Workers Shorted by Pension Change
By: Source: AARP Bulletin Today Date Posted: 2002-07-01 11:22:00-04:00
Millions of workers could be shortchanged by up to $200 million a year by companies that fail to calculate pension payouts correctly, according to the U.S. Department of Labor's inspector general.
Auditors examined pension administration at 60 companies that have switched from traditional plans to so-called cash balance plans. They found 13 plans (22 percent) had miscalculated lump-sum benefits for workers who quit their jobs before normal retirement age, underpaying them by as much as $55,629 each.
"Some of those workers will have to sue in court to challenge their employers' calculations," says AARP attorney Mary Ellen Signorille.
Since the mid-1980s, 300 to 700 companies have converted to cash balance plans, affecting about 8 million workers, the report said. If the audit sample is representative, workers who take lump-sum payouts when leaving their jobs would be losing between $85 million and $199 million a year.
The ERISA Industry Committee (ERIC), which represents employers, denounced the findings. They are "based on a rather complex calculation that was never intended to apply to a cash balance arrangement," ERIC President Mark J. Ugoretz told the AARP Bulletin.
Two federal appeals courts, however, have ruled the formula appropriate for calculating cash balance payouts, Signorille says.
The auditors suggested that the Labor Department's Pension and Welfare Benefits Administration (PWBA) do a better job of protecting workers' benefits. But PWBA chief Ann Combs questioned how pervasive the problem really is. She said the agency needed to consult with the Internal Revenue Service, which also enforces pension laws.
A proposed bill (H.R. 4778) would require PWBA to enforce existing rules on cash balance plans and to work with the IRS to develop guidelines for calculating benefits in cash balance plans.
Share
preview