ATT wrong to hassle pensioners over accounting error

Corporations have been treated as people legally since 1886, so we would think that AT&T would have gotten the hang of it by now. Recently it did something most people would be ashamed of, though, and the corporation shows no signs of regret, let alone shame. It has a long way to go before it’s a real person.

What it did was legal, but it doesn’t pass the sniff test. There is something not right about it.

It all started with an accounting mistake. More specifically, there were errors made in the method used to calculate pension benefits for retired workers. The result was that overpayments were made to a number of retirees.

It isn’t exactly clear when the mistakes occurred but usually mistakes in pensions are made at the beginning, when the employee first retires. In some of the cases involved in AT&T’s current actions, that was close to 20 years ago.

When the mistake was discovered recently, the company recalculated the pension amounts that the retired workers were overpaid … and then proceeded to demand that each retiree pay it back, immediately.

It apparently did not occur to AT&T that it should attempt to collect the overpayments from the software suppliers who made the mistake, or mistakes, in the first place. The fault might have been in the mathematical model used in the calculations, or in the software used to implement the model for each retiring worker. If the math and the software were internalized within the corporation, of course, no recovery is possible — but some harsh words might be appropriate.

If the overpayments were not recoverable from suppliers, at that point a corporation striving to be a person would have written letters to the retirees explaining what had happened and why they would now be receiving the corrected, slightly smaller, amount each month. They would then total up all the overpayments and write off the amount as an expensive accounting error.

IRS rules may not allow the deduction of the full amount of the overpayment, and if that is the case the corporation should simply eat the cost. Certainly, real persons occasionally have to dine on their mistakes.

Instead, though, AT&T chose to pursue repayment from its former workers, even to the point of contracting with a collection agency to harass the retirees into paying up.

AT&T’s top brass must have known that the blowback from their collection decision would put the firm’s reputation at risk. A real person would know that.

Accounting errors happen all the time, and some of them find their way out to individuals’ bank accounts. There are frequent news reports of instances where an individual receives a check for $7,000,000.00 instead of the $7.00 he or she was expecting. It is not unreasonable for a corporation to expect an individual to recognize that a mistake has been made and the funds should be returned.

Retirement benefits, though, are an example of what economists call “asymmetric information,” which is what happens when one side of a transaction has better information than the other side. Medical care is often cited as an example, but certainly retirement benefits are right up there on the list.

Anyone who has taught finance could tell you that very few people are walking around with thorough knowledge of how to calculate a complex retirement annuity, especially in these times when corporate mergers as well as broken service, lump sum withdrawals or in-transfers are common. Most of us haven’t a clue about the math and trust that the employer’s accounting and human resource people know what they’re doing.

The result of this information asymmetry is that we cannot reasonable expect a retiree to be able to identify an accounting error, either immediately or later. It is not like the surprising $7 million turning up in your bank statement.

Blaming the retiree for entering a wrong date, and blaming, in turn, the website for accepting it — as AT&T reportedly did in at least one case — seems almost person-like in its peevishness. If that is a sign that the corporation is gradually morphing into a real person, though, we might suggest that it find a better role model.

AT&T has a long history dating back to the invention of the telephone itself. And its balance of public and private enterprise provided our growing country with the best telephone service in the world.

During that time AT&T enjoyed an enviable reputation as a corporation and, as importantly, a dedicated and loyal workforce. Somehow, in the crush and rush of today’s world they seem to have forgotten how their reputation was earned. We can only hope that they realize their mistake and correct it. That is what a real person would do.

James McCusker is a Bothell economist, educator and consultant.

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