Teaching Profession

Audit Criticizes ‘Last Day’ Loophole

By Lisa Fine Goldstein — September 04, 2002 3 min read
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Working one day as a janitor could earn a teacher $93,000.

If retiring teachers spend their last day on the job in a position covered by Social Security, such as janitorial or clerical work, they can get around limitations on federal retirement aid earned through their spouses and really clean up.

About 4,800 teachers in Texas and Georgia in the past few years have done just that—or used similar tactics to maximize their retirement benefits. Those cases alone could cost the Social Security system $450 million, according to a recent federal audit. The report from the General Accounting Office, the investigative arm of Congress, did not estimate the number of such cases nationwide.

The report, “Social Security Administration: Revision to the Government Pension Offset Exemption Should Be Reconsidered,” is available from the General Accounting Office. (Requires Adobe’s Acrobat Reader.)

The audit examined a loophole in a 1977 federal law that created what is known as the “government-pension offset.” That law stipulates that retirees with state or local government pensions, provided they did not pay into the Social Security system during their careers, cannot also receive full “spousal” Social Security benefits generated by their husband’s or wife’s career. But if such employees spend their last working day in a position covered by Social Security, they can get around that prohibition, according to the GAO report.

That means teachers who worked their last day, for instance, in janitorial positions—paying, for instance, a grand total of $3 in Social Security taxes— could potentially collect $93,000 in spousal or widow’s benefits over the course of the rest of their lives, the report says. Such spousal benefits, in general, are intended to go to a nonworking spouse whose wife or husband paid into the Social Security system.

The Aug. 15 report recommends changing the “last day” provision of the law, requiring instead that an employee work a longer, unspecified minimum period of time before being entitled to the full spousal benefits.

Districts Charge Fees

Though the audit focused only on teachers in Texas and Georgia, two states where use of the so-called last-day exemption is possible, the issue also applies to government workers in 26 other states.

Texas reported 4,795 such cases; Georgia had only 24. The teachers didn’t always have to resort to other kinds of work. They also could use the exemption by spending their last year teaching within the state in other districts where teachers pay into Social Security. Some school districts even offer last-day employment and charge a processing fee to hire those workers, the report says.

Representatives of the National Education Association and other teacher groups have tried for years to lobby Congress to repeal the offset. Teacher officials said that they were happy the loophole exists, and suggested that the report, though critical of teachers’ use of the loophole, has shone a welcome light on the offset issue.

“The fact that there’s a loophole that people resort to in order to get the benefits they need and counted on shows the law is flawed,” said Carrie Lewis, a policy analyst for the NEA. “People understand they are going to take a salary cut when they become a teacher, but they at least think their retirement is secure.”

But if the offset is repealed entirely, the price tag could be huge. An aide with the tax-writing House Ways and Means Committee, who asked not to be named, said killing the offset provision could cost the Social Security system $21 billion by 2010.

Rep. E. Clay Shaw Jr., R-Fla., the chairman of the House Ways and Means Committee’s Social Security subcommittee, who requested the GAO report, released a statement saying that use of the loophole worsens Social Security’s long-term financial picture.

Last December, however, Rep. Shaw proposed reducing the offset. The current benefit reduction equals two-thirds of the teacher’s government pension. Mr. Shaw proposed a bill that would reduce the offset to one-third.

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