Government, Transportation|April 8, 2010 11:24 AM

PERA mistake cost trooper widow tens of thousands of dollars

Working for the Colorado State Patrol is sometimes dangerous.

The widow of a slain Colorado State Patrol trooper was shorted tens of thousands of dollars in benefits for 22 years because PERA improperly deducted federal income taxes from her survivor benefits.

Tax law exempts pension benefits for survivors of a public safety officer killed in the line of duty. Other widows are also affected, but PERA officials have not been able to determine how many or how much money is involved.

And because the mistake went unnoticed for so long, Sonja Fry of Colorado Springs will only be able to get back four out of 22 years worth of the improperly paid taxes.

“You don’t know how many times I cried myself to sleep because I didn’t have enough money to pay the taxes and penalties and would have to make monthly payments to the IRS,” Fry said.

PERA officials said they could not talk specifically about Fry’s case because of confidentiality laws. But they did say the Association is in the process of identifying other widows who may be affected, which they believe to be “a relatively small number of people.”

“Identifying, contacting and correcting tax information for these members is a top priority and has our full attention,” PERA Spokeswoman Katie Kaufmanis said in an email response to questions from Colorado Public News.

Survivor benefits were exempted from income taxes in 1968. Since then, 11 Colorado troopers have been killed in the line of duty.

Most city and county law enforcement agencies in the state run their pensions through the Colorado Fire and Police Pension Association. They have the option of using PERA.

Fry’s husband, Charles Fry, was killed Sept. 26, 1987 on Interstate 25 when he was struck by a drunken driver. Fry was writing a traffic citation at the time.

Fry, a court judicial assistant in the 4th Judicial District, discovered the error when she did her own taxes for 2008.

While looking over the 1099R form sent from PERA, she discovered that PERA had classified her benefits with a code that meant “early withdrawal” rather than as survivor benefits from a public safety officer killed in the line of duty.

“What’s really upsetting is that I had to pay taxes and penalties because they had me classified as receiving an early withdrawal from a pension fund,” Fry said.

Not to mention the added insult of the classification that her husband was still alive.

While Kaufmanis said Fry’s case was “resolved within days of the beneficiary contacting PERA,” Fry described it differently.

“I got so frustrated,” Fry said of the months-long process that started in April 2009, involved hours of research and many calls to PERA and the IRS.

Last year, PERA officials told Fry the problem was with the IRS. So after spending hours trying to get an answer from the IRS, they referred her back to PERA – saying PERA officials had not classified her benefits correctly on the 1099R form.

After going back to PERA again and waiting more than two weeks, she received a notice that PERA had made a mistake. But it informed her PERA could only send corrected 1099R forms from 2006 forward “due to IRS code and regulations,” according to an email Fry received Friday.

“I was just frustrated because they were so nonchalant about it,” Fry said. “They should know the IRS laws.”

PERA officials responded they can’t track survivors for every CSP trooper killed in the line of duty.

“PERA is not always aware if a surviving beneficiary meets this specific criterion since we do not collect occupational information on our membership of over 460,000,” Kaufmanis said.

Fry was also concerned because PERA officials initially told her they weren’t going to notify other widows. They quickly changed that stance after being contacted by former CSP Chief Lonnie Westphal.

“Every widow I’ve talked to so far” is concerned, Fry said.

The Colorado State Patrol’s current chief, Col. James M. Wolfinbarger, said the patrol had just recently learned of the situation. “We are working closely with PERA, not only to understand the situation and communicate with our members, but to fully advocate for families of members who have given their life in our uniform. There is no bigger price an individual can pay,” he said.

Wolfinbarger said he personally reached out Thursday to the survivors of the most recent troopers killed in the line of duty.

“We’re working with our human resources department and PERA to make sure there’s a quick resolution,” he said. “We also want to develop a plan moving forward to prevent this type of instance from occurring in the future.”

Based on Fry’s case, Concerns of Police Survivors Inc. sent out a notice nationwide Friday informing members of IRS Code Title 26 101(h), which stipulates “survivor benefits attributable to service by a public safety officer who is killed in the line of duty” should not be subject to federal income taxes.

Kelly Young, widow of Denver Police Det. Donnie Young who was shot and killed in 2005, heads the Colorado chapter of C.O.P.S.

She hasn’t heard from any Patrol widows.

“I’m kind of surprised,” said Young. “We have a few (CSP) families who are regular, active members of the organization. … It’s a shame this came to light so close to tax season.”

Young said in general, it’s hard for widows to deal with large pension associations.

“Sometimes that brings so many bad memories, you don’t want to make those calls or deal with it,” Young said. PERA “should have jumped on this right away and not made her jump through all those hoops.”

PERA officials said they provide every survivor a brochure on “Taxes on PERA Benefits” that states, in part, “consult a tax adviser to determine if you qualify for this exemption.”

But Young said – and Fry agreed this happened to her – the first few months are overwhelming.

“When it all first occurs, you have a lot of information thrown at you as to what you’re eligible for, what you need to do, what paperwork you have to fill out. It’s overwhelming,” Young said. “Even after the first couple of years, you forget what you were told at the beginning.”

Fry said a CSP lieutenant helped her fill out all the initial PERA paperwork and she got an accountant as recommended. Even the accountant didn’t find the error because the 1099 forms are usually correct, she said.

“Everyone assumes it’s correct,” Fry said. “How would I check that? It wasn’t until I got my own tax program that I found out. Think about all the widows who use accountants.”

PERA shipped Fry’s corrected forms to her this week so she could file them by April 15, the deadline to file income taxes.

Because of Fry’s case, PERA officials said they would include an “added notice in communications with benefit recipients” about the exemption.

“Regrettably,” Kaufmanis said, “the timing for delivery of such a notice in our beneficiary publication will not occur prior to April 15.”

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The Public Employees Retirement Association, created by the state legislature in 1931, provides retirement pensions for most Colorado state government agencies and public entities. It has approximately 460,000 members, covers about 400 city, state or county employers and has approximately $30 billion in assets. In February, Gov. Bill Ritter signed into law Senate Bill 10-01, which has provisions to make the Association’s heavily-depleted fund more financially sound.

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