court held that the residents-in-training were not exempt, under 26 U.S.C. 3121(b) (13), from the statutory definition of employment and thus the hospital was required to pay Federal Insurance Contributions Act taxes on their wages. The Commissioner also found that the amounts paid to the interns and residents constituted wages. While the question of whether a payment is a scholarship or fellowship under Section 117 of the Internal Revenue Code is a matter for determination by the Internal Revenue Service, it appeared clear in this case that the payments represented compensation for services. As such, these payments would be wages as defined in section 209 of the Social Security Act. The Commissioner therefore affirmed the assessments and the basis on which they were made. SECTION 218(b) (5), (d) and (g) (1) (42 U.S.C. 418(b) (5), (d) and (g)(1)) STATE AND LOCAL COVERAGE-COVERAGE OF POLICEMEN AND FIREMEN ILLINOIS-CONSTITUTIONALITY 20 CFR 404.1201 et seq. VILLAGE OF PALATINE v. CALIFANO, Civ. No. 77 C 2285 (N.D. III. June 28, 1979). SSR 80-3c The State of Illinois and the Social Security Administration extended Social Security coverage under an agreement entered into under section 218 of the Social Security Act to employees of the plaintiffs, three villages in Illinois, who were serving in positions that were and covered under a retirement system at the time the coverage was extended. At the time the coverage was extended, the policemen and firemen of the villages were not covered under any retirement system. Because the population of each of the villages subsequently grew to over 5,000, the plaintiffs were required under Illinois law to establish and administer pension funds for the benefit of their policemen and firemen. This created a "double deduction" from the employees' paychecks and double contributions from the plaintiffs. The plaintiffs charged that the requirement of making Social Security contributions infringed upon various constitutional rights and impermissibly interfered with the conduct of municipal business. The court in its decision held: (1) that Social Security coverage of policemen and firemen is not precluded by the Social Security Act if these employees were not under a pension plan or system on the date the coverage agreement became applicable to their municipal employers; (2) that since participation in the Social Security system is wholly voluntary for the plaintiffs and can be terminated for their employees as a coverage group after giving the State 2 years notice, there is no impermissible Federal interference in local government operations; and (3) that the definition of a coverage group as generally including all employees of a municipality and the strictness of procedures for terminating coverage are not unconstitutional. GRADY, District Judge: Plaintiffs in this action' are the Villages of Palatine, Carol Stream and Country Club Hills. Defendants are the Secretary of Health, Education and Welfare, the Social Security Administration's Bureau Director of Retirement and Survivors Insurance, and the Secretary and Supervisor of the State Employees Retirement System of Illinois. Plaintiffs collect Social Security taxes from their policemen and firemen and pay these taxes, together with the employers' contributions, to the Social Security Administration. Pursuant to Illinois law, plaintiffs also administer an independent pension fund for their policemen and firemen. The complaint charges that by exacting Social Security payments for plaintiffs' policemen and firemen, defendants violate plaintiffs' rights to due process and equal protection, and usurp their powers as "home rule" 'This case was originally brought as class action by individual policemen and firemen as well as their municipal employers. On January 27, 1978, we dismissed the action for lack of subject matter jurisdiction. In a Memorandum Opinion entered on July 12, 1978, we vacated our earlier decision with respect to the municipalities, and affirmed with respect to the individuals. units under III. Const. art. VII, § 6(a). Defendants move to dismiss for failure to state a claim upon which relief can be granted. The motion is granted. Under Articles 3 and 4 of the Illinois Pension Code, municipalities with populations in excess of 5,000 are required to establish and administer pension funds for the benefit of their policemen and firemen. III. Rev. Stat. ch 108, §§ 3-101 et seq., 4-101 et seq. Plaintiffs Village of Palatine and Village of Carol Stream first became subject to these provisions in 1955 and 1972, respectively, when their populations reached the 5,000 mark.2 Under the Pension Code, policemen are required to contribute 8.5 per cent of their monthly salary to a pension fund and firemen must make monthly contributions equal to 6.75 per cent of their salaries. III. Rev. Stat. ch. 1081⁄2, §§ 3-125, 4-124. Plaintiff municipalities make annual contributions to these funds. Plaintiffs are also currently making contributions under the Social Security Act. The 1950 amendments to the Act authorized the Federal Security Administrator (now the Social Security Administrator) to enter into voluntary agreements with the states, extending coverage to all state and local employees serving in positions that were not covered under a state retirement system on the date an agreement was made applicable to such positions. 42 U.S.C. § 418(d) (1). In 1953, the State of Illinois and the Federal Security Administrator executed an agreement which extended coverage to state employees who were not already "covered by a pension, annuity and benefit, retirement or similar fund or system, which has been or is hereafter established by such employer prior to the date an agreement is entered...." Under Illinois law, a municipality could participate in the Social Security system through the Federal/state agreement only if it executed a similar agreement with the state. III. Rev. Stat. ch. 1081⁄2, § 21-101 et seq. Such an agreement was entered into by the Village of Palatine in 1953 and by the Village of Carol Stream in 1961, when, it will be recalled, their respective populations had not yet reached 5,000. Thus, these municipalities were already participants in the Social Security system when they became subject to the Illinois Pension Code. Plaintiffs currently take "double de 'Absent from the complaint, amended complaint, and the attachments to each are allegations or facts concerning the date on which the Village of Country Club Hills became subject to the Illinois Pension Code or the Social Security Act. For purposes of this motion, we presume that Country Club Hills is situated similarly to its co-plaintiffs. 'That section provides: No agreement with any state may be made applicable (either in the original agreement or by any modification thereof) to any service performed by employees as members of any coverage group in positions covered by a retirement system either (A) on the date such agreement is made appliicable to such coverage group, or (B) on September 1, 1954 (except in the case of positions which are, by reason of action by such State or political subdivision thereof, as may be appropriate, taken prior to September 1, 1954, no longer covered by a retirement system on the date referred to in clause (A), and except in the case of positions excluded by paragraph (5) (A) of this subsection). The preceding sentence shall not be appliicable to any service performed by an employee as a member of any coverage group in a position (other than a position excluded by paragraph (5) (A) of this subsection) covered by a retirement system on the date an agreement is made applicable to such coverage group if, on such date (or, if later, the date on which such individual first occupies such position), such individual is ineligible to be a member of such system. ductions" from the paychecks of their policemen and firemen, and make corresponding double employer contributions, under the requirements of the two retirement systems. This, they charge, infringes various constitutional rights and impermissibly interferes with the conduct of municipal business. Due Process Plaintiffs first argue that the Social Security Act does not authorize coverage of their policemen and firemen, and that their contributions to the Administrator violate due process. In support of their argument, plaintiffs rely on 42 U.S.C. § 418(d) (5) (A), which provides, "Nothing in paragraph (3) of this subsection shall authorize the extension of the insurance system established by this subchapter to service in any policeman's or fireman's position." Plaintiffs contend that this paragraph either expressly prohibits the inclusion of policemen and firemen within the Social Security system, or demonstrates a legislative intent that policemen and firemen be excluded from coverage. We disagree. The original version of the Social Security Act did not provide for coverage of employees of states and their political subdivisions. Section 210(b) (6) of the Act, 49 Stat. 625 [now § 210(a) (7), 42 U.S.C. § 410(a) (7)]. The 1950 amendments, however, enabled those states which so desired to bring their employees and the employees of their political subdivisions, including policemen and firemen, within the Social Security system, provided those employees were not already covered by another retirement plan. 42 U.S.C. § 418(d) (1). Then in 1954, Congress enacted paragraph 3, referred to in paragraph 5(A) above, to provide for the voluntary participation in the Social Security system of state and local employees already covered by a pension plan. Paragraph 3 permits eligible employees in a particular coverage group to vote on whether their state's agreement with the Federal Security Administrator should be made applicable to them. Rather than prohibiting coverage under the Social Security system for all policemen and firemen, therefore, paragraph 5(A) merely prohibits their coverage by means of the referendum procedures set forth in paragraph 3. In other 'Paragraph 3 of subsection (d) provides in part: Notwithstanding paragraph (1) of this subsection, an agreement with a State may be made applicable (either in the original agreement or by any modification thereof) to service performed by employees in positions covered by a retirement system (including positions specified in paragraph (4) of this subsection but not including positions excluded by or pursuant to paragraph (5)), of the governor of the State designated by him for the purpose, certifies to the Secretary that the following conditions have been met: (A) A referendum by secret written ballot was held on the question of whether service in positions covered by such retirement system should be excluded from or included under an agreement under this section; (B) An opportunity to vote in such referendum was given (and was limited) to eligible employees; (C) Not less than ninety days' notice of such referendum was given to all such employees; (D) Such referendum was conducted under the supervision of the governor or an agency or individual designated by him; and (E) A majority of the eligible employees voted in favor of includiing service in such positions under an agreement under this section. |