Tuesday, January 2, 2018

No. 246: Pension Problems—Lost Pensioners and Stolen Pension Benefits

In recent years I have observed two serious problems facing the pension business. One is lost pensioners. The other is stolen pension benefits. Here I discuss the two problems.

Lost Pensioners
On December 15, 2017, MetLife, Inc. (NYSE:MET) filed an 8-K (significant event) report with the Securities and Exchange Commission. The report provided a "Consolidated Company Outlook—Near-Term Guidance." These two paragraphs are at the end of the report:
Further, MetLife has been in the retirement business for many decades. As practices have evolved, we are improving the process used to locate a small subset of our total group annuitant population of approximately 600,000 that have moved jobs, relocated, or otherwise can no longer be reached via the information provided for them. We currently believe the portion of the subset that is most impacted is less than 5% of our total group annuitant population and they tend to be smaller size cases with average benefits of less than $150 per month.
We are making our process more robust to include a wider set of search techniques and better utilize available technology. Taking these actions would result in strengthening reserves, which in the period recorded may be material to our results of operations and is not reflected in the outlook presented herein. We do not have an estimate at this point but we plan to provide further disclosure on our fourth quarter earnings call and in our annual report on Form 10-K for the year ended December 31, 2017.
The same day, John Hele, MetLife's chief financial officer, made similar comments during a "Business Update Call" with analysts. The next day, The Wall Street Journal ran an article by reporter Leslie Scism entitled "MetLife Discloses Pension Bungle" and subtitled "Some Wall Street analysts assumed that payments could be 10 or more years overdue."

In light of these developments, I contacted MetLife. A spokesman provided this statement:
What used to be standard protocol for finding retirees who are owed benefits is no longer sufficient. While it is still difficult to track everyone down, we have not been as aggressive as we could have been. When we realized this was a significant issue, we launched an effort to do three things: figure out what happened, strengthen our processes so that we do a better job locating retirees, and promptly pay anyone we find—as we always do. We are implementing enhanced techniques within MetLife's Retirement and Income Solutions business to better locate and promptly pay any group annuitant who may be entitled to benefits. We are deeply disappointed that we fell short of our own high standards. Our customers deserve better. We are committed to making this right for our customers. We found the issue, we self-reported it, and we are committed to doing better. We are fully cooperating with regulators.
MetLife said in its 8-K, and Hele said in his comments, that further information will be included in the company's 10-K report for the year ended December 31, 2017. MetLife filed its 10-K for 2016 on March 1, 2017. Therefore the company probably will file its 10-K for 2017 on or about March 1, 2018. I plan to post a follow-up then.

Stolen Pension Benefits
In No. 177 (posted August 31, 2016) and No. 179 (September 15, 2016), I wrote about two cases involving stolen pension benefits. Recently I learned of a third case.

In the first case, an individual was charged with grand larceny after stealing over $100,000 from a pension fund. His mother was receiving a pension payable monthly until her death. The payments were sent to her bank account. When she died, no one informed the fund. Her son, claiming power of attorney for her, wrote checks to himself for ten years until he was arrested.

In the second case, an individual was charged not only with grand larceny but also criminal impersonation after he stole over $180,000 from a pension fund. The payments were sent to a trust account for which the pensioner's brother was the trustee. Seven years after the pensioner's death, the fund learned of the problem and stopped the payments. The brother then contacted the fund by telephone, said he was the pensioner, and requested that the payments be resumed. The brother was arrested shortly thereafter.

In the third case, an individual was charged with bank larceny (a federal crime) after he stole more than $100,000 of pension benefits intended for his sister. He did not inform the pension fund of her death, and thereafter stole the benefits.  He pleaded guilty and was ordered to pay restitution. However, his financial and health problems were so serious that he was sentenced to probation for three years and ordered to pay the restitution without interest at the rate of $25 per month.

The Unpaid Death Benefits Analogy
The problem of lost pensioners is reminiscent of a problem that burst on the scene seven years ago involving life insurance death benefits. On July 28, 2010, Bloomberg News ran an article by reporter David Evans entitled "Duping the Families of Fallen Soldiers" and subtitled "Life insurers are secretly profiting from death benefits owed to the survivors of service members and other Americans."

The article involved "retained asset accounts" (RAAs). They are used by many life insurance companies that send a book of drafts to the beneficiary instead of sending a check for the death benefit. The beneficiary then can use the drafts to make withdrawals from the RAA as desired. The article said that many RAAs had gone dormant, and that the companies had lost contact with many RAA owners. The article was a bombshell because of its focus on beneficiaries of life insurance covering deceased members of the military services. The article prompted many investigations of unpaid death benefits involving not only members of the military services but also members of the general public.

I first wrote about unpaid death benefits in the August 1980 issue of The Insurance Forum. After the Evans article appeared, I wrote about RAAs in the October 2010 issue, and about unclaimed property more generally in the November 2010 issue.

General Observations
I think the problems of lost pensioners and stolen pension benefits are far more serious than the isolated cases discussed here. Both problems stem from the mobility of our population and the administrative challenge of dealing with huge numbers of insureds, pensioners, and beneficiaries. I invite the thoughts of readers—especially those with direct knowledge of how records are maintained—about the magnitude of the problems and potential solutions to the problems. The identity of any reader who responds to this invitation will not be divulged unless the reader gives permission.

Available Material
I am offering a complimentary 17-page PDF consisting of MetLife's 8-K filed December 15, 2017 (6 pages), the article in the August 1980 issue of the Forum (2 pages), the article in the October 2010 issue (4 pages), and the article in the November 2010 issue (5 pages). Email jmbelth@gmail.com and ask for the January 2018 package about lost pensioners and stolen pension benefits.