An Administrative Error Could Cost You Your Retirement
When was the last time you checked your pay stub? I’m not talking about your gross pay or net pay, I’m talking about the withholding for social security, service year credits for your pension plan, and all other administrative accounting that takes place with your employer.
The following story is an unfortunate reminder of how important it is for you to be aware of all the administration that your employer does on your behalf.
The Story of the Missing Contributions
Five months ago a family member of mine retired from the federal government, after over 30 years of service.
In the year leading up to her retirement, she ran the numbers and reran the numbers to make sure she felt comfortable with the retirement benefits from the federal government. (Did you know there is a parallel system for federal employees somewhat similar to the Social Security program that the rest of us have?)
Administrative error. Unfortunately, there was an error from over 30 years ago. Her employer forgot to withhold her portion of the retirement funds for her first few years of work. Now, when her pension is calculated, they are excluding those years of work from her record.
So what’s the problem? You don’t contribute, you don’t get the benefit, right? Well, that would be the case for a defined contribution type plan (like a 401k), however, this is mandatory withholding (just like Social Security). You can’t opt out of it.
Notification. And the double whammy, was that she even notified her personnel office 15 years ago about the mistake. She offered to send them the withholding plus interest, to make her account right. They looked into it and said that because she never left the service, it was fine and the years of service would be included.
Fast forward to today. Five months into retirement, and there is no answer. Multiple people have reviewed the case, and no one has offered a solution. She is receiving temporary benefits for a fraction of the pay until they can decide how to correct the problem. Unfortunately, when you enter retirement, you depend on those payments. Luckily she has an emergency fund to get her through it.
Lessons for All of Us
Mistakes Happen. Even though social security or federal retirement is mandatory, your employer can make accounting mistakes. When was the last time that you double-checked the numbers?
You are the one who will be hurt. You will be the one hurt in the end for loss of service, not your employer. And believe me, the only one looking out for you is you!
Get everything in writing.The final lesson learned is to get everything in writing. If there was some documentation of the conversation 15 years ago, it might have helped speed along the correction (…or maybe not.) It’s always good to have written documentation of any decisions made by others that could affect your future.
Look for missing money. Search the list of unclaimed money by person name to see if some of you lost some of your pension money.
I’m just as guilty of only checking that my gross pay is correct, and the amount of vacation or time off is accurate. I never would have even considered checking the FICA numbers. Pull out your last paycheck and verify the following:
- Medicare: 1.45%
- Social Security: 6.2% (Up to the maximum of $102,000. In 2009, the maximum is $106,800.)
Other things to double check that you might see either on your paycheck or on other correspondence from your employer that could affect your retirement:
- Years of service
- Hire date
- Employer contributions on your behalf to pension plans
- Employer matches on your 401k plan
- Vested percent
If you find an error, contact your HR department immediately and insist that it be corrected. Your future self will thank you!
I’ve never noticed an error on my social security benefits – they send out those yearly statements and estimate of benefits. But I did have an employer forget to match my 401k for about 6 months. It was my very first real job and I didn’t know how 401k’s worked, so I didn’t notice the match was missing. Eventually I started asking questions and found out this employer credits your 401k every two weeks, while I had never gotten a dime. A few emails later and they added the missing money to my account. Now I always check to make sure I actually receive my employers contributions.
So Scary and so true!!! People can complain or blame others but at the end of the day, you have to be pro-active and work for yourself and your bottom line. No one else will do it for you!
What a good reminder. I know my employer has my hire date and birth date incorrect. It’s scares me to think what else they messed up. I’ll definitely be giving them a call to straighten things out.
The government is excellent at screwing people out of deserved benefits: it is what they do. But that is what your congressman is for — this is one instance where you should contact him or her.
Solid advice. A recent employer had a ‘computer system flaw’ that meant they failed to subscribe me to their standard pension plan when I joined the company and made my pension choices. Six months later I spotted they still weren’t taking deductions, and when I followed up my other benefits hadn’t been put in place either. Health care was one of them, and since you were only given ‘pre-existing condition’ cover if you joined the scheme at the same time as joining the company it could’ve proved very expensive.
After some chasing it was corrected, but they were very keen for me to just start my pension six months later (saving them several thousand pounds in pension contributions). Apparently this was for my benefit, so I didn’t have to make back-payments to my pension scheme. I dug my heels in, and my pension scheme was eventually what it should have been.
The irony is, whatever they invested it in has probably diminished in value fourfold since all that happened. But at least I did what I could, and showed them that seeing an administrative mistake as an opportunity to save on money they should have invested on my behalf was not acceptable.
As benefits and payroll are done by humans, errors are all-too frequent.
Now, with everything moving online, there is less attention to personal detail.
I’ve done payroll and benefits for years and you’d be surprised how easy it is to get things wrong …
The sad part is that it could happen to anyone. I have had school mates tell me stories where they tried using their school benefits plan to pay for a dentist or medical bill but some small paper work error lead to major confusion.
Your relative needs to hire a labor lawyer. Now, not later.
This story underscores the importance of checking every detail on EVERY paycheck the minute it comes in, and of keeping a copy of every paystub–not just for a couple of months, but for-freaking-ever. Also, correspondence such as the fifteen-year-old request to make this right should be kept on file permanently; as you note, this kind of conversation should be recorded in writing.
With the increasing emotional distance put between HR staff and employees by the automation of pay systems and outsourcing to outfits like PeopleSoft, errors not only will happen more often, HR will care less and less about them. When PeopleSoft took over our payroll system, the mess that ensued was horrific. It took them months to get my paycheck right–and I felt lucky to have been paid at all, since many people couldn’t even extract the money they’d earned. Every single check had at least one error. Several times, they did not deposit my employer’s match to my 403(b); several times, they didn’t deposit mine. The fact that this kind of error, delaying investment for weeks, worked to my long-term disadvantage meant nothing to the people receiving my protests. Then they decided that after 15 years with My Beloved Employer I was not entitled to vacation time and removed six weeks’ worth from my accumulation. When I protested, I was told people in my job class were not entitled to vacation. I had to cc e-mails to my lawyer and threaten to complain to the state Wage & Hours Division to get that one fixed.
I work for a state agency. State employees here accumulate sick leave over the years, and after you have 500 hours you get a severance payment of 30% of hourly pay for accumulated sick-leave hours; that amount goes up to 50% when you hit 1,000 hours. Obviously, this is a valuable benefit. In the last round of layoffs, HR told a bunch of veteran employees that they had not accumulated ANY sick-leave hours! These were people who had hundreds of hours (i.e., tens of thousands of dollars’ worth) of saved time. The only way you’d be able to prove how much time you’d used and how much you’d accumulated would be to have hard copies of your past pay stubs.
Keep everything related to your pay. Forever.
What a pity. How on earth can we trace something that happened so many years ago?
I remember reading that almost 100,000 pensioners in the UK have been affected by an overpayment of pensions made some time ago. Apparently the Pensions Office (or a private company that had been tasked with this) screwed up.