Thursday, September 15, 2016

No. 179: Annuities, Pensions, and the Theft of Benefit Payments—Another Recent Example

In No. 177 (posted August 31, 2016) I reported on the practice of life insurance companies using the Social Security Death Master File in their efforts to deal with the theft of annuity benefits. I said survivors of deceased life annuitants sometimes pretend the annuitant is still alive and thereby steal annuity benefits that should have stopped when the annuitant died. I said the same problem applies to pensioners receiving benefits from pension plans and recipients of Social Security benefits.

I included a recent example of the problem. An individual was charged with grand larceny for allegedly stealing over $100,000 of pension benefits intended for his mother, who had died more than 11 years earlier. After posting that item I learned of another recent example involving an extra dimension.

The New Example
On September 1, 2016, in a joint press release, New York State Attorney General Eric Schneiderman and Comptroller Thomas DiNapoli announced the unsealing of an indictment charging Robert J. Schusteritsch, a 71-year-old Florida resident, with grand larceny in the second degree, a class C felony, and criminal impersonation in the second degree, a class A misdemeanor. He allegedly stole over $180,000 in benefits from a New York State pension plan. The benefits were intended for his brother, Martin Petschauer, who retired in 1986 and died in 2008. The indictment was filed in the state court in Albany County. Here is an excerpt from the press release:
According to documents filed with the court today, Petschauer was a New York State pensioner who retired as Chief of the Pooling and Audit Review Section of the New York Metro Milk Marketing Area in approximately 1986. He passed away on July 9, 2008. At the time of Petschauer's death, his pension benefits were being direct deposited into a bank account held in a trust for the benefit of Petschauer; Schusteritsch was the sole trustee for his brother and had exclusive access to the bank account.
When Petschauer died, Schusteritsch concealed his brother's death from the bank and the Retirement System and kept the trust account open to maintain the direct deposits. He then routinely accessed the pension deposits and spent the money for his own benefit. All told, prosecutors allege Schusteritsch stole over $180,000 in pension benefits until the Retirement System discovered Petschauer's death in October 2015.
The prosecution also alleges that when the Retirement System learned of Petschauer's death and stopped paying benefits into the trust account, Schusteritsch called the customer help line on November 2, 2015, pretended he was Petschauer, and asserted that he was not actually dead, in an effort to maintain eligibility for the pension benefits.
Schusteritsch was arrested in Florida and brought to Albany. At his arraignment, he pleaded not guilty. Bail was set at $10,000 cash or bond, and he was remanded in lieu of posting. If convicted, he faces "up to five to fifteen years" in state prison.

General Observations
In No. 177, I said I have seen examples of legal actions against persons who allegedly stole annuity or pension benefits, but have not seen discussions of the magnitude of the problem. I expressed the belief that there are large numbers of such incidents, but many thefts may not be large enough to warrant criminal charges.

Longtime readers of The Insurance Forum know I dislike life annuities. One reason is that the cost of the "protection against living too long" cannot be readily ascertained, and I dislike buying something whose cost is unknown. Another reason is that benefits stop at the death of the annuitant, at the end of a "period certain," or, in the case of a joint and survivor life annuity, at the death of a second annuitant.

My preference is for systematic (usually monthly) withdrawals, allowing the annuitant's family to receive the funds remaining after the annuitant's death. The annuitant runs the risk of living so long that the funds are exhausted before the annuitant's death. However, the risk is small if the annuitant sets the withdrawals each year at the required minimum distribution (RMD) level, even where RMDs do not apply. I explained and illustrated the procedure in the August 1998, November 1998, August 2012, and November 2012 issues of the Forum.

Available Material
I am offering a complimentary 13-page PDF consisting of the 2-page September 1 press release issued by the New York State attorney general and the comptroller, the 1-page article in the August 1998 issue of the Forum, the 4-page article in the November 1998 issue, the 3-page article in the August 2012 issue, and the 3-page article in the November 2012 issue. Email and ask for the September 2016 package relating to the theft of annuity benefits and systematic withdrawals.