For the rest of her life, 61-year-old widow Patti Redmond will collect $52 a month less from her dead husband‘s Wheeling-Pittsburgh Steel pension — all because the pension plan made a mistake and had been giving her $19 a month too much since 1998.
Mrs. Redmond estimates taking the $52 out of her paycheck means that, if she lives until mid-2021, she will have paid back the $5,900 in overpayments and interest that the pension plan administrator told her she owed. At that point, she expected to get an extra $52 a month. But a letter from the administrator informed Mrs. Redmond that won’t happen and that she will collect $296 monthly “for your lifetime” rather than her “correct monthly benefit” of $348.
“That‘s what I’m more upset about than anything, that they have the right to come back and tell me I was taking $19 a month out of somebody‘s pocket that I didn’t even know I was doing,” said Mrs. Redmond, whose husband Tom died of a heart attack in 1998 after working at Wheeling-Pitt for 28 years.
Her son, Tom, who helped with her unsuccessful appeal of the decision, was incredulous that a company can legally make a retiree pay for its own mistake — and then some.
”Regardless of what the law is, people have to feel they‘re being oppressed when they get letters like this,” he said. “What they‘re doing to her is really, really ridiculous.”
Employee benefit law experts said it is common for retirees to receive bigger pension checks than they deserve. It happens because data entry mistakes are made, retirees provide incorrect information or fail to update it, and there are other errors.
When that occurs, Internal Revenue Service rules require pension plans to use actuarial assumptions about factors like life expectancy and interest rates when calculating repayment formulas for retirees who were overpaid. Not following those rules can result in a pension plan losing its tax-exempt status.
Among other things, those regulations take into account the risk that Mrs.Redmond might not live long enough to repay the entire $5,900. While that’s understandably the number Mrs. Redmond is looking at, it‘s not the figure the IRS requires pension plans to use.
“The plan is at risk if she dies next week,” said Dodi Walker Gross, an employee benefits attorney with Reed Smith in Pittsburgh.
Getting a permanent reduction in a monthly pension may not make sense to retirees who were overpaid through no fault of their own. But the regulations are designed to make the plan whole and ensure that the pension plan has enough money to pay the benefits all participants are entitled to, Ms. Gross said.
Mrs. Redmond’s pension check comes from Handy & Harman. The White Plains, N.Y., industrial company was once a sister company of Wheeling-Pitt. It took over the pension plan after Wheeling-Pitt went down for the final time in 2003.
When her husband died five years earlier, Mrs. Redmond was told she would receive $515 a month, half of the pension benefit her husband would have received.
“They said your husband worked 28 years. This is what you’re entitled to. I signed the papers and so be it,” recalled Mrs. Redmond, who lives in the hamlet of Toronto, Ohio, just north of Steubenville on the Ohio River.
She collected $515 monthly until January 2013.
That‘s when she received a letter from Handy & Harman telling her an audit had discovered several mistakes. Not only had they paid her the extra $19 monthly, they had overpaid her by about $167 a month for the last three months of 2012 because she had applied for Social Security benefits based on her husband’s earnings. The pension plan‘s rules require monthly benefits to be reduced when a retiree goes on Social Security.
Employee benefits attorneys said retirees get similar letters all the time because of mistakes in determining pension benefits.
“It happens a lot, shockingly,” said Michael Gradisek, an employee benefits lawyer with Duane Morris in Philadelphia. “When plans get big enough, you would be surprised how many times they miscalculate benefits.”
Ms. Gross said retirees are to blame in some cases.
“Sometimes participants are aware they are receiving overpayments and don’t speak up about it,” she said.
In addition to the IRS, pension plans are regulated by the U.S. Department of Labor. That agency makes sure pension fund administrators obey their obligation to preserve the assets for all people who are eligible for benefits.
That means recovering overpayments, no matter who was responsible for making the mistake that resulted in retirees receiving too much. If the pension plan can‘t get the money from them, the company that sponsors the plan is obligated to make good on it.
“A pension fund has an obligation to recover overpayments,” said Joel Horowitz, an attorney in the Philadelphia office of McCarter, English. “It‘s not greedy employers. It’s the fiduciary duty of the pension plan.”
Rules may be rules, but that doesn‘t lessen the frustration and anger of retirees who are told their benefits are being reduced because the pension plan made a mistake.
“We have so many recoupment cases. There are so many errors made and it’s devastating for people,” said Gail Webb of the Mid-America Pension Rights Project.
The nonprofit group is funded by the U.S. Administration on Aging and helps retirees in six states with pension disputes. The group helped Tom Redmond appeal his mother’s case to Handy & Harman, but the company turned him down twice.
Handy & Harman officials declined to comment.
Mrs. Redmond said she understands having to repay 14 years of extra monthly payments.
But being charged interest for someone else‘s error and being told she will out $52 a month until she dies is just wrong, she said. Her son agrees, saying that the length of time Handy & Harman can deduct that extra $52 should be capped at some point after his mother has paid back the $5,900 she was told she owed.
“To me, that needs to be regulated by someone,” he said.
Len Boselovic: 412-263-1941 or firstname.lastname@example.org.
Correction (Posted July 16, 2014) An earlier of this version didn’t make clear which entity had rejected the appeals of the Redmond case.