By J.J. Conway
J.J. Conway Law
Whether through a belief in human goodness or laziness, we are a pretty trusting society. We are content to allow proof of our greatest financial assets to be represented to us by images appearing on a computer screen, a smartphone, or a monthly paper statement. Our savings are held by financial institutions and verifiable only in the form of electronic or paper summaries. The same is true for records relating to retirement benefits. Usually, the computerization of retirement records turns out fine.
But when a legitimate dispute over the proper level of an employee’s retirement benefits arises, this practice of “relying on the computer screen” can prove more challenging. A retirement benefit is a complex formula of labor, financial contributions, and length of service to an employer.
Employer-based retirement assets grow as a result of three things: 1) hours or years spent working; 2) payroll contributions; and 3) seniority. If an employer’s records are inaccurate, the ability to prove one’s years of service, hours worked, or benefit entitlement can prove quite challenging.
Consider this factual scenario. An employee joins a large manufacturing company in his or her twenties and spends an entire working life at the organization. The employee climbs the ranks and ends up working in several different capacities in operations across the United States and, for a few years, overseas. Owing to decentralized management and budgeting, this employee moves into a plant and becomes part of that plant’s headcount.
When the assignment is done, the employee moves to another plant. Years go by, and plants are closed. When it comes time to retire, the employee receives a benefit estimate containing the standard disclaimers.
When generating the computerized estimate, the employer’s printout and pension estimate are off by several years, resulting in a much lower estimated monthly benefit. The error stems from work performed at a location that has since closed, but the work performed was not properly credited to the employee’s retirement account. The management at the closed plant has moved on, and whatever records that once existed are sparse. When it comes time to retire, the credits and contributions for the time worked at the closed plant have not been recorded properly. All that exists is a summary held in a database and reflected on a computer screen image.
Complicating matters still further, the employer outsources its benefits administration to yet another company that relies upon the accuracy of the employer’s records. That company, too, is working from a computerized employment record. Sounds unlikely? It is more common than most realize.
Hence, the employee is in the unenviable position of having to “fight with a computer screen” with that consultant’s records.
Given the nature of the dispute, this puts the matter in the purview of the ERISA Statute and its implementing regulations. ERISA, which stands for the “Employee Retirement Income Security Act of 1974,” governs employee benefits of private employers in the U.S.
ERISA took years to pass through the U.S. Congress and is typical of a federal law that resulted from a lot of bargaining. ERISA does many things well. For example, it established an FDIC-style insurance program to protect pensions.
Where ERISA can prove more challenging is in finding quick solutions to problems where there are errors documenting service credit or payroll data.
Its implementing regulations have tried to keep pace with advancements – allowing for the electronic delivery of documents and benefits statements.
Where these advancements fall short, though, is in helping the adversely affected employee; for example, when older workers who amassed years of service working in a variety of capacities are missing data and/or where their pension plan administrators or consultants make mistakes.
ERISA contains some statutory and regulatory record-keeping requirements but allows employers flexibility in their record-keeping methods. Most retirement plans contain so-called “correction of errors” provisions. These are broadly worded fix-it clauses that allow a plan to resolve an obvious error or mistake in the calculation of a benefit payment. Federal case law indicates that those provisions are executed mostly by plans trying to claw-back overpayments, but there is nothing in these generically written provisions precluding them from being used to correct errors in favor of the employee. In fact, given the status of a retirement plan as a quasi-trust, this may actually be the higher use of such provisions.
As with most legal issues, trying to avoid the problem is the best policy. Here are a few suggestions to avoid a difficult record reconstruction process at retirement:
1) An employee thinking of retirement or leaving a company should do everything he or she can do to fully verify the accuracy of all retirement benefits while still employed.
2) An employee planning to retire should utilize the employer’s human resource department or the retirement plan administrator’s office to secure printouts of estimated benefits and make appointments with the plan’s agents to attempt to correct any errors while still actively working.
3) Save copies of the last paystub from every working year while still working. The year-end paystub should have the total hours worked, a record of deductions or contributions, and sometimes seniority information; especially keep records when moving between different offices or work locations.
4) Secure a final retirement estimate before retiring and do not submit retirement paperwork unless the benefits are accurately calculated.
John Joseph (J.J.) Conway is an employee benefits and ERISA attorney and founder of J.J. Conway Law in Royal Oak, Michigan.