Social Security Texas school district controversy

In January 2007 the Social Security Office of Inspector General (OIG) issued an Audit Report indicating large-scale abuse of the Social Security program by 7 small school districts in Texas. OIG concluded that the actions of these school districts would ultimately cause the Social Security program to pay ineligible beneficiaries about $2.2 billion. (Audit Report at pg. 2) Essentially, the districts hired retiring teachers, normally exempt from Social Security, to work for a single day each in employment covered by Social Security. Most of the one-day workers were hired as "janitors." By withholding $2 or $3 of FICA tax from their paychecks, the retiring teachers became eligible (ostensibly) for a special benefit that is not normally available to American workers: They could collect their primary pensions (as teachers) while simultaneously collecting spousal retirement benefits from the Social Security trust fund. The extra spousal benefits will average about $113,000 each, according to OIG calculations, and the total damages can be calculated by multiplying that amount times 19,000 one-day workers. (Audit Report at pg. 11)
OIG stated that there were two reasons why the one-day workers were ineligible: The work was "questionable" in that it appeared to be lacking in bona fides. (Audit Reportat pg. 2) In most cases, the one-day workers paid large "processing fees" for the privilege of earning very low wages - usually at minimum wage. For example, the West ISD charged each one-day worker as much as $750, but only paid them around $35 each. This raised the question: Were school districts hiring because they needed the workers, or because they needed the processing fees? The OIG's investigation seemed to confirm the latter. For example, one of the 7 districts, Lindale ISD, admitted that, without the fees (which totaled to $1,335,205), it would have hired only "three or four individuals" rather than the 4,313 "custodian assistants" it hired (Audit Report at pg.7). Similar admissions were obtained from other districts. (Audit Report at pgs.5-9)
The second reason the one-day workers were ineligible had to do with the inability of 5 of the 7 districts to legally give Social Security coverage to workers in part-time positions. (Audit Report at pg.4) After investigating, OIG determined that, under the normally school policies of these 5 district, positions requiring a single day of work were part-time. This meant the districts had no legal authority to give the coverage. With regard to this point, OIG said:

Since these individuals did not intend to work more than 1 day and, in fact, did not work more than 1 day, they were not in positions covered by Social Security on their last day of employment. Therefore, they should not be exempt from GPO [the law barring "double dipping"] (Audit Report at pg. 4, bottom)

OIG's very critical report was not enthusiastically embraced by the Social Security Administration (SSA). In its response to the initial draft of the OIG report, SSA stated: "In all of these cases, the employer paid the Social Security taxes, demonstrating its determination that the positions being filled were full-time positions and, hence ..." qualified for the special exemption. Also, SSA stated: "The fact that a worker pays a fee to work does not impact the validity of the wages received or the underlying employee-employer relationship, as long as the fee is not considered a reimbursement of wages paid to the worker" (Audit Report at Appendix D-3). However, in its final report, OIG reiterated its belief that the fees were, indeed, a reimbursement of wages: "e believe the fees were a reimbursement of wages paid." (Audit Report at pg.12). SSA promised to investigate the matter further. According to the Public Program Testing Organization, the watch-dog agency that produced the allegation to OIG, it is not clear that SSA has taken action, or will take action. The PPTO awaits information requested per the Freedom of Information Act.
The school districts identified by the OIG in its report are West ISD, Hudson ISD, Lindale ISD, Premont ISD, Coleman ISD, Sweeny ISD, and Kilgore ISD (Audit Report at pg. 3). Additional information can be found in an article by David Hogberg of the National Center for Public Policy Research and in an article by the Tyler Morning Telegraph.

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