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Social Security Errors Shorted Retirees by Over $850 Million

By Ralph Vartabedian
Los Angeles Times

In a major computer snafu, the Social Security Administration has determined that 700,000 Americans have been shortchanged out of more than $850 million in retirement benefits since 1972, agency officials disclosed Thursday.

Although the Social Security Administration recognized two years ago that there was a glitch ticking in its computers, only recently did it determine the full extent and complexity of the problem.

The agency already is making back payments of nearly $400 million to about 402,000 retirees. Social Security officials now estimate that another 295,000 as-yet-unknown recipients, all of whom continued to work after they began receiving Social Security benefits, are owed back benefits of another $450 million.

"We think that the average amount of back benefits is going to be about $1,500 per person," said D. Dean Mesterharm, deputy Social Security commissioner for systems. "We need to do the right thing. So we have decided to correct this down to the last dollar."

The agency hopes to identify all of the 295,000 additional retirees during the next year.

Mesterharm acknowledged that they may not meet that deadline because of the complexity of the problem.

The fix will be too late for many retirees. More than 57,500 of the first group of 400,000 are dead, having missed out on benefits of $34.8 million. The Social Security Administration does not know how many of the additional 295,000 retirees are dead.

The agency is having difficulty locating survivors and in many cases no survivors exist to accept the money. Under federal law, retirees are not entitled to back interest on any of the benefits.

The software glitch involved the formula used to calculate benefits for individuals who continued to work after they began collecting Social Security - a small portion of the 44 million Americans who will collect a total of $350 billion this year.

As a result of the glitch, some Social Security recipients who continued working did not get any credit in their benefit calculation for their post-retirement income.

The error in the formula was coded into the software system in 1972 and went undetected until late 1994 when the agency's inspector general and its office of integrity review discovered the error.

Programmers have written a new software code to make sure the error does not happen again.

Phil Gambino, Social Security press secretary, said that the problem affected only a tiny fraction of the retirees who have post-retirement income. "I don't want to needlessly alarm every beneficiary who worked past retirement," Gambino said.

Nonetheless, the Social Security glitch without doubt ranks among the most serious computing errors in government history, when measured by the number of people and the amount of money involved.

Mesterharm said the glitch reflected problems that existed in the 1970s, not today.

Although Social Security is credited with operating a fairly competent computer system, Gambino said that Congress had reduced computer modernization spending below the planned level in each of the last five years.

The 295,000 retirees owed back payments make up about 0.7 percent of the 44 million Social Security beneficiaries.

Although the average back payment will be $1,500, some retirees could get as much as $2,000 and others might receive only a few hundred dollars. Agency officials said that they would not know the range until they compute the back benefits.

The software glitch that skewed computations for 22 years has left the agency with a shockingly complex technical problem. The basic software system is capable of making automatic adjustments in benefits only as far back as four years, Mesterharm said.

The Social Security benefit formula is exceptionally complex, vastly more so than federal income tax computations.

It makes dozens of distinctions among individuals - for example, workers with railroad income are subject to different rules from those that apply to other workers. Benefit calculations are particularly convoluted for retirees who have had several spouses.

Another complicating factor is that Congress has changed the Social Security benefit formula 16 times since 1973 and each year's worth of back benefits must be calculated with the formula that was in effect that year.