November 22, 2005 in City

Mistake may cost STA more than $1 million

By The Spokesman-Review

The Spokane Transit Authority could be liable for more than $1 million in missed Social Security payments for 114 employees.

The mistake, involving about a quarter of the agency’s employees, is being blamed on administrative confusion over which workers had to pay into the national retirement system and which were covered by a private retirement plan only.

Regardless, the public transit agency may be responsible for three years’ worth of both the employer and employee contributions to Social Security. The agency can’t be held liable for prior missed payments.

Officials refused Monday to disclose precise figures because they are in settlement negotiations with the Internal Revenue Service. But based on other retirement contribution figures provided, the settlement amount could be as much as $1.5 million.

Transit officials stress that the mistake won’t cause fare increases or service reductions, but the agency has already budgeted $272,000 in increased retirement benefit costs for 2006 because of the Social Security issue.

The problem was discovered because, in 2003, STA asked the Social Security Administration several questions related to Medicare coverage, said STA CEO Susan Meyer.

That triggered a review by the Social Security Administration, which in n 2004 told STA that all its employees must be enrolled in Social Security. STA has been in negotiations with the IRS since that time.

For more than 20 years STA officials operated under the assumption that employees who were part of the previous paratransit system – a public venture – did not have to participate in Social Security. That’s because local and state governments can provide their own non-Social Security retirement plans.

The remainder of STA’s employees, whose jobs originated with a private bus company, have been part of Social Security since STA formed.

“We discover from time to time that entities have misunderstood these complicated rules and have gone down the wrong path,” said Tim Beard, an employer services liaison officer for the Social Security Administration.

The problem is that the rules are different for transit than for other local and state government agencies, said Beard.

“Frankly, folks screw up because it’s just so messy. Very rare is the situation where someone’s trying to pull the wool over anyone’s eyes,” he added.

But now STA must clean up that mess.

Though he couldn’t speak specifically to STA’s case, Beard said there is a three-year statute of limitations on Social Security payments.

Employees themselves can’t be held liable for decisions made by their employers, Beard said. That means STA could be forced to pay both the employer and employee shares of up to three years of Social Security payments.

STA officials would not say where that money would come from, but the agency’s draft 2006 budget has $6.5 million in undesignated reserves.

Taxpayers will foot the bill for unpaid employee and employer contributions STA doesn’t cover.

As of Jan. 1, all STA employees will be required to participate in Social Security. That could cause hardships for some. Although their retirement benefits will likely improve under a dual Social Security/STA plan system, the amount of money withheld from their paychecks will also increase.

Meyer said it’s possible those employees’ mandatory contributions to STA’s retirement plan may be reduced.

As STA unions’ contracts come up for renewal, the retirement situation will likely be discussed during negotiations, said STA board member Dick Denenny.

As it stands, the employees in question will be part of two systems, boosting their ultimate retirement payments.

STA contributes anywhere from 9 percent to 14 percent of employees’ salaries to its own retirement system. A few part-time paratransit employees are not part of that system. Come January, STA will also pay 7.65 percent of employees’ salaries into Social Security and Medicare.

The agency has budgeted $11.3 million for 2006 employee benefits on employee salaries and wages of $18.1 million.

“I would like to take a systemwide look at our retirement benefit,” said Meyer, adding that she’d prefer that all employees receive the same retirement benefits.

Several top managers, including Director of Finance and Administration Jim Plaster and Director of Operations Steve Blaska, are part of the group that may get both Social Security and STA retirement benefits.

Meyer, who was hired after the Social Security issue came to light, has been paying into Social Security since she took her post.

She said she’s anxious to put the Social Security question behind STA: “Then we can move forward. We know what we’re supposed to be doing, and we’re doing it.”

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