It's time to retire. So what exactly has become of that pension you earned decades ago and the 401(k)s you left with former employers?
The answer may not be as straightforward as you think. Your former employer may have gone through a bankruptcy, merger or spin-off, making it tough to track down your retirement plan. Perhaps an employer transferred its pension liabilities to an insurance company, which now owes you an annuity—but the insurer has lost track of your contact information. And if you left a smaller 401(k) balance with a former employer years ago, it may have been transferred to an IRA without your knowledge or consent.
All of these scenarios are contributing to a growing retirement crisis: Not the one that usually makes headlines about workers who haven’t saved enough but a lesser-known crisis affecting workers who can’t find—or don’t even know about—the benefits they’re owed.
It’s increasingly clear that some retirees who are simply waiting for a pension check to show up in the mailbox may be waiting a very long time. MetLife, an insurer that is in the business of taking over pension obligations from employers, recently revealed that it had inappropriately failed to make payments to about 13,500 people. The company said it had tried to contact the workers only twice before giving up. Recent U.S. Department of Labor investigations, meanwhile, have found that some pension plans’ records on retired participants are full of holes, including missing names, ages and Social Security numbers.
Just how big is the problem? More than 25 million workers who left an employer between 2004 and 2013 left at least one retirement account behind, according to the U.S. Government Accountability Office. And the Pension Action Center at the University of Massachusetts Boston estimates that retirees are owed upward of $150 billion in missing pension benefits. “It’s incredible and shocking,” says Jeanne Medeiros, the center’s director. “This is money that people earned.”
Bipartisan legislation introduced in the Senate in March aims to help fix the problem, but it’s also drawing fire from retirement-plan participant advocates. The Retirement Savings Lost and Found Act of 2018 would create an online plan registry to help workers locate all of their employer-sponsored retirement accounts—a big improvement over the scattered, incomplete and sometimes outdated resources currently available to workers. But it also lays out steps that employers must take to track down missing participants, and those steps are minimal, critics say, compared with search requirements outlined in current regulatory guidance.
The problem may only grow as an increasingly mobile workforce, corporate restructurings and insurance-company buyouts of pension obligations keep workers and their retirement plans spinning off in different directions.
Keep Tabs on Old Retirement Plans
The onus is clearly on workers to keep track of their plans and claim benefits that they’re owed. Some steps are fairly simple: Keep all statements and other communications from your retirement plans, and notify your former employers and plan recordkeepers of any changes in your contact information.
Consider consolidating old 401(k)s into a low-cost IRA or your current employer’s plan. If you leave behind an old 401(k) holding less than $5,000, the employer can transfer your savings to an IRA without your consent. After such “forced transfers,” fees often outweigh investment returns, eating away at the account balance, the GAO has found.
From there, the homework can get more burdensome. Medeiros suggests that pension participants, for example, keep all of their tax returns indefinitely. That’s because plans sometimes claim incorrectly that they’ve already paid out benefits, and your tax returns can prove that you didn’t get a payout. In some cases, she says, even a stack of old paystubs can come in handy. She recently worked with a retiree who needed 10 years of employment to vest in his pension plan, but his former employer thought he had worked only nine years. “He sent me 30 pages of biweekly paystubs showing he had worked 2½ years more than the company thought,” Medeiros says. “Because he had those paystubs, we showed that he was vested.”
Keep an eye on your former employers, watching for any company relocations, mergers or bankruptcies. If your plan is terminating, it must send you notice. Terminating pension plans that are insufficiently funded will likely be turned over to the Pension Benefit Guaranty Corp., while well-funded plans must purchase annuities for participants from an insurance company. If your plan is turned over to an insurer, make note of the group annuity contract number, which should be included in plan communications.
If you’ve lost track of a retirement plan, several resources can help. The Social Security Administration may send you a “notice of potential private pension benefits” that may include the name of the plan, an employer identification number and address—although this information is often outdated, Medeiros says.
Search the PBGC’s list of missing participants, suggests Jane Smith, policy analyst at the Pension Rights Center. The PBGC’s missing participants program was traditionally limited to terminated pension plans, but this year it expanded to include terminating 401(k)s and other defined-contribution plans. Plans may voluntarily transfer missing participants’ benefits to the PBGC, instead of stashing the money in IRAs at financial institutions, or report to the PBGC the institution that is now responsible for the benefit, so the PBGC can share that information with the participant.
For help tracking down a plan, go to pensionhelp.org to find pension counseling projects funded by the U.S. Administration on Aging.
Legislation Loosens Search Requirements
No matter who is in charge of your plan, don’t assume anyone will contact you when it’s time to claim benefits. Pension plans “have an incentive not to contact you,” says John Turner, director of the Pension Policy Center, in Washington, D.C. That way, the money stays on the plan’s books, improving its funding status.
Indeed, regulators have found some plans are making minimal effort to track down missing participants. Some plans don’t search for participants when communications are returned as undeliverable, says Marc Machiz, former head of the DOL office in Philadelphia that originated the pension-plan investigations. In fiscal year 2017, the DOL’s investigations helped pension participants collect about $327 million in benefits that they were owed, and “that’s just going to be the tip of the iceberg,” Machiz says.
Within a couple of months of MetLife’s disclosure that it failed to make payments to some group annuitants, the Massachusetts Securities Division was able to locate hundreds of retirees who are owed pension payments by MetLife, state Secretary of the Commonwealth William Galvin announced in March. MetLife did not respond to a request for comment.
If it becomes law, the Retirement Savings Lost and Found Act could greatly simplify workers’ search for lost savings. But the bill would also force retirees to take on even more responsibility for tracking down their plans, participant advocates say, and it may work to the detriment of some retirees who have forgotten about a former employer’s plan and don’t know they need to search for it. That’s because the bill would allow plans to fulfill their obligations to search for missing participants by taking as few as two steps—such as sending a certified letter and checking the plan sponsor’s records for an updated address.
Current DOL guidance calls for plans to send a certified letter, check all related plan and employer records, contact the plan beneficiary and use electronic search tools before pursuing possible additional steps, such as using commercial locator services.
The bill “could result in many retirees not receiving the benefits that they are due,” Smith says. Consider a worker who dies not knowing that he’s owed a pension. His spouse may also be entitled to a benefit—but with such minimal search requirements, the chances she’ll discover it are “vanishingly small,” Machiz says. The bill could also put a stop to the DOL’s investigations of pension plans’ efforts to track down missing participants. AARP supports the bill, but director of financial security Cristina Martin Firvida said in a statement, “We are concerned that there are efforts under way to undermine the regulatory protections retirees need to receive their benefits.”
Sen. Elizabeth Warren (D-Mass.), who co-sponsored the bill with Sen. Steve Daines (R-Mont.), said in a statement that many Americans “are losing out on billions of dollars in savings when they move between jobs and leave accounts behind.” The bill, she said, “would make it easier for Americans to keep the savings they’ve worked hard to put away for retirement.”
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