State pension system allows for quirk in naming beneficiaries
By Charles Sercombe
One of the more controversial, and curious, items in our recent story about the city employee pension roll had to do with a deceased police chief leaving his pension to his kids.
The common response was: How could this have happened?
Some blamed past city officials who agreed to a cozy deal.
But that’s not the case, as it turns out, and the pension deal is not indefinite.
The deal was actually worked out by a statewide pension system that Hamtramck is a part of, called The Municipal Employees’ Retirement System (MERS) of Michigan.
Acting City Manager Kyle Tertzag and some city councilmembers met with a MERS representative on Tuesday to discuss pension issues as well as the case of a brother and sister being named beneficiaries of their late father’s pension.
MERS allows employees to name either just one beneficiary or multiple beneficiaries. When it is a matter of a single beneficiary, the pension lasts for the life of the beneficiary.
In most cases that would be a spouse.
In the case of the deceased police chief, his wife had died years before he retired. He named his son and daughter as beneficiaries.
But there’s a catch. MERS places a cap on how long they can collect the pension, which is no more than 20 years.
But the deal gets a little more complicated than that. The employee can choose to allow the beneficiaries to collect for five, 10, 15 or 20 years. The more years they collect, the smaller the pension payment.
Back to the case of the deceased police chief. He died in 2002, just one year after retiring, at the age of 60. The average life expectancy of Americans is 77 years.
He opted to allow his children to receive his pension for 15 years, according to MERS records. They are able to collect for 14 years since their father collected his pension for one year.
His monthly pension was about $6,000 a month, or $70,000 a year. By the end of the pension run, the two siblings will have split $980,000, paid by Hamtramck taxpayers.
But before anyone thinks the kids won the equivalent to the lottery, keep in mind that in actuary terms, the retired chief would have collected that amount anyway if he had lived an average lifespan.
Acting City Manager Kyle Tertzag cautioned against rushing to judgment about the amount paid out to the siblings.
“There are people behind these numbers,” Tertzag told The Review. “I’m sure they’d rather have their dad back.”
6 Responses to State pension system allows for quirk in naming beneficiaries
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Lauren Reid
April 12, 2013 at 7:56 pm
” His monthly pension was about $6,000 a month, or $70,000 a year. By the end of the pension run, the two siblings will have split $980,000, paid by Hamtramck taxpayers.” Maybe so, but you’re forgetting about the possible estate tax payment and then yearly income taxes to the federal govt, state govt, and possibly even local, if they live in Detroit. (I get a pension from my brother and pay these too.) Assuming that they both hold real jobs, the tax rate would be high as part of income.
Only the facts
April 14, 2013 at 11:15 pm
Don’t put too much faith in the details of the above statements,Lauren. When this story was first printed it was a Hamt. Fire Chief’s children that were getting these monies. I’m beginning to think accuracy in reporting is not a factor in a lot of what you will read here. It used to be that creditability in journalism was something to be striven for and now the articles seem to just be filler between the ads.
csercombe
April 15, 2013 at 9:43 am
Not sure what you are referring to “only the facts.” Here’s the original paragraph:
Hamtramck’s pension roll has some oddities in it. In one peculiar case, the son and daughter of a deceased police chief are named his beneficiaries and both earn $2,928 a month, or a little more than $35,000 a year each. Considering their relatively young age, Hamtramck taxpayers will be supporting the pair for the next 30 to 40 years.
Curious
April 15, 2013 at 2:48 pm
I think what everyone seems to be forgetting here is that the retirees funded their pensions. Which menans, their checks were deducted on a weekly basis for the amount set by the City/Pension Company that was to be invested into the MERS pension system, which is basically an annuity. The employees/retires are not the ones who establish the amount of funds to be deducted from their paychecks nor have any say-so in how the funds are invested, the City/Pension Company does all of this.
Additionally and most importantly, firemen and police do not contribute to Social Security so when they are of age to retire, what exactly do the taxpayers except live to live off of since they are ineligible for Social Security?
Let’s put it to you this way, “How would you feel if you were 62 years old and contributed to Social Security all of your life and was ready to retire, however was then told “sorry, but even though you paid into Social Security all of these years, you cannot collect Social Security or have any medical coverage through Medicare”.
Or, even better, say you were retired and unable to obtain employment due to age/illness and were collecting the Social Security monthly amount that you earned after contributing all of your life/receiving Medicare Heatlhcare benefits and then was told “oh, sorry, we need to revoke Social Security and all Medicare Healthcar benefits”.
I don’t think the taxpayers realize these pensions were self funded and these employees/retirees are ineligible for Social Security/Medicare (unless of course rare but have worked another job before/after their careers and have earned enough work credits to do so.)
Only the facts
April 15, 2013 at 11:17 pm
I apologize Mr Sercombe. You are correct. The original statement did say it was a retired police chief.
I must of been blinded by my anger at that time over the approx. $120,000.00 per year pension of a retired fire chief and got the 2 issues confused. I stand corrected.
Aaron Brown
May 1, 2013 at 9:41 am
To be completly accurate The MERS pension is funded by contributions of both the employee and the city over the entire length of service of the employee. When the employee retires his pension is paid out of funds that have been invested and accumulated interest during the entire years of employement. The investment and interest continues into retirement as well. To say that any pension beneficiary receiving a sum of money totally paid by the tax payers is not true. Based on what I have seen with the MERS investments I would guess the taxpayers amount is something less then half and that was money already paid in past years.