The Corner

Public Employees Busted in Retirement Scheme

Employees of the Long Island Railroad (LIRR) have defrauded that organization of over $1 billion over the last seven years. In as many as 500 cases, LIRR employees falsely claimed disability benefits to supplement their pensions, employing a sophisticated scheme involving special “facilitators” and doctors operating “disability mills.” Eleven defendants have been named so far, including a former president of the railroad union; each has been charged with conspiracy to commit health-care fraud and mail fraud.

There were three doctors who participated in this scheme, and in return they received cash payments between $800 and $1,200 — along with millions in health-insurance fees for unnecessary procedures. These procedures, which included X-rays, MRIs, and physical therapy, were used to bolster their patients’ files for later claims. Afterwards, they provided patients with falsified medical assessments, claiming that it would be impossible for them to continue working. The LIRR employees would then immediately retire with both their regular and disability pensions.

The LIRR employees also collaborated with a few “facilitators,” who helped falsify disability applications and coordinated with the doctors’ offices. One of these facilitators, Joseph Rutigliano, was a former LIRR union president who had also falsely claimed disability benefits. Before retiring, he worked over 500 hours of overtime and took no sick days, yet applied for disability benefits due to back pain immediately upon retirement. His condition did not prevent him from playing golf several times a month.

Other brazen disability claims included that of Gregory Noone, who collected $105,000 a year; he claimed that “he suffered severe pain when gripping and using simple hand tools and pain in his knees, shoulder, and back from bending or crouching.” Yet this pain did not slow down his post-retirement tennis and golf games. Similarly, Steven Gagliano’s “severe and disabling pain in [his] back, shoulder and legs,” which rendered him “occupationally disabled,” did not prevent him from participating in a 400-mile bike trip across northern New York.

The structure of the LIRR’s pension system encouraged this massive scam. As early as age 50, a LIRR employee can retire and collect a LIRR pension, but has to wait until the age of 65 before he or she can claim a federal Railroad Retirement Benefit (RRB). However, if the employee is declared disabled immediately upon retirement, then that employee is entitled to both the LIRR pension and the RRB. This allows for the collection of an income equal to his or her previous base salary. In other words, the system created the incentives for deception by employees.

The high rate of disability claims at the LIRR relative to Metro North, a comparable regional railroad that does not have retirement at 50, illustrates this situation: Seventy-nine percent of LIRR employees over 50 claimed disability benefits, while only 15 percent of Metro North employees did.

Thus, while the LIRR scandal is a story of fraud, the real lesson lies in the dangers for abuse in entitlement systems.

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