13% Underpaid on Pensions, U.S. Audit Finds

WASHINGTON — Millions of Americans are getting pension payments smaller than they have earned because of their employer’s ineptitude or confusion about the nation’s complex pension laws, according to a special government audit.

The disturbingly high error rate--13.7% of participants being underpaid--was discovered by the Pension Benefit Guaranty Corp. in the preliminary results of its pension plan study, The Times has learned.

The problem has worsened dramatically since 1988, when the PBGC audit found that less than 3% of participants were underpaid.

“A lot of people are not getting what they earned,” said Sen. Charles E. Grassley (R-Iowa), chairman of the Senate Special Committee on Aging. On Monday, the committee will hold a hearing at which retirees who have been unfairly deprived of thousands of dollars as well as pension “detectives” who work to recover money from corporations will testify.

“If your paycheck is short, you have no hesitation about going to the employer and saying, ‘You made a mistake,’ ” Grassley said, adding that workers should have the same skeptical attitude and aggressive insistence on their pension rights.

“Here is an attitude I would like to promote among every worker: be very concerned about your pension,” he said.

Each worker should insist on being given a statement every two or three years that has full details of how much he or she will collect in benefits and how the pension will be calculated, he said.

Pension accuracy is not just an issue for those who have already retired. Millions of workers leave their jobs each year and collect lump-sum payments that represent the value of the future pensions they have earned. Mistakes are plentiful, according to an investigation conducted by the Aging Committee staff.

“If you switch jobs four times in a career and take a lump-sum payment, you could be incredibly unlucky and get hit four times with underpayments,” Ted Totman, the Aging Committee staff director, said in an interview.

Pension fraud has generated headlines from time to time, as the government investigates the theft of assets from a pension plan. But Grassley wants the Aging Committee to conduct a continuing inquiry into pension mistakes, which he believes are much more significant in terms of dollars lost.

“I am not prepared to blame employers,” Grassley said. But the money is nevertheless lost to the workers, he noted.

Since 1974, Congress has passed 16 laws regulating pensions. Enforcement is divided among the Labor Department, the Internal Revenue Service and the Pension Benefit Guaranty Corp.

PBGC, for example, issues a different set of interest rates each month for employers to use in calculating pensions, noted Paul Holzman, co-founder of the National Center for Retirement Benefits. That private organization will investigate a worker’s pension in return for a fee equal to 30% of additional benefits recovered.

*

Holzman, who will testify at Monday’s hearing, said his firm has recovered money for former workers at some of the nation’s most prestigious firms, including Allstate Insurance Co., Continental Airlines Inc., Chevron Corp., GTE Corp. and Saks Fifth Avenue.

A complaint by a GTE employee led to additional payments totaling $18 million for 7,000 workers, he said.

Even the biggest companies are prone to errors, Holzman said, noting that “the law is too complicated, and the administrative staff at corporations is often overwhelmed.” Corporate downsizings have slashed payrolls; more workers are leaving long before retirement, through layoffs or buyouts; and employee benefits departments are frequently unable to make an accurate tally of the retirement benefit or the lump-sum payout, Holzman said.

When Holzman, a former pension specialist with the IRS, started his company in 1993 with attorney Allen C. Engerman, they expected that the errors would most often be 5% to 10% of the pension benefit. Instead, they have uncovered some huge underpayments.

A dental assistant who was given $250 as a lump-sum payment was actually entitled to $20,000, he said, citing one recent case.

*

One of the most common problems, Holzman said, is the use of computer software that has errors, which leads to incorrect calculations of pensions. If a consulting firm sells error-ridden software to a number of corporations, “this can cause catastrophe.” Hundreds, or thousands, of workers may leave companies, each with the wrong pension because of bad software, he said.

Other common errors are produced by the loss of accurate employment and salary records and the incorrect use of tables calculating life expectancy for workers.

Many pension plans are coordinated with Social Security benefits, with the pension being reduced by a portion of the Social Security benefit. If the company doesn’t calculate the size of the expected Social Security benefits properly, the amount of the pension check may be wrong.

With more than 80 million Americans enrolled in pension plans, the potential for error is enormous.

About 14-million people draw monthly retirement benefits during the year. Each year, about 12 million people who have pension rights leave a job and take a payment, usually as a lump sum.

The federal government protects pension plans through the PBGC, which will make payments if a plan fails financially. But its oversight focuses on adequacy of plan assets rather than accuracy of the calculations for an individual worker.

Periodically, the agency audits plans that have closed down to see that workers have received the pensions they were due.

The audits, first authorized by Congress in 1986, have shown a steady growth in underpayments. The portion of people who were underpaid was 2.8% during the audit cycle for 1986-88, and it grew to 5.4% in 1990-91 and to 7.2% in 1992-93.

For the most recent investigation, covering plan results in 1994-95, government experts expected to find an 8.2% error rate. But they found the surprising 13.7% rate in their first sample, according to PBGC material supplied to the Aging Committee. Grassley and his staff are convinced that the survey of plans fairly represents the whole pension universe for U.S. workers and companies.

“Whether you use the official PBGC study or the approach we hear from the street, with stories of 15% to 25% of people being underpaid, the reality is that a lot of people are not getting what they earned,” Grassley said. “They are entitled to every penny.”