U wins suit, could recoup millions

Jim Martyka

A federal court ruling in a case that originally could have cost the University up to $18 million now might provide an opportunity for the University and medical residents to retrieve money they have paid out for Social Security.
In a ruling released late Friday, U.S. District Court Judge Ann Montgomery agreed with the University that medical residents should be considered students, thus exempting them and the University from making Social Security payments on their behalf.
“I am very pleased with this decision,” said University General Counsel Mark Rotenberg. “I’m gratified that the University will have an opportunity to keep these substantial resources on campus working for the students and faculty rather than sending them off to Washington.”
The issue, which dates from 1989, deals with whether the University owes Social Security money for coverage on behalf of medical residents prior to 1990. The school has been paying the payroll tax since 1990 following a Social Security Administration ruling.
The University filed a lawsuit in 1996 following a ruling by the government agency ordering the school to pay this prior coverage. What followed was a court case described by officials as exhausting.
Montgomery’s ruling revolved mainly around whether medical residents should be considered students. By law, students are excluded from Social Security coverage.
“While a resident is paid a stipend, the main purpose is obtaining an education, not earning a livelihood,” Montgomery said in her ruling. “Accordingly, residents fall within the (Social Security) Act’s definition of a student and are excluded from coverage.”
The Social Security Administration has 60 days to file an appeal. University officials say they expect the administration to do so, because of the large sum of money involved. Officials from the agency could not be reached for comment.
Residents are medical practitioners — most often recent graduates — who are fulfilling medical school requirements.
The University currently has 979 medical residents who on average receive about $33,113 in stipends per year. Each resident currently pays about 7.6 percent in Social Security payroll tax. The University matches that amount from its own funds.
Officials said the ruling will enable them to stop taking deductions out of these stipends.
Further, the ruling also leaves open the possibility that the University might be able to take action to regain Social Security money it has paid on behalf of residents since 1990. Officials said this amount could range from $20 million to $30 million. This could also mean refunds for individual residents who have made these payments.
“These payments are partly contributed by employer and employee,” Rotenberg said. “So if we are successful in these refund claims, almost half of it will go to the individual medical residents.”
“Some of these could be substantial payments.”
During the next several weeks, University officials will prepare the paperwork to file for a refund with the Internal Revenue Service. Rotenberg said he is optimistic that a substantial amount of the refund request will be granted.
The recent decision brings an already long legal battle close to an end.
Prior to 1990, the University had not made Social Security payments for medical residents because of their interpretation of a 1958 agreement, sparking a continuing argument between the University and the government agency. The battle came to a head in 1990 when the agency pushed the University to begin making these payments.
Later that year, the agency told the school that they should also pay for coverage dating back to 1985, which is when the statute of limitations ran out. Though the University began deducting money from residents’ stipends, they contested that they were not responsible for prior coverage.
The agency’s deputy commissioner ruled in 1994 that Social Security payments should have been made for these prior years. This led to the University’s 1996 lawsuit.