How to protect yourself when changes in pension plans mean you have to pay back
Ed Cochran’s weathered hands began to tremble as he read the letter from his union pension plan.
“We made a terrible mistake,” it began. The June 2013 letter said he was overpaid for nearly two decades, to the tune of $97,000, including interest. It demanded that he repay $66,000 within three weeks or face steep cuts to future payments until the overage was recouped.
Carole Fleck tells Cochran’s story in an AARP Bulletin.
“I thought I was going to have a heart attack, truly. My heart jumped right out of my chest,” says Cochran, 65. His pension payout dropped from more than $1,300 a month to $800.
“I thought, how could this be possible? It was 18 years that this went on,” says the retiree, who installed ductwork in Chicago high-rises for a living. “After freezing and working in below-zero temperatures, it was just devastating.”
Cochran’s saga comes amid sweeping changes roiling the U.S. pension industry. Among them: bankrupt cities such as Detroit cutting retirees’ pensions, companies selling off their obligations in the form of annuities, employers freezing or underfunding plans, and firms shifting workers into 401(k)s. Just 16 percent of today’s private-sector workers (about 17 million people) have traditional pensions, down from about 35 percent in the early 1990s.
What’s also fading for retirees who still enjoy a pension is the promise of guaranteed income for as long as they live. Legislation passed in December 2014, overturning 40 years of labor law, allows certain troubled multiemployer plans to cut promised benefits to those under age 80.
That historic shift, along with an apparent increase in pension plans recouping overpayments, has blindsided retirees who built their lives around the safety net of a guaranteed income.
“Unfortunately, fewer people are retiring with a guaranteed pension, and even those who have one are at greater risk for losing their benefit,” says David Certner, legislative policy director at AARP. “The guarantees are becoming less and less secure.”
How to protect yourself
It’s not uncommon for some plans to notify retirees that they were overpaid and to start lowering benefits immediately, pension advocates say. If this happens to you, consider taking these steps:
• Ask to see the calculations showing how your new benefit amount was determined. Plan administrators miscalculated your payments before and they may be wrong again.
• If you’re unclear about your situation or need help to understand your rights, contact the Labor Department online or call 866-444-3272 toll-free. Advisers may refer you to the National Pension Lawyers Network or to an Administration on Aging pension counseling project for further assistance. You can also contact the Pension Rights Center.
• Hold on to your W-2s and pay stubs to verify your employment history to avoid problems from an employer’s mistaken or lost work records. Retain plan documents, including benefit statements, notices and your summary plan description.