A pension provides peace of mind for an employee, as they are generally unaffected by economic turmoil. They are not ironclad however, and many states have laws on their books that punish convicted felons with a loss of some, or all, of their pension.
How Pensions Work: Defined Benefits Plan
Pensions offer a reliable and predictable source of income after an employee leaves the workplace, and becomes eligible to receive their retirement benefits. The appeal of a pension is in the security it provides for a retiree. So how is a pension different from other retirement plans?
Employees with pensions receive what is termed a defined benefit throughout the course of their retirement. Defined benefit plans guarantee that once an individual is eligible, they will receive a certain amount of retirement income each month. This might mean that if an employee retires with a yearly salary of $100,000, they receive 80% of that salary, or $80,000, each year for the remainder of their life.
This is in contrast with other retirement plans, such as 401(k)’s, which are structured as defined contribution plans. An employee might choose to save $500 per month of their salary, which is the defined contribution. That money might then be pooled into an account with an investment bank or money management firm. The bank or firm invests the money in asset classes, generally a mix of stocks, bonds, and other securities.
To summarize the comparison, pensions provide an employee with a set amount of monthly income in retirement. The payout 401(k)’s and other defined contribution plans is dependent on how well the money is managed, and how well the general economy performs over the term of employment.
Pensions: A Public Employee Benefit
Pensions were once common in both the private and public sector. However, data from 2017 shows that only 16% of Fortune 500 companies offer pensions as an available retirement plan. As a corporate benefit, pension plans are essentially passe.
Most pension recipients are public employees, which includes elected officials, teachers, law enforcement, and fire fighters. These jobs entail work that benefits the public, but also a salary and pension that is funded by the public through various taxes.
A Felon’s State of Residence Determines Pension Status
Laws that force felons to forfeit their pensions are to eliminate any perception that taxpayer money is either funding or benefitting criminal activity. Elected officials are exposed to opportunities for corrupt behavior, or to abuse their power of office in ways that are criminal. Public employees may encounter circumstances where their character is tested. The laws governing their pensions are meant to serve as a deterrent to this behavior.
Each of the 50 states have different laws or standards of enforcement on this issue. While the principles of the laws may themselves be similar, differences emerge when the wording of the laws are more closely read, and make this a highly complicated matter.
For example, in California, the pension reform act of 2013 states that all pension benefits for public officials are subject to forfeiture from the date the crime was committed. In West Virginia, pensions are subject to forfeiture if the service of the employee in the capacity of their work is deemed “less than honorable.” That term is clearly broad, likely by design, but it does include felonies. In Alaska, the employee themselves may lose their pension, but in certain cases it can be granted to the employee’s spouse or specified beneficiary.
As can be imagined, these differences in wording can lead to different interpretations and enforcement of the law, dependent upon circumstances.
Felonies In The Capacity Of Employment
Judge Michael Thornbury, serving in the state of West Virginia, was convicted in October of 2013 of conspiracy against civil rights. In July of 2014, his pension was terminated by a vote of the Virginia Consolidated Public Retirement Board. In subsequent appeals and hearings, his wife was also denied any benefits from the pension. His case eventually reached the West Virginia Supreme Court, where the rulings against him were upheld by a 5-0 vote. In West Virginia is the state in which less than honorable conduct is sufficient for loss of pension. Judge Thornsbury evidently exceed that threshold.
California’s public employee pension fund is known by the acronyms CalPERS. In 2013, Fred Buenrostro was indicted under charges of bribery, and later conspiracy, related to the reallocation of CalPERS funds. He was convicted, which jeopardized his own pension account. The irony of the case stems from the fact that the crime occurred in the capacity of Fred Buenrostro’s job as the CEO of CalPERS.
Buenrostro accepted more the $250,000 in bribes while serving as CEO, which he was forced to pay back. He was also scheduled to earn $16,800 monthly as part of his pension plan. While his pension was not entirely forfeited, the courts took 2 ½ years of contributions and service from his pension. This cut his monthly payout to $11,769, a reduction of nearly 30%.
Not all states have laws that require convicted felons to forfeit their pensions. In these states, the decision to do so falls upon the judge and jury over the course of their ruling. Nebraska is one such state. In the case of Major Billy Hobbs, a former state trooper who was accused and convicted of sexual misconduct with a 12 year old girl, he was allowed to retain the full benefits of his pension. Hobbs’ benefits were paid out to him even while in prison.
The victim’s family won a civil settlement case against Hobbs worth $325,000, which the father attempted to collected from Hobbs’ pension. Hobbs appealed the case, however, and the Nebraska courts ruled that it would be against the state constitution to collect money for the settlement out of Hobbs’ pension.
Pensions: An Expectation of Trust
One primary purpose of a pension is to provide incentives for good work performance, and ethical conduct towards one’s responsibilities in the capacity of work. This establishes a two-way expectation of trust. When it can be proven in a court of law that an employee has acted in a criminal way in the context of their employment, it stands to reason that they should no longer benefit from that employment.
The legal system is anything but simple, however. Take it as a rule that court decisions will vary from state to state, and also from case to case. The law, after all, is comprised of shades of grey.