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Pension Funds Aggressively Recouping Overpayments

Friday, 25 Oct 2013 08:24 AM

By Michelle Smith

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Some pension funds have been overpaying pensioners for years. Now, they're on a mission to get their money back — plus interest.

A growing number of pensioners are learning that accounting mistakes can be very costly, even if you're not the one at fault. Overpayments have left some people deeply indebted while managing steep cuts to their monthly income.

American Water Works Co.'s pension plan claimed one pensioner owed about $45,000. According to CNNMoney, the New Jersey resident received $1,246 per month for over five years. She was actually entitled to half of that.

Editor’s Note:
Obama’s Budget Takes Aim at Retired Americans

To correct the problem, the fund adjusted her pension to the correct level and is also taking an additional $300 a month to repay the debt. After the pensioner's health care premium is deducted, she now receives a check for less than $25.

Most people never knew they were being overpaid, Karen Ferguson, director of the Pension Rights Center, tells CNNMoney.

"The way a benefit is figured in a typical pension plan is impossible for an ordinary person to fathom," she explains.

"The Sheet Metal Workers example is the worst example we've seen of this problem," Karen Friedman, executive vice president of the Pension Rights Center, tells CBS Chicago. "It's going back 30 years."

Between 1974 and 2004, about $5.2 million was overpaid to nearly 600 pensioners of the Sheet Metal Workers Local 73 due to "accidental and inadvertent" pension calculations, CBS reports.

The problem was reportedly discovered by a 2010 audit, but the fund waited until this past July to make adjustments. That involved reducing pensioners' payments to the correct level, then swiping an additional 25 percent for repayment of the losses and the interest the fund added on top.

A 79-year-old pensioner told CBS he was allegedly overpaid for 17 years, and the pension fund says he owes $105,507, which includes $44,525 in interest.

With instances such as this, the pension fund recognizes a payment plan will leave it at the short end of the stick. Individuals who owe large sums probably will not live long enough to repay their debt, so the fund is demanding hefty up-front payments.

The 79-year-old pensioner was asked to pay $79,000, CBS notes.

"We believe there should be a law that caps the number of years that a pension plan can go back to recover this money," Friedman tells CBS. "And we believe that should be about two to three years."

Editor’s Note: Obama’s Budget Takes Aim at Retired Americans

Related Stories:

Pension Woes Are Pushing Some to Retire Sooner

US News: 401(k) Accounts Might Be Better Than Pensions for Some

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