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Fixing pension mistakes

By Barbara Whelehan · Bankrate.com
Friday, August 13, 2010
Posted: 4 pm ET

Pension problems of all types have come to light in recent weeks. Pension funding shortfalls have plagued both private and public plans over the past couple years, thanks in large part to market turbulence. Legislation aimed to alleviate the burden has passed at both the federal and state levels.

Employers in the private sector can take advantage of relief provided by the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act, signed into law earlier this summer. It gives employers a reprieve by reducing the amount they must contribute to their pensions for two years. But according to a recent study, only about 25 percent of employers will take advantage of the provision. The law effectively delays the pain, requiring employers to amortize the funding obligation over a longer period.

To address funding shortfalls in public plans, state lawmakers in about a dozen states are requiring employees to work longer for their pension benefits or delay their retirement -- or a combination of the two.

Getting rich off taxpayers

Then there are the flagrant abuses in the system. You may have heard about the uproar in the little town of Bell, Calif., where residents at a meeting blasted city officials who inflated their salaries so they could collect hundreds of thousands of dollars' in pension payouts each year.

California in general has serious pension issues. According to an article that ran recently in the Wall Street Journal, the California Foundation for Fiscal Responsibility calculates that 9,111 retired California government workers are getting annual pensions of more than $100,000. The former city administrator of Vernon, Calif., (population 91) receives over a half million dollars a year, plus health benefits. Nice! Talk about financial security!

The little guy has to pay up

Meanwhile, there are retirees who've been getting pension payouts for several years, only to discover that their checks have been too big. Today's Wall Street Journal features an article, "'Overpaid' pensions being seized," about companies that have made errors in pension calculations and what they're doing to recoup the funds.

A 73-year-old retiree of an aircraft manufacturing firm was informed earlier this year that his pension payment had been too large. To rectify the matter, his pension check will be cut by two-thirds, to $967 per month. Oh, and he was ordered to repay $100,000 to boot. Talk about retirement planning gone amuck.

The article cites other instances of pension overpayments, including those to retired and disabled coal miner Harold Kenneth Phillips. He had been receiving monthly checks of $1,751 for seven years before some new pension administrator discovered he was getting $341 more than he was supposed to get. His pension payment was cut by $517 per month.

Phillips sued, and the judge found in his favor. His rationale, according to the article: "Because the company had taken so long to detect the overpayments, it would be unfair to require Mr. Phillips to repay the amounts." Mr. Phillips was off the hook and he was reimbursed the payments that had been withheld, plus interest.

In my opinion, since retirees aren't making the computational errors, they shouldn't be held responsible for them.

What do you think?

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1 Comment
ngan
August 16, 2010 at 12:58 pm

The entire pension system should be re-worked. Those who are getting pension cry about their right and how they earned it. Well, sorry, but the current system cannot be sustained.

- Get rid of the double dipping where you get two pensions because you "retired" at age 40 and work again.

- Have the the calculated time to an average of 5 years, not 1 year.

- Increase the retirement age from 55-60 to 65 or 72 (the current SS age). As for police and fire fighters, I have no opinion of that. Why should public servants be allowed to collect retirement earlier than the rest of the population? what makes them so special? It's not as if they do more dangerous work. Most are desk jobs.

- Why should taxpayers have to foot the bill for pension systems that don't have enough money? Yet again, this is a call for government to work within their means. When a private company do not have enough money to pay for retirement plans, they change it. Public pension systems should be required to do the same, not have bailouts. We do not have the money to do this. It takes away from core services.

Things change with time and everyone needs to change with it.

By the way, I work for a govt agency and do not mind the changes mentioned above.