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100% Joint and Survivor Pension, beneficiary DOB incorrect


LoriLeigh
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I may be on the wrong forum, if so I apologize and no need to reply.

My father recently passed away and had a pension that pays my mom the same monthly payment that he had been receiving for the past 30 years.  When we notified Fidelity (plan administrator for BP) they questioned my mother's DOB since their system indicates 1948 when her actual DOB is 1938.  They can look back at the original paperwork from 30 years ago and see that her DOB was correctly reflected as 1938 in writing, but it says 1948 in their system.  They requested a copy of her birth certificate to change their system.

Could this incorrect date affect the monthly pension my father received over the past 30 years and the amount my mother would receive going forward?  I want as much information as possible before bringing this up with Fidelity.

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All remarks here are off the top of my head with no further research, so take it with a healthy dose of skepticism...

First, I believe the "less than 10 years younger" is referring to calculation of Required Minimum Distributions, not the calculation of a J & S payment of a defined benefit.

Yes, I believe it is possible that it could affect the amount of payments. Now, it is possible that the amount was correctly calculated, and the payment is actually correct, but they just have a wrong DOB in their records somehow. But it it is also possible that the amount was incorrectly calculated based on the incorrect DOB, and that your father was overpaid for 30 years. The plan may attempt to recoup overpaid amounts by reducing future payments, for example. 

I'll defer to some of the DB experts (I am NOT one) and attorneys to flesh this out more with additional details and more informed opinions.

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10 hours ago, pensiongeek said:

When was your father's date of birth?   If I remember correctly, it doesn't change the calculation unless your mom was more than 10 years younger than him.

My fathers DOB was 11-16-1933.  My mother's actual DOB is 01-20-1938, but they had her in the system as 10 years younger with a DOB of 01-20-1948.  She was 4 years and 2 months younger than him... but, using the incorrect date in the system (1948) she would have been 14 years and 2 months younger than him.

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1 hour ago, Belgarath said:

All remarks here are off the top of my head with no further research, so take it with a healthy dose of skepticism...

First, I believe the "less than 10 years younger" is referring to calculation of Required Minimum Distributions, not the calculation of a J & S payment of a defined benefit.

Yes, I believe it is possible that it could affect the amount of payments. Now, it is possible that the amount was correctly calculated, and the payment is actually correct, but they just have a wrong DOB in their records somehow. But it it is also possible that the amount was incorrectly calculated based on the incorrect DOB, and that your father was overpaid for 30 years. The plan may attempt to recoup overpaid amounts by reducing future payments, for example. 

I'll defer to some of the DB experts (I am NOT one) and attorneys to flesh this out more with additional details and more informed opinions.

Thank you for your reply. Since my mother's DOB is incorrectly listed as 1948, she is actually 10 years older with a DOB of 1938.  Wouldn't this have the possibility of underpayment vs. overpayment. 

I also thought about the possibility that it was correctly calculated 30 years ago and somehow an administrative error resulted in making her 10 years younger in the database.  Thank you for your feedback.

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13 hours ago, LoriLeigh said:

I may be on the wrong forum, if so I apologize and no need to reply.

My father recently passed away and had a pension that pays my mom the same monthly payment that he had been receiving for the past 30 years.  When we notified Fidelity (plan administrator for BP) they questioned my mother's DOB since their system indicates 1948 when her actual DOB is 1938.  They can look back at the original paperwork from 30 years ago and see that her DOB was correctly reflected as 1938 in writing, but it says 1948 in their system.  They requested a copy of her birth certificate to change their system.

Could this incorrect date affect the monthly pension my father received over the past 30 years and the amount my mother would receive going forward?  I want as much information as possible before bringing this up with Fidelity.

Short answer, yes, it almost certainly would affect it.

Longer answer: As a participant in a defined benefit plan, your father would have earned something called an "accrued benefit." This is usually based on his salary and the number of years he worked for the company, and it is usually expressed as a number of dollars payable monthly starting at his normal retirement age and ending at death. Let's say that his accrued benefit was $2,000 per month.

You said he started receiving benefits 30 years ago, so 1991, and his date of birth was 1933 so he was 58. If the plan's normal retirement age was 62, there would have been an adjustment for early retirement; so instead of $2,000 per month starting at age 62, his benefit would be maybe $1,800 per month starting at age 58, depending on the plan's early retirement factors.

If the plan says that the $1,800 per month was payable starting at age 58 and ending at his death, then there would need to be another adjustment due to the fact that the payment ends at the later of his death or his spouse's death. The plan's actuary will calculate the amount of the adjustment, but the younger the individuals involved are, the larger the adjustment (and the smaller the payment) will be, since it would be expected to be paid out over a longer period of time. So, if they have been paying out all these years based on an adjustment for a 58-year-old and a 43-year-old, it would be potentially very different than the adjustment for a 58-year-old and a 53-year-old.

In order to determine if they did it correctly, you would need to know, at a minimum:

  • Your father's accrued benefit at the time he retired
  • The plan's early retirement adjustment from normal retirement age to your father's actual retirement age
  • The plan's adjustment factors for the form of benefit elected by your father at at your father's actual retirement age using your parents' actual ages

Using those, you should be able to calculate the amount of the monthly benefit that was actually payable. If the plan provided cost of living increases or other adjustments for retirees, then there may be additional factors that need to be taken into account. Good luck!

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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C.B got it mostly correct.  There is a possibility, which might not be common, that the "adjustment factors" (as specified in the plan) do not directly reflect the actual ages of participant and/or spouse.  I've seen a few plans that define those factors much simpler; for example, the 50% Joint-and-Survivor factor defined as 95%, the 75% Joint-and-Survivor factor defined as 90%, and the 100% Joint-and-Survivor factor defined as 85%.

However, if the factors do reflect actual ages, I estimate the difference between using YOB38 vs. YOB48 to be about 3-4%.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Lori, at the risk of repeating some of what was already said ....

Yes, your mother's birthdate was likely an input in converting the monthly amount that could have been paid for your father's lifetime only into the (smaller) amount payable as long as either he or your mother remains alive (the 100% J&S option) . In most plans, this conversion reflects the exact ages of retiree and beneficiary at the time payments begin, so that in these typical plans using an incorrect birthdate for your mother would make the result incorrect. As David Rigby says, in some plans exact ages are not always used so that having an incorrect beneficiary birthdate needn't impact the result -- but even these plans often refine the standard adjustment where there is a large enough difference in age between retiree and beneficiary (such as with an apparent 15 year difference in this case) so that the incorrect date could have made an impact even if the plan here was one of these.

Assuming that the pension plan here is one in which your mother's (apparent) age factored into the calculation of the 100% J&S benefit -- as is very likely in my experience -- then the impact would have been to make the J&S benefit lower than it should have been. The plan thought that your mother was 10 years younger than she really was, and so expected more future survivor payments to her than if her correct age had been used, leading to a steeper reduction in converting to J&S than if that correct age had been used. In other words, getting this error corrected seems like something you would want to pursue. 

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53 minutes ago, Sellarsian said:

Lori, at the risk of repeating some of what was already said ....

Yes, your mother's birthdate was likely an input in converting the monthly amount that could have been paid for your father's lifetime only into the (smaller) amount payable as long as either he or your mother remains alive (the 100% J&S option) . In most plans, this conversion reflects the exact ages of retiree and beneficiary at the time payments begin, so that in these typical plans using an incorrect birthdate for your mother would make the result incorrect. As David Rigby says, in some plans exact ages are not always used so that having an incorrect beneficiary birthdate needn't impact the result -- but even these plans often refine the standard adjustment where there is a large enough difference in age between retiree and beneficiary (such as with an apparent 15 year difference in this case) so that the incorrect date could have made an impact even if the plan here was one of these.

Assuming that the pension plan here is one in which your mother's (apparent) age factored into the calculation of the 100% J&S benefit -- as is very likely in my experience -- then the impact would have been to make the J&S benefit lower than it should have been. The plan thought that your mother was 10 years younger than she really was, and so expected more future survivor payments to her than if her correct age had been used, leading to a steeper reduction in converting to J&S than if that correct age had been used. In other words, getting this error corrected seems like something you would want to pursue. 

Thank you so much for your response. I will be reaching out to Fidelity tomorrow and now feel like I have a pretty good understanding of the issues.  Thank you again for taking the time to help me.

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On 1/27/2021 at 7:45 PM, LoriLeigh said:

They can look back at the original paperwork from 30 years ago and see that her DOB was correctly reflected as 1938 in writing...

This tends to make me think the original calculation is correct and then somewhere along the way her DOB got messed up in the system, but that being said, it's on them to show that the original calculation was done correctly reflect her 1938 YOB.  It will depend on what the plan document used for actuarial equivalence for J&100%S 30 years ago.  That is probably unchanged, but again, it's on them to show it.

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Except in rare cases, when it comes to annuity payments age matters, and the older the better. So yes, if your mother's age was an input in the calculation and her age was incorrectly input with a birthyear of 1948 instead of 1938, your parents were underpaid from the get-go. But how to know? I think some advice on what to ask for from Fidelity to substantiate the correctness of the calculation would be helpful. 

 

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