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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 74815  
Subject: Another reason to save for retirement Date: 10/25/2013 11:27 PM
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There have been questions about how much social security will be available in the future, and if pensions will really be able to meet the obligations that they have committed to. But even if your pension remains funded, it appears that if they make a mistake in calculating your payment and overpay you, they can require that you repay them, with interest. And they can effectively garnish your pension payment, by cutting your payment down to what it should have been and then withholding even more in order to get their repayment:

http://money.cnn.com/2013/10/24/retirement/pension-overpayme...

In April 2011, New Jersey resident Carol Montague received a letter from American Water Works Co.'s pension plan saying it had overpaid her for more than five years and wanted its money back -- plus interest. Montague, now 67, was told she owed roughly $45,000.

Two weeks later, Montague's pension benefits dropped from $1,246 to around $325 a month, or half what she should have been paid all along. The plan takes out roughly $300 a month in order to pay itself back.

Once Montague's health care premium is deducted, her monthly pension check shrinks to less than $25. She gets another $1,200 a month from Social Security, but it's not enough. So, in addition to her part-time job as a school crossing guard, she is working as a salesperson at Macy's.

So far, Montague has repaid almost $9,000 -- calculations show that she won't repay her debt in full until 2024.


AJ
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Author: Jeanwa Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 73643 of 74815
Subject: Re: Another reason to save for retirement Date: 10/26/2013 2:09 AM
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I think it's more of a lesson in making sure you are paid correctly and try and get mistakes taken care of promptly.

She had signed a paper that showed the correct amount. Yes, she said it was a year earlier and she had forgotten, but I wonder if the payments she received has been less than that amount would she have noticed.

Jean

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Author: billjam Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 73644 of 74815
Subject: Re: Another reason to save for retirement Date: 10/26/2013 8:27 AM
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If she knew the correct amount she had at least a moral obligation to point out the error.

OTOH, I have a relative who was given the wrong pension amount by his employer at the time he made the decision to accept their early retirement offer. The company discovered its error three years later. They didn't ask for repayment but were going to cut his pension to the correct amount. He hired a lawyer who argued my relative would not have retired early if they had told him his pension would be the lower amount. The lawyer said my relative should be given his job back and receive back pay for the three years, which would have been much more than his pension payments. The company eventually decided to drop the issue and my relative is still getting the higher pension he was orginally quoted.

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Author: Jeanwa Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 73645 of 74815
Subject: Re: Another reason to save for retirement Date: 10/26/2013 9:57 AM
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Two different things.

Your relative didn't know it was the wrong amount. I don't see how he could. He was given an offer and he trusted it. I agree with your relative and hope the company also had to pay his lawyer fees.

The woman in the article was given an offer and accepted it. However, when the checks started coming they were for a much larger amount. An amount she didn't agree to, but she says she didn't remember the agreed to amount was smaller. If when the checks started coming and they were smaller than the agreed amount, I think she would have remembered the correct amount.

Do you think they are very different scenarios?

Jean

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Author: BruceCM Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 73646 of 74815
Subject: Re: Another reason to save for retirement Date: 10/26/2013 1:11 PM
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I too have come across a few pension horror stories, although they are relatively rare. Most have dealt with pension beneficiaries or government pensions changing some rules.

Most private pensions are insured by the PBGC against employer default, but they are not protected from overpayment claw-backs. This is why it is incumbent on every retiring employee to understand the company pension's benefit formula and how their accrued benefit is calculated. ERISA defined benefit plans are required to provide separating employees a complete statement of benefits, which will show their accrued benefit options at early retirement or full retirement age. Those who ignore these calculations do so at their own risk.

BruceM

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Author: ItsGoingUp Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 73648 of 74815
Subject: Re: Another reason to save for retirement Date: 10/26/2013 4:09 PM
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I think the woman had no obligation to check that she was getting the proper amount. It might have been a good idea so that if she was getting too little she could have said something. But if she trusted her employer to pay her correctly, then it's perfectly reasonable to just glance at the check, say (to herself) "I guess that's about right" and go on her way.

Pay is weird. Even mathematically savvy people can't look at a paycheck and know that it's right without going through lots of details of deductions and redirections and understanding them all. Most people don't even try.

-IGU-

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 73649 of 74815
Subject: Re: Another reason to save for retirement Date: 10/26/2013 6:18 PM
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ItsGoingUp writes,

Pay is weird.

That's true -- and "The Rent is Too Damn High".

http://www.youtube.com/watch?v=x4o-TeMHys0

intercst

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Author: JLC Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 73653 of 74815
Subject: Re: Another reason to save for retirement Date: 10/27/2013 12:14 PM
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Most private pensions are insured by the PBGC against employer default...

But that doesn't guarantee they'll receive benefits promised. IIRC, several years ago some airline went bankrupt, PBGC covered the pensions but the pilots and stewards were taking about a 30-40% cut in payout.

So people need to save more on their own still.

This is why it is incumbent on every retiring employee to understand the company pension's benefit formula and how their accrued benefit is calculated.


True, but.....

For example, my mother. State nursing school teacher for 27 years. IIRC, pension was around $2500/month or estimated by the tables she got from HR department. Subject to federal taxes but not state. Works one more semester, but is told what her benefits will be. By the time she starts collecting, fed tax law has changed. So her expected net is different on top of her expected gross is a few dollars off. Fast forward 10 years. Fed laws different again and gross has vassalated a few dollars. Without her wasting half her retirement time on hold, its kind of impossible for her to check.

JLC

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Author: BruceCM Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 73656 of 74815
Subject: Re: Another reason to save for retirement Date: 10/27/2013 3:02 PM
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But that doesn't guarantee they'll receive benefits promised. IIRC, several years ago some airline went bankrupt, PBGC covered the pensions but the pilots and stewards were taking about a 30-40% cut in payout.

Yes, I didn't mention the insured maximum as it seems excessive to the OP's original comment which deals with modest pension benefits.

But the pension cuts to many (most?) of the retiring airline pilots was far more than 30-40%, at least for the career pilots.

As an anecdote, I was teaching a CFP class at Seattle University in about 2005, and had an older looking student who seemed a bit bitter in his discussions about this or that FP topic. Over lunch one day, I was chatting with him (an otherwise nice guy), and he explained that he had retired from US Airways as a senior pilot at age 55 (the max flying age as I recall at the time) after 28 years with US Airways, and had started his pension of about $110,000 at age 56. 6 months later, he received a notice that the PBGC had taken over the pension, that his pension was being cut from $110,000 to about $25,000 (the max benefit at that time for his retirement age), and the amount he had been receiving that was over this amount would have to be paid back!

I can certainly understand his bitterness.

BruceM

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