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Texas teachers use pension loophole to boost benefits

By JOHN C. HENRY

Washington Bureau WASHINGTON -- Almost 4,800 retired Texas teachers have taken advantage of a glitch in the Social Security law that allows them to collect Teacher Retirement System benefits as well as full Social Security benefits when their spouse dies. The loophole -- detailed Thursday in a General Accounting Office report -- is expected to cost the federal government an estimated $450 million over the lifetime of the retired teachers. GAO investigators predicted that, until the law is changed, the cost will only go higher as others take advantage of the so-called loophole. "This affects everybody who depends on Social Security," said Rep. Clay Shaw, a Florida Republican who chairs the House subcommittee on Social Security. The loophole cited in the GAO study allows Texas teachers and others to get around a federal law that reduces spousal benefits available under Social Security for government retirees who were exempt from paying Social Security taxes. Tucked away in the law, which was last overhauled in 1977, is a provision that allows government workers full benefits if Social Security taxes and retirement plan contributions are withheld on the last day of employment. The provision, which is the focus of the GAO study, has prompted retiring teachers to seek temporary jobs as maintenance, cafeteria and office workers at a handful of Texas school districts that participate in both the state Teacher Retirement System and the Social Security system. One of them is the Coleman Independent School District, about 45 miles south of Abilene. "It started out as a few folks who knew something about this law, which we knew nothing about," said Skip Casey, the Coleman superintendent. "It steadily grew, simply by word of mouth," Casey said. "It blossomed into something where we have several hundred people who come work for us for one day." Today, the district operates an Internet Web site to help teachers apply for temporary jobs from which to retire as Social Security taxpayers. A $200 fee is charged to cover the district's administrative costs. And if a teacher decides to stay longer than a month, the fee is waived. Charles Dupre, associate superintendent for business and finance for the Fort Bend school district, said several teachers have traveled to Coleman to spend their last day before retirement cleaning lockers or serving lunch in the cafeteria. "They drive there, spend a night in a motel, go to work one whole day, get their paycheck and then go home. And then they are retired," Dupre said. "They don't retire from us. They retire from that district." The GAO study found only two states -- Texas and Georgia -- where the loophole was being exploited widely. Investigators found 24 cases in Georgia and 4,795 in Texas, all involving teachers and other employees of public school systems. GAO investigators said they were unable to determine whether government workers in other states were using the loophole, but cautioned that the exemption could be used in about 2,300 government retirement plans in other states. Gayle Fallon, president of the Houston Federation of Teachers, said teachers are "not really taking advantage of the system" when they switch jobs. "If your spouse paid into it (Social Security), then there's supposed to be a spousal benefit," she said. Under federal law, Social Security spousal benefits are designed to provide income for widows or widowers who were financially dependent on someone who paid Social Security taxes. In two-income households, the surviving spouse is eligible for either his or her own retirement benefit or the spousal payment, whichever is larger. The law says that if a government retiree who was exempt from paying Social Security taxes is eligible for a spousal benefit, the payment is reduced by two-thirds of the amount of the government pension. If a teacher gets a $600 monthly pension from the state, then whatever spousal benefit he or she is due under Social Security would be reduced by $400. If the spousal benefit totals $500, then the former teacher would get $100 from the federal government. However, if the teacher retires from a post that requires paying Social Security taxes -- even for only one day -- then they become eligible for full spousal benefits, plus their full pension from the teacher retirement system. "Clearly, equal treatment under Social Security is impeded when over 4,800 people are changing jobs at the last moment, and even switching from teaching to janitorial work, in order to take advantage of a loophole," said Shaw, who is pushing to change the law. Casey, whose district has been investigated by the Social Security officials from Denver and Washington, said, so far, no one has told him the practice of helping teachers get full spousal benefits is illegal. "There's a glitch in the law that allows this to happen," he said. "The minute somebody tells me this is not proper, that this is not right, then we'll quit doing it in Coleman, Texas. We'll be done that day."

 Copyright 2002 Houston Chronicle

Hospital district says privatization plan to save millions

By STEVE BREWER 

Harris County Hospital District officials say a plan to let private companies take over engineering and food services at the district will save taxpayers $14 million over the next five years. But the union representing about half of the district's 5,000 employees said the plan probably will not save money and is just the first step toward "massive layoffs" at the taxpayer-supported district. John Guest, the district's president, and David Lopez, chief operating officer, will present the privatization plan to the district's board of managers today. Guest denied any plans for major layoffs, but acknowledges that 32 employees will lose their jobs. "I think all available evidence shows we can't justify the 32 additional jobs," Guest said. "We think these savings, which are conservatively estimated, are too big to turn away from." Lopez said the district hopes to spend $27.3 million over the next five years to contract with Sodexho Services, which would handle building and equipment repairs and maintenance. The district has 91 engineering employees, 65 of whom would move to Sodexho, where Lopez said they would be guaranteed the same pay and benefits as Sodexho employees. The 26 employees who would lose their jobs would be offered either a three-month severance package or guaranteed employment with Sodexho for 90 days. Employees taking the 90-day work option would be considered for other jobs with Sodexho, he said, and all employees could seek other jobs with the hospital district. A similar plan is being considered under a proposed contract with Morrison Healthcare Food Service, a deal that would cost $20.6 million over five years. The district's food service department has 153 employees, Lopez said, and Morrison would hire all but six at current wages and benefits. District officials said the engineering contract would save $5.9 million over the next five years, and the food services contract would save $8.1 million in the same period. But Dwight Carmouche, director of American Federation of State, County and Municipal Employees Local 1550, said officials are trying unsuccessfully to improve the district's finances on the backs of employees. Carmouche said he's worried employees who transfer to the private companies won't have job security and health care benefits for their first 90 days. He also said there's no evidence benefits will be comparable to what they get now. He said any money saved by the district would be lost because employees who lose their jobs and benefits will end up relying on the district for public health care. Lopez said there will be no 90-day lag in comparable health benefits for employees transferring to the private companies and that the bulk of those transferred will be kept by the private companies.

 Copyright 2002 Houston Chronicle

Finally, checks will be in the mail

Judge signs off on severance for 4,200 former employees

By ERIC BERGER and BILL MURPHY

NEW YORK -- A U.S. bankruptcy judge approved a $28.8 million severance deal Wednesday that will benefit about 4,200 former Enron employees. The former workers, who have received about $5,700 in severance already, should begin receiving checks bringing the total to $13,500 by early October, said officials. "This is a historic deal," said Richard Rathvon, co-chairman of the employee committee in Enron's bankruptcy case. "It's a fair and equitable agreement that makes sense for all the parties involved." In Houston, the deal was praised by laid-off employees, particularly those still jobless, who said the money will help them get through coming months. The employee committee, joined by lawyers for the AFL-CIO, the Rainbow Push coalition and former employees, brokered a deal with Enron and its creditors for payments now, rather than piling their severance claims on top of all others by creditors owed tens of billions of dollars. Had they not reached a deal now, the former employees likely would not have been paid for a year or more, until the bankruptcy ends, if at all, when thousands of other creditors with unsecured claims will divide limited proceeds from Enron. Although it is only required to make payments that benefit its current business interests, the deal makes sense for Enron, Rathvon said, because the company appears in the public eye to have done the right thing. "We are very happy that the judge has approved the settlement that we have advocated for a long time," Enron spokesman Mark Palmer said. "We hope that this provides some help to our former employees." Enron and its creditors, seeking to reorganize, will also now avoid possible litigation over millions of dollars worth of severance. "I think there was a significant degree of uncertainty about how that would come out," said Susheel Kirpalani, a lead lawyer for creditors in the bankruptcy. Lowell Peterson, the lawyer for nearly two dozen former employees who began the effort for further severance more than six months ago, said public pressure helped his clients fight a difficult legal battle. In addition to public protests in Houston, the AFL-CIO and others organized demonstrations at the corporate headquarters of some of Enron's largest creditors who had to sign off on the deal. "At the end of the day this was a public campaign, and in the end the public won out," Peterson said. The product of several months of at times tense negotiations, the deal was in doubt until Tuesday, when Judge Arthur Gonzalez ruled that about four dozen former workers who did not accept the settlement could not recover all of their claims. Had the estimated value of those claims exceeded the $28.8 million settlement, Enron and its creditors could have scrapped the deal. Although their claimed value was far greater than that, Gonzalez estimated that if fully litigated the claims by the "opt-outs" would be just a few hundred thousand dollars over the threshold. That was close enough for Enron and its creditors, who welcomed the positive buzz that accompanied the deal. "On some days the little guy wins," Rathvon said. "This was one of those days." Echoing that sentiment was Kim Zachary, whose life has been in disarray since she lost her job as marketing specialist at Enron last December. Without dental and health insurance, Zachary, 44, forgoes needed treatment. She gave up a roomy condo for a smaller apartment and is set to downsize again. Things got so bad, said Zachary, "I had to file for personal bankruptcy. That was hard for me to do that. I had had such good credit." But she was in good spirits at a news conference in Houston with other laid-off employees. "I might be able to make a couple more months rent, maybe a car payment," she said. Other former employees said they know exactly how they will use their money -- to pay bills. Nate Ellis, still out of work after being laid off as a director at Enron Energy Services, said, "Up till now, it's been OK. But all my savings are gone. All of it (severance pay) will be used to pay bills -- rent, electricity." Farrell Smith, still out of work after losing his job as customer-event planning manager for EES, said he may have trouble making his October mortgage payment, but doesn't intend to use the severance to pay house and car bills. "I will probably be using this to make sure I can pay my daughter's tuition at Montgomery College," he said. "I'll sell whatever I can to see she goes to school." Former employees said they would like the employees committee to go after $80 million that Enron paid in retention bonuses to key employees shortly before it filed for bankruptcy in December. If Enron hands over part of that money, it should be used to pay severance, laid-off workers said. The committee hopes to have as much as $29 million of the $80 million returned and given out as severance pay, said Rathvon. "There were cashier's checks given out on the Friday before the company declared bankruptcy," said Phyllis Anzalone, a former EES director. "Many of us consider it like a friends and family fund. It just left a sour taste in our months."

 Copyright 2002 Houston Chronicle