Pension Stops for Surviving Spouse
Question: Less than a month after my husband died on Sept. 2, 1986, I received a letter from his employer, McDonnell Douglas, regarding his pension benefit to me. The letter was dated Oct. 1, 1986, and was signed by a “pension administrator.” The letter states that I will receive a monthly payment of $833.29 for my lifetime . Because the information was so vital to my existence, I phoned the St. Louis corporate office and spoke directly to the lady who had signed it to verify it.
Which she did: I would receive the $833.29 for my lifetime and that it would include the insurance benefit too. I began receiving the $833.29 monthly. I am 72 years old and this was my only income other than Social Security.
Two months before my husband died he arranged a home loan with Security Pacific Bank in order to accommodate his wheelchair downstairs, in the bathroom and on a ramp in the front. In December, 1986, I bought a new car. With the $833.29 payments I was able to manage all payments with no problems.
On June 1, 1988 I received a notice from McDonnell Douglas that my last pension check would be mailed July 1, 1988. They then refused my petition of appeal. They said Kenneth had signed a “10-year certain and life” plan. As the beneficiary I never signed anything. Isn’t there a federal law that requires that I sign a plan of such personal significance? We were married for 45 years and Ken never mentioned this. Why would he take out a $70,000 loan if he had understood his pension plan? He always looked after my interests before all else.
Can you help me? I’m getting nowhere and I’m using up my small savings fast. I had such confidence in McDonnell Douglas and believed their representative completely. Must I sell our family home of 35 years?--G.D.
Answer: I certainly hope not. The trap that you and your husband fell into, however, is a distressingly common one. Although Congress established ERISA (the Employee Retirement Income Security Act) back in 1974, it still left some gaping holes. Previously, though, abuses were widespread: A company could agree to pay promised pensions after 30 years of service but then, at 29 years of service, they could lay off or fire those employees reaching retirement age and they would receive nothing.
ERISA laid down some pretty tough ground rules to end this--after X number of years, for instance five or 10, the employee would have a “vested” interest in his plan, and even if he were subsequently fired or laid off (or even if he changed employers) he would still be entitled, at normal retirement, to a portion of the benefits promised.
But there were still some holes, and a major one wasn’t plugged up until passage of the Revenue Reform Act of 1984, according to Harold Viemann, McDonnell Douglas’ manager of pension and savings administration in St. Louis. This badly needed reform made it impossible for an employee to elect a retirement program--without his spouse’s approval and signature--that materially affected the benefits after the employee’s death. The surviving spouse had to read, and sign--and usually have notarized--any pension election that would affect the survivor after the employee’s death.
This was an extremely important breakthrough, because even the most well-meaning employee, trying to protect survivor’s rights, can get confused over these insurance-oriented terms. “Ten year certain and life,” for instance, simply means that the company will pay the pension for 10 years after his retirement.
“Lifetime pension,” likewise, sounds fine, but what it really means is that the pension ends, completely, with the employee’s death, leaving no benefit for the survivor. “Level Income Option,” on the other hand, pays considerably less in benefits per month, but it continues beyond the life of the employee until the spouse too has died.
Because your husband signed the “10-year certain and life” provision--and it’s a certainty that, as caring as he was, he didn’t really understand what it meant--you would normally have very little recourse. The change in the law requiring your approval didn’t come along until six years after Ken had signed the agreement. And, as McDonnell Douglas’ Viemann says: “What’s over the dam, is over the dam.”
But--and this is one big, and potentially significant, but-- you have a letter from McDonnell Douglas, just a month after your husband’s death, reaffirming both you and your husband’s original understanding of his pension benefit. As this letter--to you as your husband’s survivor (and a photocopy of which you sent me)--says, without any qualifications: “This monthly benefit ($833.29) will continue for your lifetime .” As well as the health benefits.
As George Gamble, an independent, Rancho Palos Verdes-based benefits and compensation consultant says: “I can’t speak for McDonnell Douglas, of course, but if I were on the corporate review board and a letter like this came through, I would take the position: ‘Well, it was an error, but it sure puts us on the hook. Where there’s been an error by an employee, we’ll stand behind it.’
“Something like this can’t be paid out of the pension plan fund itself, which is governed by very tight rules,” Gamble added, “but would have to come out of general revenues. On the basis of the letter, the lady thought she had these benefit rights coming to her--I would agree with her--and, by buying the new car in ’86, she committed herself on that assumption.”
Without the letter you would have very little chance of getting McDonnell Douglas to come around.
Gamble, who previously sat as chairman of the full board review of a corporation similar to McDonnell Douglas, added: “We used to get cases like this, commonly--'My husband wouldn’t have signed anything like this if he had known that it would leave me nothing.’ And it was sad, but there was really nothing we could do. That confirmation letter, however, puts this into an entirely different light.”
McDonnell Douglas’ Viemann, while at a loss to explain how such a confirmation letter was sent to you, points out that ERISA very specifically lays out the two-pronged appeal procedure for you:
“She should write an informal letter--very similar to the letter she sent you--explaining what happened, her husband’s full name, Social Security number, his date of retirement, the date of his death and a copy of that Oct. 1, 1986, letter. She should send this to Plan Administrator, McDonnell Douglas Corp., P.O. Box 516, St. Louis, Mo. 63166.
“If her appeal is turned down, then she should write again, requesting a full review board hearing on her case. If this too is turned down, then she can pursue it through normal legal channels. It wouldn’t do any good to file legal action now, because the court would throw it out because she hasn’t exhausted her appeal channels.”
While nothing in life is certain, both Gamble and I think that the Oct. 1, 1986 letter you received (particularly, if unintentionally, cruel because it put your mind at rest just eight months before the pension rug was pulled out from under you) is a powerful weapon for you.