When James Mizelle retired in 2001, he started drawing a pension from his 27-year career with AT&T T 1.21%▲ and other phone companies.
Fifteen years later, he got a letter saying his benefits were miscalculated and demanding he repay $32,116.05. Mr. Mizelle, living in Round Hill, Va., replied that he couldn’t repay. Within weeks, he heard from a collection agency.
“That money had been spent,” says Mr. Mizelle, 70, who had incurred medical bills in a battle with prostate cancer. “I could not pay it back.”
The former programmer and human-resources worker is among potentially hundreds of ex-employees whom AT&T Inc. has dunned in recent years for what it calls pension “overpayments.” AT&T sometimes has enlisted a collection agency to recover the money, a move retiree advocates, pension lawyers and some former Treasury Department officials call unusual.
Among them are 17 retirees from whom AT&T and Fidelity Investments, the pension plan’s record-keeper, have demanded a combined $1 million and who have contacted lawyers working with the Pension Rights Center, a retiree-advocacy nonprofit in Washington, D.C., or related groups around the country, the center says.
An AT&T spokesman says the pension overpayments affect “significantly less than 1/10th of 1%” of its about 517,000 participants, with “a very small percentage” referred to collections. He declines to say how the company identified the errors or how much money is at stake.
A Fidelity spokesman says the firm helped zero in on errors at AT&T’s direction, including some predating Fidelity’s role. AT&T and Fidelity decline to address the individual cases in this article.
Companies for years have been taking measures to recoup pension overpayments, an issue federal tax officials have tried to address going back to the 1990s with a series of refinements to rules governing when and how companies must rectify such errors.
AT&T appears to have gone a step beyond many other large companies by sticking to its demands of full repayment and hiring a collection agency in some cases, even where retirees make the case that they lack the wherewithal to repay.
‘Our approach is common and similar to how most other employers handle this issue,’ says an AT&T spokesman.
Sydney Smith, a former AT&T information-technology analyst living in the St. Louis area, received a letter in July 2016 saying she owed AT&T’s pension plan $19,306.95—money she had received, the company later told her, because she provided a date in the pension-benefit calculation that the plan’s website shouldn’t have let her use.
Ms. Smith says she told Fidelity she didn’t have the money. A single mother, she had cashed out her pension to pay debts and living expenses. “I used it,” says Ms. Smith, 42. “It’s gone.”
She asked about a repayment plan and was told she could make two payments of nearly $10,000 each, she says. She didn’t have that. Days after the plan denied her appeals, Ms. Smith says, she began getting calls from Lyon Collection Services Inc., the same agency that demanded repayment of Mr. Mizelle. “They started to call pretty constantly.”
Ms. Smith enlisted Roger Curme, a lawyer with the South Central Pension Rights Project, a legal-assistance service funded in part by the U.S. Department of Health and Human Services. “We haven’t seen that before,” Mr. Curme says of a big company’s using a collection agency. “These tactics that AT&T is using…they’re kind of harsh.”
Ms. Smith filed a claim with the plan asking it to waive repayment but was denied. The plan also denied her subsequent appeal. She hasn’t heard from the company since February, she says, and is hopeful she won’t. Yet, she adds, “it’s not resolved—it’s still up in the air.”
Lyon Collection President Rick Mantin says his firm follows laws governing consumer collections and his employees are persistent without harassing customers. He declines to comment on individual cases or clients and says the company doesn’t focus on retirees. “Debtors have the right to request that Lyon cease any further communication with them,” he says, “which we immediately honor.”
In general, pension lawyers say, it is legal for a company to demand back pension overpayments. Pension-plan sponsors and administrators have an obligation to safeguard a plan’s assets. Companies for years have interpreted that obligation to include not just stopping overpayments but also requiring repayment. Often, plans recoup what they can by reducing retirees’ remaining benefits.
“Not recouping the monies would mean that there would be fewer funds available for distribution to other participants,” the Fidelity spokesman says.
Pension lawyers say that in recent years some employers and plan administrators have grown skittish about giving retirees a pass for even small overpayments. They point to Internal Revenue Service guidance that suggested plans had to pursue repayments vigorously or risk losing key tax benefits, such as deductions for employer contributions and tax-free investment returns.
Among companies recently requesting paybacks is Fiat Chrysler Automobiles NV’s U.S. unit, which says that in 2016 it notified several hundred retirees that their pension checks were incorrect. About 300 people, or 0.3% of its pension recipients, received more than they were supposed to, it says.
The company says it followed federal regulations when asking retirees to return overpayments and doesn’t use a collections service. On average, it says, those getting extra payments were receiving benefits of $24,000 a year. Three-quarters of them were asked to repay $3,000 or less. Of the rest, the average recovery the company sought was 3.7% of the retiree’s monthly benefit, and none was more than 8%.
Had they known the correct payment amount, some retirees might have made different life decisions, such as when to retire or where to move, says Jay Kuhnie, president of the National Chrysler Retirement Organization, a retiree-advocacy group. “They might have said, that’s not as much as I thought, I’m going to work another 4 to 5 years,” he says. “The retiree has no way of going back.”
AT&T’s collection agency
AT&T’s pension plans have $45 billion in assets, enough to pay about 77 cents on every dollar of pension benefits earned so far by all current and former employees and retirees for their full life expectancy, as well as other beneficiaries.
Pensions Calling
AT&T’s pension plans have about three-quarters of the assets they need to pay lifetime benefits for its employees, retirees and other beneficiaries.
Lawyers who work with retirees say they rarely see referrals to collections agencies by a large company. Some former Treasury Department officials who worked on recoupment issues say it wasn’t something they had seen before.
“An awful lot of plan sponsors, just as a matter of culture, are not very enthusiastic about chasing down their retirees to recover overpayments,” says Brian Dougherty, co-leader of the plan-sponsor task force at the law firm Morgan, Lewis & Bockius LLP.
The AT&T spokesman says “our approach is common and similar to how most other employers handle this issue” and follows federal pension rules, treating retirees ethically. The Fidelity spokesman says that “having a third party to assist with contacting plan participants in seeking reimbursement is a common practice among many employers in the industry.”
Faced with complaints from retirees whose pension benefits had been reduced, officials at the Treasury Department and the IRS in 2015 issued new guidance, clarifying that plans could recover funds in other ways instead, including from contractors responsible for errors. Companies could also replace the missing funds themselves, or modify plan rules retroactively to accommodate the overpayments, according to the guidance.
“It clarified that plan sponsors were not always required to recoup inadvertent overpayments and pursue all available legal remedies to do so,” says Mark Iwry, a Treasury Department official from 2009 to 2017 who worked on retirement policy. The guidance “took a step toward making the system more practical, workable, and humane.”
Some pension experts have concluded that overpayments essentially never harm plan finances, says Richard Shea, who advises employers as head of the employee-benefits law practice at Covington & Burling LLP. That’s because employers must set aside enough money to cover a lifetime of benefits based on what retirees actually receive, not some earlier estimate.
“The way the funding rules work, you’ve already got it,” he says. “You don’t have to get it back.”
Telephone-company pensions may be more prone to mistakes than others, thanks to the federal breakup of the Bell System monopoly in the mid-1980s. Often, workers’ pensions accompanied them as they moved among the company’s successors.
An operator’s case
Some errors AT&T identified amount to double-counting, in which retirees received benefits reflecting their full careers plus additional payments reflecting part of the same history.
Eileen Ralston of Daytona Beach, Fla., joined what was AT&T’s Pacific Telephone in 1970 as an operator. She left telephone work in the mid-1980s, then rejoined the new AT&T in 1986 as an operator.
She began collecting her AT&T pension of $921.83 a month soon after leaving in 1999. Shortly before turning 65, she says, she called AT&T’s pension administrators and was surprised to hear she was entitled to another $546.73. “I said, are you sure about this? Because I get an AT&T pension,” says Ms. Ralston, 75. “They said, no, this is your pension for your previous service.”
Just before Ms. Ralston’s September 2017 birthday, Fidelity told her in a letter that the additional benefit was a mistake and that she owed $58,500.11. It was about two years after she suffered a heart attack. “I thought I was going to have another one,” she says. “Every time I get something in the mail from AT&T that says ‘benefits department,’ I get a cold chill up my back.”
AT&T offered to halve her remaining pension to $444.89 a month. After Ms. Ralston consulted a lawyer, she received a letter from AT&T in February reaffirming the debt but adding that “your overpayment information will not be sent to an outside collections agency at this time.”
She hasn’t repaid and worries AT&T might come after her again.
Claudia Jones worked for Bell South and then AT&T for about 16 years, she says, before being laid off in 2015. She took her pension in a lump sum and invested it in an annuity that pays about $600 a month.
In March, she got a letter from AT&T and Fidelity saying her benefit had been miscalculated and that she would have to repay $45,300.17. “Say they did miscalculate,” says Ms. Jones, 66. “We shouldn’t be punished for that.”
In late June, she says, she started receiving calls from Lyon Collection. She can’t afford to pay, she says, and isn’t sure what she’ll do.
AT&T left Mr. Mizelle, too, in limbo. Fidelity in a letter wrote that “the Plan will recover the excess benefit amount by any means that are available.”
He enlisted a lawyer to file a claim with the plan, arguing that he no longer had the additional money and that requiring repayment would cause him financial hardship. The plan rejected his claim.
The committee that denied his subsequent appeal wrote him reiterating the debt but saying it “decided not to pursue further collection attempts of the overpayment amount at this time, without waiving any rights to resume the collection process in the future.”
