FBI Arrests 11 in Probe of Massive LIRR Disability Scam

doctor-getting-cashThey might not have been Oscar-worthy performances. But the acting job by hundreds of Long Island Rail Road (LIRR) employees and their enablers was convincing enough to run a racket that could wind up costing U.S. taxpayers $1 billion or more. On October 27, FBI and New York State agents arrested 11 persons for operating a scheme by which retired workers at the heavily unionized LIRR allegedly visited doctors who would prepare phony medical histories, allowing retirees to receive outsized pension and “disability” checks, courtesy of the U.S. Railroad Retirement Board. One arrestee, in fact, was a former union president. The investigation was triggered by revelations a few years ago of unusually high rates of disability claims and awards. “This was a game where every retiree was a winner,” said FBI New York bureau head Janice Fedarcyk.

Escalating employee benefits are threatening the solvency of the public sector throughout this country, especially at the state and local levels. In Pennsylvania, for example, combined pension liabilities for state employees and teachers exceeded $20 billion last year. The State of California’s three public employee pension funds, meanwhile, face an estimated $535 billion shortfall over 16 years, concluded a recent study by Stanford University researchers. And a report released a few years ago by the Pew Center on the States estimated that states and participating localities as a whole faced a collective $1 trillion gap in promised retirement benefits; only $2.35 trillion in assets were available to cover $3.35 trillion in accumulated long-term liabilities. And that was just before the 2008 stock market crash.

Unions have been a driving force in expanding both eligibility and range of coverage. The Long Island Rail Road is finding out the hard way. Owned and operated by the Metropolitan Transportation Authority of the State of New York (MTA), the LIRR is the nation’s busiest commuter railroad, carrying roughly 300,000 passengers on a typical weekday, mainly to and from transfer terminals in Manhattan, Brooklyn and Queens. Without regular LIRR service, the entire New York City-area economy would take a hit. This puts the railroad’s 7,000 employees in a strong bargaining position. LIRR employees, of whom roughly three-fourths are union members, are amply compensated. How much so? An investigative piece appearing in the New York Times in June 2010 revealed that more than a quarter of its work force made more than $100,000 in 2009 from base salary/wages and other sources. One conductor, Thomas Redmond, had an income $239,148, of which $67,000 represented overtime and nearly another $100,000 represented unused sick and vacations days upon his retirement. And an LIRR locomotive engineer, Dominick Masiello, made $75,000 in base salary, $52,000 in overtime, and $94,600 in “penalty payments” for operating a train outside the storage yard.

Anecdotes such as these aren’t necessarily the norm, but they do underscore an inescapable reality: The LIRR and its parent organization are top-heavy in labor costs. Salaries and other compensation now account for about 60 percent of the $7 billion MTA total annual budget. Unions – many of them, actually – drive this reality, making contract renewal talks especially arduous. The LIRR contract in force for the period January 1, 2007-June 15, 2010, for instance, was the product of negotiations between the MTA and 10 unions representing 17 collective bargaining units. Those unions were: the United Transportation Union (UTU); Transportation Communications International Union; Brotherhood of Locomotive Engineers & Trainmen; Brotherhood of Railroad Signalmen; International Association of Machinists and Aerospace Workers; International Brotherhood of Electrical Workers; Independent Railway Supervisors Association; National Conference of Firemen & Oilers; Sheet Metal Workers International Association; and UTU Yardmasters.

Labor agreements at the LIRR over the years have created an extremely generous benefit structure. Union members with seniority often can make more in a given year through overtime, sick pay and other benefits than through base pay. LIRR workers hired before 1988 can retire at age 50 with pensions if they put in at least 20 years of service. Those hired after that cutoff point still can retire with full a disability pension at 55 with 30 years of service. Rare is the railroad anywhere whose employees can retire on a regular pension upon reaching 50. By contrast, these workers would not be eligible to receive an occupational disability pension from the Railroad Retirement Board (RRB), a Chicago-based federal agency that serves as the equivalent of the Social Security Administration, until reaching age 60 with 10 to 20 years (120 to 139 months) of creditable service.

Such provisions have created paths to a gold-plated retirement. And sometimes those paths are paved with fraud. An article appearing in the September 23, 2008 online edition of the New York Times was especially damning. The piece revealed that anywhere from 93 percent to 97 percent of LIRR employees in retirement since 2000 retire early – and that soon after, they received federal disability payments which by then had totaled more than $250 million. An alarmed New York Governor David Paterson called upon Congress to conduct a full review of RRB activity. Prompted by Reps. John Mica, R-Fla., and Bill Shuster, R-Pa., the Government Accountability Office (GAO), the investigative arm of Congress, analyzed patterns of occupational disability benefits awarded during 2004-07 to workers at the LIRR and seven other commuter railroads in the U.S. In September 2009 the GAO released its findings (GAO-09-821R), concluding that LIRR workers applied for RRB disability benefits at rates far higher than for workers at other rail lines – in 2007 alone, 12 times higher. Even more distressingly, commuter rail workers on all lines enjoyed approval rates of nearly 100 percent.

The FBI and New York State law enforcement officials by this time already had launched a joint probe. The three-year investigation uncovered a scam operating since the late Nineties involving an estimated 1,000 or more LIRR workers, plus area doctors and middlemen. Eventually, it led to the arrests of late last month. LIRR workers Richard Ehrlinger, Sharon Falloon, Steven Gagliano, Gregory Noone, Gary Satin and Regina Walsh were arrested and charged with making false statements in order to obtain disability benefits. A former United Transportation Union local president, Joseph Rutigliano, and another person, Marie Baran, were charged for their roles in consulting workers on how to hustle the system. Rutigliano was not only a union leader, but also a nonvoting member of the MTA board during 1995-2003. Finally, two orthopedic doctors, Peter Ajemian and Peter Lesniewski, plus Maria Rusin, who served as the Railroad Retirement Board district office manager in Westbury, N.Y. until her retirement in 2006, were charged with enabling healthy employees to fake work-related injuries in order to collect RRB payments. Ajemian, Lesniewski and a now-deceased third doctor reportedly accounted for 86 percent of all LIRR disability applications filed prior to 2008.

Lurking about are some dubious and in some instances preposterous disability claims. Steven Gagliano retired with a $75,000 annual disability pension after complaining of back pain, yet participated in a 400-mile bike tour. Gregory Noone, who received $105,000 a year because of alleged pain resulting from gripping objects, played golf and tennis on a regular basis. Regina Walsh collected $108,000 annually based on her claim of neck, shoulder and hand pain caused by sitting at her desk for prolonged periods, yet surveillance videos showed her shoveling snow for over an hour and walking with a baby stroller for 40 minutes. Sharon Falloon, recipient of about $90,000 a year in disability and pension payments for her alleged inability to climb stairs, was caught on camera taking a 45-minute aerobics class at a local gym. And union man Joseph Rutigliano, though claiming disability from a 1988 spinal fracture, frequently hit the golf course with no apparent discomfort.

These instances appeared to be part of an overall pattern. “Employees, in many cases, after claiming to be too disabled to stand, sit, walk or climb steps, retired to lives of regular golf, tennis, biking and aerobics,” said Manhattan U.S. Attorney Preet Bharara. If anything, then, more arrests are likely. Recently, the Empire Center for New York State Policy, an Albany, N.Y.-based affiliate of the New York City-based Manhattan Institute, sued to gain public access to the names and payment amounts of New York Police Department pensioners. If this action proves successful, it could set a precedent for gaining access to records of LIRR retirees who have made suspect claims.

The accused doctors did especially well. Dr. Peter Ajemian, 62, a resident of Syosset, L.I., during 2004-08 recommended that 453 LIRR employees receive disability pensions. These pension plans thus far have paid out $90 million and are expected to disburse another $210 million. He collected around $2.5 million in fees and insurance reimbursements for medically questionable procedures related to these referrals. Dr. Peter Lesniewski, 60, a resident of Rockville Center, L.I., during that same period, recommended that 134 LIRR employees receive disability pensions that already have paid out $31 million in benefits and are expected to pay out another $64 million. He enriched himself by $750,000. Doctors were typically were paid a sum of $800 to $1,200 per phony medical assessment and narrative, in addition to the insurance payments and records preparation fees.

Facilitators such as Rutigliano also prospered, charging soon-to-retire LIRR workers anywhere from $1,000 to $1,400 for introductions to one of three participating doctors. After a doctor collected a fee for preparing a fake diagnosis (often accompanied with follow-up visits for needless tests), the facilitator would help workers prepare a standard disability claim to the Railroad Retirement Board. The RRB rarely turned down an application, approving virtually all 1,423 LIRR applications during 2004-08. About 60 percent of these applications came from workers ages 50-55, compared to a mere 7 percent of workers in the same age bracket at another New York area commuter railroad, Metro-North. And nearly 80 percent of all LIRR employees age 50 and over received disability payments from 2004 to 2008.

All told, say federal prosecutors, questionable or illegal RRB payouts will exceed $1 billion. The raises the question: Where was the Railroad Retirement Board? The board, established during the New Deal in 1935 to provide annuities to retired rail workers and surviving family members, for whatever reason turned their agency into an open cash register. LIRR President Helena Williams believes as much. She accuses the RRB of serving as a rubber stamp for retiree disability claims. Williams also disavows fraud at her agency: “The LIRR condemns any fraudulent activity associated with federal disability pension benefits.” The 2009 Government Accountability Office report found no evidence of outright fraud by either the board or persons applying for disability awards. Yet GAO researchers did admit that “a nearly 100 percent approval rate in a federal disability program is troubling, and could indicate lax internal controls in RRB’s decision-making process, weaknesses in program design, or both.” Moreover, said the authors, “(I)n prior work, we found that numerous claims with evidence from the same doctors can be an indicator of potential fraud or abuse.” Even the arrested doctors expressed amazement to federal investigators that the RRB didn’t have its own doctors to examine applications.

The Railroad Retirement Board has realized something has been amiss for some time. Three years ago, in the wake of the New York Times expose, the board announced that it immediately would institute five reforms. These include : more independent medical evaluations in place of those made by doctors close to claimants; periodic evaluations of workers on disability; and better oversight of the board’s Westbury, L.I. office. If these steps haven’t been fully implemented, they should be as soon as possible. But administrative oversight aside, one thing is for certain. Organized labor was instrumental in bringing about the LIRR fiscal train wreck. By making early retirement as lucrative as possible, New York-area unions virtually assured a situation in which employees would retire early and hand taxpayers the bill.


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