Archive for June, 2009

Social Security’s “massive rip-off”

June 25, 2009

Become a teacher — and lose the Social Security benefits you paid for while holding other jobs!

A good recruiting slogan it’s not.

But a pair of three-decade-old federal laws, aimed at preventing “double-dipping” in government pensions, are penalizing some Californians who take public service jobs in teaching, firefighting and law enforcement.

U.S. Sen. Dianne Feinstein, D-California, who has been trying to get the federal laws repealed, estimated two years ago that the penalty could affect nearly one million persons nationwide, about 200,000 in California.

It’s called a “heroes’ penalty” by Assemblyman Tom Torlakson, D-Antioch. He is carrying yet another resolution in the California Legislature, AJR 10, urging Congress to repeal the penalty.

“This comes under a couple of possible labels,” Torlakson told an Assembly committee last month. “It would be a ‘Catch 22’ or it would be a massive rip-off.”

Torlakson told a Senate committee this week about Margaret “Peg” Cagle, a “wonderful, brilliant architect” who paid into Social Security for two decades before becoming a teacher in the Los Angeles Unified School District.

Cagle became an outstanding math teacher. Among her awards: LAUSD Teacher of the Year; the USA Today All-USA Teacher Team; and the Presidential Award for Excellence in Math & Science Teaching.

“She went to retire and found out she had lost about half of her Social Security because she was in STRS (the California State Teachers Retirement System),” said Torlakson.

In another example, said Torlakson, a woman whose husband died could have begun receiving about half of her husband’s $1,600 a month Social Security payment. But she was a member of CalSTRS.

“When she went in to reconcile she was surprised to learn she would only get a $225 death benefit to bury her husband,” Torlakson said.

As an Assembly committee heard Torlakson’s resolution last month, Rhoda McFarland of Sacramento told how she had taught for 25 years before working for 15 years in other public service jobs, this time paying into Social Security.

“When I got ready to get my Social Security, I was told I couldn’t have the whole thing because I had taught in California,” she said, which forced her to continue working and delay retirement until five years ago.

McFarland said it took her two years and four trips to a Social Security office to learn that her payment of $272 a month ($185 after a Medicare payment) would have been $568 if she hadn’t been a teacher.

“Even though I paid what someone else paid I’m told you can’t have it because you taught in California,” she said. “It’s so devastating to feel that way. I could not believe it.”

In a survey of its members last year, CalSTRS found that many are unaware of the penalty or “offset,” as it is formally called. About 32 percent of active members expected to have between 10 and 30 years of Social Security credits.

The survey found that 29 percent of those with Social Security credits were unaware of the income offset. In addition, 44 percent of active members were unaware of the spousal benefits offset.

A law that took effect in 2005 requires employers not covered by Social Security to tell new hires about the offsets. And the new hires are required to sign a statement saying they are aware of possible reductions in their Social Security benefits.

“Until recently, many educators were told they would not be affected by these penalties when they retired,” Dave Walrath, a lobbyist for the California Retired Teachers Association told the Senate committee.

“But when they did retire, when they did need the income, all of a sudden they were told, ‘No, we will penalize you. We will reduce your benefits that you paid for and earned,’” he said.

Why did Congress impose the penalties or offsets? Social Security replaces a greater percentage of the income of a lower-paid worker than of a worker who earns a higher income.

The theory is that if benefits such as CalSTRS are not counted, a higher-wage worker could be regarded as a lower-wage worker and receive a Social Security payment based on a greater percentage of the income.

In 1977, Congress passed the “government pension offset,” which reduces a spouse’s Social Security benefit by two-thirds. In some cases, such as the one cited by Torlakson, the result is that the benefit is totally eliminated.

In 1983, Congress passed the “windfall elimination provision,” designed to prevent workers from receiving higher benefits than they would if all of their earnings were covered by Social Security.

Once again legislation has been introduced in Congress to repeal these two Social Security penalties or offsets, S 484 by Feinstein and HR 235 by U.S. Rep. Howard Berman, D-Los Angeles.

A major budget problem is that repealing the two laws would be costly. Recent estimates range from $61 billion to $80 billion over the next 10 years. And Social Security is already projected to run short of money in the decades ahead.

A major political problem is that California is one of only 15 states where some or all of the public employees are not covered by Social Security. So most states, including many of the big ones, do not have a problem with the penalties or offsets.

Legislation in 1961 allowed most California state workers to coordinate their pensions through what is now the Public Employees Retirement System with pensions they receive through Social Security.

Nearly two-thirds of the 800,000 active state and local government workers in the CalPERS system are also covered by Social Security. Among those not covered by Social Security are the California Highway Patrol and state firefighters and correctional officers.

In addition to teachers, other public employees in California not covered by Social Security include judges, University of California employees, and the employees of more than 450 cities, counties and special districts.

State and local governments are in a deep fiscal crisis now. But if repeal continues to fail, California might think about avoiding the devastating impact of Social Security penalties for future public employees by putting them all under Social Security.

The current Social Security contribution rates are 6.2 percent of payroll from employees and 6.2 percent from employers. For the uncovered public employees in California, that’s a lot of money that might be welcomed by Social Security.

A CalPERS analysis of Torlakson’s resolution said that repealing the offsets “could further exacerbate” the fiscal problems of a Socail Security program projected to run out of money in about 30 years.

“In addition, the greater the funding imbalance of Social Security, the greater the likelihood that lawmakers will consider other alternatives, such as mandatory coverage of newly hired state and local public workers to shore up the program,” said the analysis.

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Posted 25 Jun 09

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