Finding Errors in Pension Figures Is Up to You

Back in 1989, when Edwin Witort retired and started drawing his pension, he was surprised that his monthly check, $103, was so low.

Dredging through his files, Witort pulled out the materials his former employer, an Illinois metal products firm, had given him while he was working. The materials included the pension formula, so he was able to make his own calculations, which seemed to show his benefit at about $200 a month, after accounting for a Social Security offset.

In 1994, he wrote to the company asking them to recalculate the numbers. The additional $100 a month, he noted, meant “a lot to me and my wife.”

But the company replied that, no, his benefit was correct and had been verified by attorneys and actuaries.

Several more inquiries, even when he included his own figures, produced the same response, said Witort, who described his experience earlier this month at a hearing of the Senate Special Committee on Aging.

Finally, Witort saw an ad for a private firm, which called its employees “pension detectives,” and decided to give it a try. The firm discovered that his former employer had made an error in recalculating benefits in response to a 1988 Internal Revenue Service ruling, and Witort’s monthly check should have been $220. In addition, he was entitled to roughly $10,000 in back benefits.

Witort’s case is far from rare.

Formulas for calculating benefits under traditional pensions are often complicated, involving years of service, pay levels and other factors, often offset in part by Social Security benefits. Companies typically employ outside experts to help design their plans and check their figures, but errors still creep in.

Mistakes “do happen,” said Thomas C. Walker, president of Associated Benefits Corp., an Iowa firm that administers pension plans for a number of Midwestern farm cooperatives. “They are unfortunate. They are difficult for all the people involved. They should not happen, but they do.”

The number of incorrect pension payments may be rising. The federal Pension Benefit Guaranty Corp., which insures private pensions and takes over when the plan, or the company sponsoring it, becomes insolvent, found in a survey of some of the plans it operates that 13.7% of 2,791 participants were being underpaid. That compared with 3% in a 1988 audit.

The underpayments generally were not large, but over months and years even small shortages add up. Nearly a third of the underpayments in the latest audit totaled $1,000 or more.

Errors also crop up in lump-sum payouts, which have become more common in recent years as firms have downsized and let workers go long before their normal retirement age.

Because the PBGC numbers were from small pension plans that had had sufficient problems to land them in government hands, it’s likely its figures are higher than among pensions generally, several experts said, but the trend is worrisome.

Pensioners who are shortchanged are not likely to get much help from the government. While Congress has certainly legislated on the subject--16 major laws over the last 20 years--regulation is now spread among the PBGC, the IRS and the Labor Department, and most of it is aimed at curbing abuses such as underfunding of plans, unfair distribution of benefits and breaches of fiduciary duty by plan operators.

Little is aimed at correcting benefit payment calculations. While pensioners may sue, that is expensive and it is difficult for a plaintiff to collect attorney’s fees.

Witort had to pay the “pension detectives”--a Northbrook, Ill., company called National Center for Retirement Benefits Inc.--$9,677.44 for their services. His former employer recently agreed to pick up part of the fee.

Sen. Charles E. Grassley (R-Iowa), chairman of the aging committee, said he plans to propose legislation to require that employers provide workers with statements of their pension benefit at least once every three years, something many employers already do. The statements would have to explain how the benefits were calculated.

In the meantime, workers should realize they don’t have to accept their employers’ figures. “When it comes to your pension, be pro-active, take charge of your future,” Grassley said. “In other words, trust but verify.”