WASHINGTON — How would you like to work for just one day and earn thousands of dollars for it afterwards? Perhaps that sounds like an infomercial on cable TV at three in the morning. Or maybe it sounds like another Fox TV “reality show.” In reality, it is the experience of more than a few Texas schoolteachers.
Back in 2002 the Dallas Morning News reported that the Coleman Independent School District advertised on its website a “Temporary Employment Program” that “may include custodial work, cafeteria work, clerical work, classroom aide.” Most important, the website stated that “If employed by Coleman ISD in a temporary role your compensation for the work will have deductions for the Teacher Retirement System and for Social Security.” What Coleman was advertising was a well-known (among Texas teachers) legal loophole that enabled teachers to get more spousal benefits out of Social Security.
Decades ago, a public employee whose spouse was employed in a job covered by Social Security would have three sources of retirement income. The employee would have a public pension, the spouse would have a Social Security benefit, and, because the employee was married to a Social Security beneficiary, the employee would be eligible for a full Social Security spousal benefit. In 1977 Congress ended this practice by passing the Government Pension Offset (GPO). Under GPO, a public employees’ spousal Social Security benefit was reduced by $2 for every $3 he received in his public pension.
Public school teachers in Texas eventually found a loophole in GPO. They could still receive their public pension and full Social Security spousal benefits if during their last day of public employment they were in a job covered by both Social Security and a public pension program. School district jobs such as janitor and cafeteria worker fit the bill nicely. A system was developed to exploit this loophole, which worked out well for both teacher and school district alike. Teachers would be hired for one day to mop some floors or do some other work, making them eligible to receive much larger retirement benefits courtesy of the U.S. taxpayer. The school districts would charge the teachers “fees” for the privilege of holding these one day jobs, fees that added up to millions of dollars for the districts.
Congress eventually got wind of this scam, and had the Government Accountability Office investigate. The GAO issued a report in 2003 that noted that use of loophole was growing, with officials of one Texas school district reporting “that use of the exemption grew from one worker in 1996 to 1,050 in 2002.” In 2004 Congress closed the loophole with legislation requiring public employees be employed for 5 years in a job covered by Social Security in order to be eligible for full spousal benefits. However, the GAO report concluded that exploiting the loophole was legal and that the teachers would get away with it:
…the law provides an exemption from the GPO if an individual’s last day of state/local government employment is in a position that is covered by both Social Security and their state/local pension system. In these cases, the GPO will not apply, and Social Security spousal benefits will not be reduced.
Enter Joe Fried, a CPA who runs an Ohio-based nonprofit, the Public Program Testing Organization, that studies the effectiveness of government programs. Fried has written a book on Social Security that contains a chapter on this scandal. “The book was the first time I’d looked into it,” said Fried. “I returned to it after the book, and the more I looked into it, the more it became a kind of crusade.” However, Fried was unable to get the Social Security Administration to take any action. Using the Texas Public Records Act, he launched his own investigation. He compiled a bevy of evidence that he turned over to the Inspector General of the Social Security Administration. That was enough for the Inspector General to launch his own investigation in October 2005.
In late January of this year the Inspector General released his report on the scandal. It was damning. The report estimates “that 19,212 individuals will receive $110 million in spousal benefits annually to which they may not be entitled. Over their lifetime, they will potentially receive about $2.2 billion in spousal benefits.” The report examines seven Texas school districts, finding that the “school districts collected approximately $7.4 million in fees from their one-day workers, while only paying them about $900,000.”
The report further noted that five of the districts had agreements with the Social Security Administration that precluded them from providing Social Security to part-time workers. The Inspector General was not impressed with the districts’ claim that the 1-day jobs were full-time jobs: “Although school district officials stated they hired the 1-day workers for full-time positions, we found there was no intent or expectation by either party that the employment would last longer than one day.”
UNFORTUNATELY, THE OVERALL REACTION to this scandal has been a collective yawn. Other than a few press stories, the media have largely ignored it. No one in Congress is calling for an investigation. And the Social Security Administration seems determined to ignore its own Inspector General and sweep the matter under the rug. In an interview with the Waco Tribune-Herald, Social Security Administration spokesman Mark Hinkle “stressed the agency doesn’t anticipate finding problems.” (Neither Hinkle nor anyone else at the Social Security Administration returned calls seeking comment for this article.)
According to the Tribune-Herald article, the Social Security Administration will only review whether the school districts had valid participation agreements with Social Security. The agency will not investigate to determine if those agreements were misused or if individual teachers are receiving benefits they are not entitled to. “We’re not even getting down to that level,” Hinkle said. “We’re just looking at [the agreement] on file and seeing that everything is in order.”
Fried sees it differently. “Can you imagine if this was a private company?” he asks. “In the Tyco scandal, CEO Dennis Kozlowski stole $600 million from private investors, and the media and prosecutors were all over it. This is over $2 billion bilked from the taxpayers and no one seems to care.”
Fried also notes that a new Social Security Commissioner, Michael J. Astrue, was just approved by Congress. Says Fried, “Whether Astrue takes this scandal seriously is the first true test of his leadership.” Indeed, it is.
David Hogberg is a senior analyst at the National Center for Public Policy Research. He also hosts his own website, Hog Haven.
