Connecticut disability pensioners earning six figures from outside income, according to audit

Some former Connecticut state employees who retired with disability pensions are earning more than $100,000 per year in outside income, according to a new audit of the Retirement Services Division of the Office of the Comptroller.

“In calendar year 2021, 268 disability retirees earned $7,980,220 in outside income. Fourteen of these disability retirees earned more than $100,000 in outside income,” the audit report said. “The failure to reduce the retirement payments to disability retirees with outside earnings appears to have resulted in overpayments. Unless the division changes its calculation methodology, it will continue to make overpayments, which will add to the significant unfunded [State Employee Retirement System] liability.”

According to the auditors – and disputed by the Retirement Services Division – those disability pensioners should have their payments reduced in accordance with state statute and arbitration agreements from the past. The minimum disability payment under state statute is 60 percent of an employee’s earnings at the time of their disability.

The auditors argue that outside earnings should be considered part of the retirement benefit – essentially, that the outside income is considered part of the pensioner’s payment, thereby lowering the payments — while the Retirement Services Division has been treating outside earnings as a reduction of the benefit down to the 60 percent minimum. While a confusing methodological issue, the auditors say it’s costing the state millions.

“By treating retirees’ outside earnings this way, the division essentially eliminated the statutory offset, which has resulted in millions of dollars in unnecessary disability retirement benefit payments,” the auditors wrote.

It is the third time auditors have raised the issue, according to the report, but the Retirement Services Division disputed the finding in a lengthy response, saying the auditors’ analysis contains “several different errors,” saying the statutes apply only to cost of living adjustments and apply only to Social Security and workers’ compensation payments.

The division also noted that the statutory language related to outside earnings is rare in its applicability. “And in any case, the division may never use those statutes to decrease the amount of a member’s disability benefit,” the division wrote in its response.

The auditors and the Retirement Services Division are clearly at an impasse when it comes to the outside earnings issue and the auditors recommended tasking the Office of the Attorney General with clarifying state statute and the applicable arbitration agreements as they relate to outside earnings for disability retirees.

The division, however, said “there is no plausible reason,” to believe the Attorney General’s Office would see the matter any differently. “Seeking a new legal opinion to attempt to justify an action detrimental to disable SERS retirees without a good faith basis would be contrary to law,” the division responded.

The auditors stood by their recommendation, noting that each year the division requires disability retirees to document outside earnings and inform them that such earnings may result in reduced benefits.