Some pension plans have overpaid retirees for years -- now they're demanding their money back.
For retirees, it can mean owing tens of thousands of dollars. And with little warning, their pension checks are being slashed to cover their debt.
In April 2011, New Jersey resident Carol Montague received a letter from American Water Works Co.'s pension plan informing her that it had overpaid her for more than five years and it wanted its money back -- plus interest. Montague, now 67, was told she owed roughly $45,000.
Two weeks after receiving the letter, Montague's pension benefits dropped from $1,246 to around $325 a month, around half the amount she should have been paid all along. The plan takes out roughly $300 a month in order to pay itself back.
Once Montague's healthcare premium is deducted, her monthly pension check shrinks to less than $25. She gets another $1,200 a month from Social Security, but it's not enough. So, in addition to her part-time job as a school crossing guard, she is working as a salesperson at Macy's.
So far, Montague has repaid almost $9,000 -- calculations show that she won't repay her debt in full until 2024.
American Water said Montague signed a document verifying the correct pension amount and that they are legally allowed to collect any overpayment, with interest, in order to protect the viability of the pension fund. Montague acknowledges she made a mistake, but didn't think she needed to confirm that her benefits matched the amount in the letter she had signed almost a year before she retired.
"I put it away in a steel box. I never looked at it again. It was stupid on my part," she said. "But it took (almost) six years for them to find out they overpaid me?"
With the help of the Mid-Atlantic Pension Counseling Project, a government-sponsored program, she has appealed to the pension plan to waive the interest, as well as ease some of the overpayment burden. But the plan has refused.
As pensions face increased financial scrutiny -- and shrinking funds -- pension counseling programs are seeing even more cases like Montague's.
Karen Ferguson, director of the Pension Rights Center, a Washington D.C.-based advocacy group, said that, in most cases, retirees have no idea they are being overpaid since "the way a benefit is figured in a typical pension plan is impossible for an ordinary person to fathom."