Your retirement finances might not be as secure as you would like to think—and your employer might be to blame. This could apply to you if you are one of the 44 million Americans who have a defined benefit pension plan at a private company…and/or are one of the tens of millions who have been promised retirement health benefits. Unfortunately, many employers have spent the past two decades exploiting loopholes in pension laws and retiree health plan agreements so that they could slash these promised benefits. Eight secrets your employer doesn’t want you to know about your retiree benefits…
When we “restructure” our pension plan, it’s often a way to slash older workers’ pensions. Many employers have been converting their traditional pension plans into “account style” or “cash balance” plans that superficially resemble 401(k)s. Employers often have claimed that the change will benefit employees. What they won’t say is that it’s younger employees with limited tenure who stand to benefit, while older, longer-tenured employees can lose as much as 20% to 50% of their pensions because of changes in the formula used to calculate benefits.
Those “skyrocketing” pension costs that we complained about when we froze your pension might be from money owed to upper management. In Securities & Exchange Commission (SEC) filings, employers are allowed to bundle pensions in with the companies’ general pension liabilities.
Example: Unisys froze its pension plan in 2006, shortly after its CEO blamed higher pension expenses for recent losses. He didn’t mention that much of the company’s pension expense increase stemmed not from the regular pension plan, but from supplemental pension and savings plans provided only to top executives.
Lump-sum pension payouts provide smaller lumps than they should. Employers often act as though lump-sum pension payouts are a special perk. They know that most people are predisposed to prefer money now to money later. The employers may neglect to mention that the lump-sum payouts may be worth significantly less than the present value of the monthly pension checks they replace because of the way formulas are calculated.
Example: An IBM employee was offered a $71,500 lump sum in lieu of her pension. Before accepting, she took the offer to a financial adviser—who calculated that the true value of her pension based on her life expectancy was $101,000.
Lowball lump-sum offers may not violate federal laws that are designed to protect employees from illegal pension reductions when employees voluntarily choose the lump-sum option.
We’re the reason your pension plan is underfunded. Employers with underfunded pension plans often blame stock market losses, low interest rates and retirees’ longer life spans for the plans’ predicament. In truth, many pension plans are underfunded partly because employers have siphoned billions of dollars out of the plans over the years and/or failed to fully fund the plans.
Examples: Numerous employers, including Delta Air Lines, United Airlines, General Motors and Ford Motor Company, have used pension-plan assets to fund buyouts and pay termination benefits when cutting their workforces. Some other companies even used pension money to pay for executive parachutes (compensation for executives who lose their jobs).
We can break the law with near impunity when we slash your retiree benefits. Pension law does not allow retirees and employees to sue for punitive damages or compensation for pain and suffering when their retiree benefits are illegally denied to them. They can sue only to reclaim the improperly eliminated benefits—and pension lawsuits tend to be so lengthy and expensive that these cases are rarely pursued.
We might transfer your pension to a company that you never worked for. Pension obligations sometimes are transferred from one company to another when a unit is sold. Companies that acquire pensions feel no loyalty to retirees who never worked for them and often cut their benefits. And many companies look for potential overpayments, and if they find overpayments, they don’t just reduce future benefits—they typically demand repayment of the prior overpayments.
Example: A retired corporate jet pilot suffering from cancer received a letter from the company that had recently acquired his pension claiming that he had been overpaid and owed $31,904. When the pilot died two years later, the company made his widow repay his remaining debt.
Our retiree health-care promises can’t be trusted. Many retirees who were promised retiree health insurance covering ages 55 to 65—or coverage to supplement Medicare after age 65—now are receiving excuses instead of insurance. Employers are eliminating retiree health benefits or forcing retirees to pay huge premiums to obtain it.
Example: General Motors cut its retiree health coverage even though it had given its employees brochures specifying that this coverage would be provided “at GM’s expense for your lifetime.”
Companies can get away with this because they bury “reservation of rights” clauses deep in the legalese of benefit plan documents. These clauses say that the company reserves the right to make changes to the plan. The plan description takes legal precedence over any verbal or written promises about future benefits made to employees.
We have a life insurance policy on you and will profit when you die. Hundreds of employers, including Nestlé, Walt Disney, Wal-Mart and Bank of America, bought billions of dollars of life insurance covering millions of workers. Many companies claim that they use the policies to pay for retiree health benefits, but in fact, they use the policies to finance executive pay and pensions.
Individual employees are powerless to stop much of what’s happening, but there are some things they can do…
Request a copy of the Summary Plan Description from the employer’s benefits department. This document lays out the details of the pension plan.
Contact the Pension Rights Center, a nonprofit based in Washington, DC, if you experience a problem with your pension plan (202-296-3776, www.PensionRights.org). Explain your problem, and ask if someone there can put you in contact with a pension expert in your area who can supply free advice.
Hire an actuary to examine your options before accepting a lump-sum pension offer. Select “Find an Actuary” on the Web site of the American Academy of Actuaries (202-223-8196, www.Actuary.org).
