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NC Treasurer pursues disability overpayments, even from the dead

News & Observer - 12/23/2017

Dec. 23--RALEIGH -- Families of some dead state employees may be getting a letter from the state Treasurer. The message: Pay up.

Treasurer Dale Folwell's office has already been recovering disability overpayments from former employees who are still alive.

Now, according to agency emails, it has broadened the effort to the estates of former workers who have died.

Last summer, the agency began notifying people who receive payments from a state program called the transitional disability income plan that since 2006 they had been getting too much money and the office was going to start taking it back.

In a June 12 email The News & Observer obtained as part of a public records request, Charlene Williams, benefits processing chief, told coworkers that Steve Toole, the retirement system director, wanted them to recoup money from the estates of dead people who had been overpaid, as well as the living.

"Steve wants to handle the deceased member's accounts the same way as the active member's accounts," she wrote. "Could your team start the calculation process for the members who have deceased? How long will it take you to complete the calculations?"

In an interview this week, Toole said the office runs the benefits plans according to state law.

"If we owe you money, we're going to pay you," he said. "If we've paid you too much, we'll try to get that money back to the fullest extent of the law."

The agency will try to get money from deceased people whose estates are still open, he said, but the office will not reopen estates to try to recoup money. Typically, estates are closed after creditors have been paid and assets are distributed to heirs.

"We don't open estates if they're closed," he said. "That's been our standard practice."

Nearly 50 people who were paid from the program since 2006 have died, but it's likely that the estates of most of those people are closed.

Louis Wooten, an estate attorney in Raleigh, said it takes about a year for estates to close.

Counting up what's owed

The transitional disability income plan pays 65 percent of the worker's salary minus reductions. Payments are reduced by other benefits such as worker's compensation or Social Security.

Between 2006 and 2016, the treasurer's office did not adjust payments as required to compensate for Social Security cost-of-living increases. The office is recouping the money it overpaid by reducing monthly payments.

Toole said an audit of those accounts started about a year ago.

Folwell said he hadn't thought about disability programs until he was briefed on them in March.

In winter and spring of this year, managers in Folwell's office developed plans to get money back from 61 people who owed $871,892. Three others had died after January 2017 and owed $64,220.

The office also has a longer list of all people in the transitional disability income plan that includes everyone incorrectly paid from the program since 2006 -- 109 people in all, living and dead.

"We anticipate reviewing the deceased members' accounts, calculating overpayments, and reaching out to estates with the initial contact by the end of January," the agency wrote in an email. "It may take longer to pursue any overpayments for the deceased individuals, but we do not have any way to estimate cost as each case will be different."

The treasurer's job was held by Democrat Richard Moore over two terms between 2001 and 2009 and then by Janet Cowell, also a Democrat, for the next two terms. Folwell, a Republican, was elected in 2016. Folwell's department administers the retirement and other benefit programs for public employees, including health benefits, in addition to investing the state's $96 billion in pension fund assets.

"We don't pick and choose what laws to apply and which individuals to apply them to," Folwell said in an email. "If we make a mistake and underpay, we apply the law and pay the member the correct amount. I trust the leadership that is in place both now and prior to my arrival, to determine the process."

Cowell could not be reached for comment.

Former teacher now a regular at food pantries

Deborah Moss of Raleigh is still reeling from the financial blow from her reduced disability income payment.

Moss, 65, is a former Wake County teacher who went on disability in 1991 after two car accidents about a year apart left her in so much pain she could not work.

"I couldn't walk, sit, or stand without pain," she said.

This summer, Folwell's office cut her disability income 22 percent to get back the money she owes because the state did not adjust for Social Security cost-of-living increases. The reduction was a financial shock. Moss, who is divorced, said she made financial decisions based on a disability income she thought was stable.

She had borrowed against her house to pay off credit cards with high interest rates. Health care costs for her heart condition strain her budget.

"In good faith, you base your finances and your living on what they were doing," she said. "I could have made adjustments along the way."

With her reduced income, Moss said she has enough to pay her home loan, taxes, and health insurance. But there's nothing left for food or gasoline. Moss's brother owns the car she drives.

She had to apply for food stamps, ration gas, and seek help from the Lions Club to get glasses. She's become a regular at food pantries run by churches and the Interfaith Food Shuttle.

It was on a visit to one of the church food pantries, she said, that she prayed for money to consult a lawyer, and the pastor gave her $350 from the church's compassion fund.

"I was crying out to God," she said. "In the prayer, I shared my need and they rose up and offered that."

She wonders whether she'll have to sell the house she's been in since 1985.

"I hope I don't have to sell it," she said. "I still haven't figured that out."

Moss has consulted a lawyer, Jack Nichols, who filed an administrative petition Thursday on her behalf challenging the recoupment. Carla Shuford, a Chapel Hill woman who also had her payments reduced, is working with lawyer Robert Zaytoun, who said he is also filing an administrative challenge. Shuford negotiated a 10-year repayment schedule, up from the five years the treasurer's office first proposed.

On Wednesday, Shuford said she received a letter from the treasurer's office saying that it was going to confiscate any state tax refund she might receive next year to help pay down her debt, in accordance with state law. Shuford called the mailing "My Christmas Letter from the state retirement system," and said she never gets a tax refund.

Moss doesn't want to agree to an extended repayment schedule because she isn't confident that the agency is giving her accurate information. She's been waiting for a detailed accounting of what she received and what she owes.

"Everything in me screams 'this isn't right,'" she said.

Folwell said in an interview that his goal is to get payment amounts right so his office doesn't have to chase people down to get money back.

"The No. 1 goal under my administration is to prevent incorrect payments from going out," he said. "I don't want to be part of a 'pay and chase' mentality. We're constantly trying to figure out how to stay away from being in the business of paying and chasing, get out of the business of doing it incorrectly on the front end."

Treasurer gets law passed

The state has a law that set a three-year statute of limitations on retirees seeking money they are owed if the state mistakenly underpays them, and also set the same three-year limit on state action against retirees who were overpaid.

But judges have issued conflicting rulings about whether that statute of limitations prevented the state from reducing ongoing disability payments as a way to get all its money back.

This year, the legislature passed a law that said the state can reduce retirement payments to compensate for overpayment of benefits or erroneous payments to retirees and people receiving disability income, regardless of any other provisions to the contrary. The law makes it clear that the state can go back more than three years to recoup money.

Folwell's office requested the change as part of what is known as an "agency bill."

The office first requested the changes in 2016, when Cowell was treasurer, but the legislature did not act on them.

Agency bills typically don't draw much attention or opposition. The House passed the bill unanimously, and only one senator voted against it.

In an email, Folwell's office said "the provision clarified a long standing interpretation that the Retirement System overpayment statutes of limitation against civil action do not limit the ability of the state to recoup funds from an ongoing monthly benefit."

State disability benefits are reduced when former workers begin receiving Social Security disability payments. Sometimes Social Security takes more than three years to approve benefits. When it does, the former employees receive back payments.

Misinterpretation of the law can lead to decisions that conflict with how the legislature wants the disability income plan to work, the agency said in an email. Social Security disability income is meant to be deducted from state disability income plan payments.

"Consequently, the agency worked for a number of years to diligently preserve an interpretation of the overpayment statute of limitation that is consistent with the legislature's policy design," the treasurer's office said.

Lynn Bonner: 919-829-4821, @Lynn_Bonner

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(c)2017 The News & Observer (Raleigh, N.C.)

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