Government Acts to Remedy Social Security Error : Benefits: Effort is under way to identify 426,000 elderly people who were underpaid. Problem is expected to further burden the agency.

Hundreds of thousands of retirees have been shortchanged $478.5 million by the Social Security Administration due to a just-discovered “computer glitch” that’s more than a decade old. Some 426,000 workers--an estimated 19,000 from Southern California--are due checks averaging $1,000 each as a result, the government agency confirmed Friday.

The Social Security Administration says the mistake stems from a 1978 change in benefit calculations that apparently failed to properly account for wages earned after retirement for a small fraction of the people who continue to work after receiving benefits.

The agency is scrambling to identify and contact the affected retirees--or their survivors and estates.

Retirees who were shortchanged will be sent a letter within about a month notifying them that they are due extra cash, said Leslie Walker, public affairs director for the Social Security Administration in San Francisco. They’ll get a second letter shortly after explaining the specifics of their case, exactly how much they’re due from previous years and how much their current monthly benefits will increase once the glitch is fixed, she added.

The agency, which believes the average underpayment amounts to $10 per month, expects it will take between three and six months to get the checks out. Social Security will not pay interest on the amounts past due because it is legally prohibited from doing so, Walker said. Underpayments owed to retirees who have since died will be paid to survivors or estates, the agency said.

The computer error was apparently discovered in an internal Social Security audit, but it was not made public until the Office of Inspector General conducted a second audit that confirmed the problem and discovered additional underpayments.

Social Security Commissioner Shirley Sears Chater said she was gratified that agency employees helped uncover the mistake, but “it is now imperative that we take immediate action to correct the problem so that it will not occur again and then move quickly to begin processing the underpayments that are long overdue.”

Sen. William S. Cohen (R-Me.), who is in line to take over the Senate Special Committee on Aging next year, said the episode raises serious questions about how many other computer errors have resulted in underpayments.

“It also further chips away at the public’s confidence in the Social Security system,” Cohen said. “While I am pleased that the Social Security Administration finally found this problem affecting hundreds of thousands of senior citizens, this once again points out the disturbing problems the SSA has experienced in managing its programs.”

Social Security spokesman Phil Gambino noted that the error affects fewer than 1% of the 43 million Americans who receive Social Security benefits.

But fixing the problem is still expected to be a burden for an agency struggling to answer its telephones, reduce a backlog of claims for disability benefits and crack down on fraud.

As word of the underpayments gets out, the agency is bracing for a deluge of calls to its toll-free telephone line, which already answers 60 million calls a year.

Social Security sought $385 million to upgrade its computers this year, but Congress gave it just $97 million.