Another Corporate Tactic In America's Great Pension Rip-Off

It is a well-known story that defined benefit pension plans are in serious trouble, both in the public and private sector. Many economists believe that the next financial crisis will be triggered because of the massive unfunded liabilities in the existing pension plans. And plenty of private sector workers have seen their pensions slashed and even attempts to have their pensions eliminated.

The reason for the failure of pension plans, both public and private, are three-fold. Most importantly, promises were made decades ago to workers to improve retirement benefits in return for wage restraint. Companies and governments then went for years without properly funding those obligations and, in the case of governments, often raiding those funds for ongoing expenses. The second reason has been the low interest rate environment that has decimated returns over the last few decades. Those two reasons are the most oft-cited ones for the failures of pensions. But the third reason is mentioned less often but has equal validity, namely the rampant mismanagement of some of these plans. As this case in New York illustrates, mismanagement, especially in the desperate hunt for higher returns, can easily cost pensioners billions in benefits.

But I've come across a couple of anecdotal stories over the last few weeks that highlight another problem that pensioners have even in plans that are adequately funded. Many people who are retiring today worked under two different scenarios for retirement savings over the course of their career. Early on in their working life, many of them qualified for a defined benefit pension. As their careers evolved, they may have switched jobs to companies that were only offering defined contribution plans.

Now that these workers are retiring, they are looking to collect the pensions that they earned early in their career and are finding that these companies are effectively trying to cheat them out of the full benefits they deserve. In the two cases I heard about, the company pension plans reflected an incorrect start date for employment, thereby reducing that pension payout. Now, imagine the difficulty anyone would have trying to find documentation to prove your start date with an employer from forty years ago. And imagine the time and expense it takes to take that fight to the employer. And the companies involved in the two cases I know of are not some fly-by-night outfits. They are Fortune 500 companies.

A similar fate befalls some whose failed pension plans have actually been taken over by the Pension Guaranty Benefit Corporation (PBGC), the agency established by Congress to deal with failed or terminated pension plans. The PBGC, however, relies on the employer's records to determine who is actually still eligible in the failed plan. If those records are false or incomplete, it creates a group of "omitted participants", people are entitled to receive benefits from the PBGC but are omitted from that plan.

The Pension Action Center in Boston actually spent a year and a half working on a case of an omitted participant in order to allow her to receive a $700 per month benefit. Another case the Center took on took months in order to get a man his $200 per month benefit. What indigent pensioner or their beneficiaries have the time and resources to carry on months-long fights with the PBGC or an individual corporation. Without relying on the free assistance provided by the Pension Action Center, these individuals never would have received their benefits. Imagine how many millions of other Americans won't.

Last year, MetLife "discovered" that it had failed to make the pension payments to thousands of workers that it acquired in its pension risk transfer business. This failure apparently effected 30,000 workers and one analyst estimated the failed payouts could amount to $1 billion and that the missed payouts could go back more than a decade. MetLife's "discovery' was prompted by a desire to reduce its capital requirements and an earlier investigation into the life insurance industry in general that showed there were billions of dollars in insurance that these companies had failed to pay out.

One study has estimated that workers lose between $40 and $60 BILLION in wage theft every year. It would not be surprising to see pension losses due to blatant payout fraud in the billions every year as well, and that's not even counting the losses from pension mismanagement.

If any readers know of any other instances of pension funds misstating your time of employment or of a good resource for estimating the amount of money pensioners lose due to this kind of fraud, please pass them along to me as I'm interested in putting together a more detailed story on this.