The Massachusetts Teachers’ Retirement System Did Not Always Make Initial Benefit Payments Within the Mandated Timeframe.

Delays in sending benefits may have resulted in financial hardship for retirees.

Overview

The Massachusetts Teachers’ Retirement System (MTRS) was delayed in issuing initial monthly benefit payments to retirees. Our analysis of the 4,907 retirees whose effective dates of retirement were during our audit period showed that 24.8% (1,218) did not receive their first monthly benefit payments within the required timeframe. The delays may have resulted in financial hardship for retirees.

For the 4,907 retirements included in our analysis and testing, retirement processing times ranged from 1 day to 1,064 days,⁷ as measured from dates of retirement to dates of initial payment. On average, the first payment took 55 days, which is within the state-mandated 62-day⁸ timeframe. However, the detailed substantive testing we performed on a random sample of 30 retirees with instances of noncompliance supports the processing delays identified by our analytical procedures, which indicated that the later an application was filed, the higher was the likelihood of noncompliance. Specifically, in the sample of 30 retirees with instances of noncompliance, we noted that 20 (66.7%) of the applications were received less than 31 days before the members’ retirement dates or received after the retirement dates, and 10 (33.3%) of the applications were received 31 to 74 days before the retirement dates.

The detailed substantive testing examined documentation such as Part 1 of retirement applications (applicant retirement data), internal control sheets (internal checklists), application receipt acknowledgment letters, Part 2 of retirement applications (service, salary, and contribution data from employing school districts), support for benefit calculations, notices of estimated retirement benefits, first pay letters, and MyTRS workflow reports.

Authoritative Guidance

Section 13(1)(b) of Chapter 32 of the Massachusetts General Laws states,

The first . . . full payment [to a retiree] shall be due and payable on the last day of the month following the month in which falls the date as of which such annuity, pension or retirement allowance becomes effective. If such effective date is a day other than the last day of the month in which it falls, a pro rata payment shall be allowed for the period following such date and ending with such last day.

We believe this excerpt indicates that the first full payment is due and payable on the last day of the month after the month of retirement. If the retirement date falls on the last day of a month, then payment is due on the last day of the following month and payable in a minimum of 28 days. If the retirement date falls on the first day of a month, then payment is due on the last day of the following month and payable in a maximum of 62 days.

Reasons for Issue

According to MTRS management, the primary factor leading to delays in issuing first benefit payments relates to the number of days in advance an application is submitted. For all 4,907 retirements during the audit period, processing time averaged 55 days; however, when we reviewed how far in advance applications were received, we noted the following.

Days in Advance Applications Received	Number of Retirements	Average Number of Days to First Pay
Received 0 to 60 days before retirement date	1,508	97
Received 61 or more days before retirement date	3,399	36
Total Retirements	4,907	55

 

MTRS management also indicated that delays in the issuance of first benefit payments could be caused by retirees or employing school districts submitting inaccurate or incomplete information. Management indicated that when this happens, application processing slows or stops until accurate and complete information is received. MTRS management added that the agency often needs additional time to conduct research, verify information, request additional or revised information, and confirm the accuracy and completeness of the data used to calculate benefits.

Recommendation

MTRS should examine the benefit of redeploying existing resources toward processing retirement applications that are received 60 days or less before proposed retirement dates in an effort to achieve a higher percentage of “compliant” retirements.

Auditee’s Response

The MTRS appreciates the Office of the State Auditor’s (OSA) review of our retirement application processes and accepts the finding that 75% of our retirement applicants are paid within 62 days of their date of retirement. We continually strive to enhance our members’ retirement experience, and will work to improve our processes where possible to pay more new retirees within the 62-day threshold while maintaining accuracy of benefit calculations. . . .

• Since we are the retirement system for teachers, we naturally have a spike in retirement applications at the end of each school year, when approximately two-thirds of our retirement applications are received. The staff who process retirement calculations must be highly trained, so we cannot redeploy other staff or hire temporary staff to address this seasonal high volume. Instead, as noted in your report, the MTRS retirement application, educational materials, videos and in-person seminars encourage members to apply for retirement three months in advance of their intended retirement date, so that our trained staff can begin working on the high volume of cases in advance, and provide our members with an accurate and timely benefit inception.
• As you may have noticed during your analysis of our data, over 90% of members who file their applications three months in advance, receive their first benefit payment in their first full month of retirement.
• The members who receive their first payment more than 62 days after their retirement date are typically those who file their applications very close to, or after, their retirement date. (Pursuant to M.G.L. c. 32, § 10[3], members are allowed to file their retirement applications as late as 60 days after their effective date of retirement.) We do not share your assumption that these members suffer a financial hardship. Most teachers receive their summer pay as a lump sum in June in the year they retire, which carries them for the months of July and August. As noted in your report, the average number of days to pay late filers their retroactive benefits is 97 days, so most of those members receive their first benefit payment in September, with the remainder in October. Finally, any retirement applicant who expresses financial need as a result of a delay is offered a pension advance payment, which is recouped from their first retroactive benefit payment.

Auditor’s Reply

The Office of the State Auditor acknowledges that retirement application processing times can be affected by when members submit retirement applications, which MTRS cannot control. However, as noted above, during our audit period, 24% of all new retirees did not receive their first benefit payments within the timeframe prescribed by Section 13(1)(b) of Chapter 32 of the General Laws, indicating significant problems in this area that MTRS must address.

We recommended that MTRS, in an effort to achieve a higher percentage of “compliant” retirements, examine the benefit of redeploying existing resources toward processing retirement applications that are received 60 days or less in advance of proposed retirement dates. In its response, MTRS indicates that it cannot redeploy other personnel because of the extensive training necessary for staff members who process retirement calculations. Although we believe our recommendation offered a reasonable means to minimize this problem, we acknowledge that it is ultimately up to MTRS management to determine what measures it can and should take to improve this process with its available resources.

In its response, MTRS states that it does not agree with OSA’s assumption that delays in providing initial pension payments to retirees may have resulted in financial hardship for these retirees. MTRS states that most teachers receive their summer pay as a lump sum in June in the year they retire, which carries them for the months of July and August. However, not all teachers retire in June or receive their summer pay in a lump sum; most school districts allow teachers to choose how they will receive their summer pay. In any case, MTRS still needs to ensure that teachers receive their initial pension payments on time, as extended delays in providing initial pension payments can result in financial hardships for retirees.

MTRS indicates that it offers an advance benefit payment program to help soon-to-be retirees meet their financial needs while waiting to receive their retirement benefits. However, during our audit, we analyzed participation in this program and found that only 66 (1.3%) of the 4,907 new retirees in our population received advances.

Based on its response, MTRS is taking measures to address our concerns on this matter.

7.     The range of days is reduced from 1,064 days to 337 if disability retirements are excluded. Disability retirements usually take longer to process because of the potential for delays related to medical evaluations and lengthy appeal procedures.

8.     For audit testing purposes, we defined “compliant” as “processed within 62 days.” By statute, the timeframe for compliance can range from 28 to 62 days depending on the day of the month a retirement is effective, as outlined in the “Overview of Audited Entity” section of this report under “Retirement Application Process.”

Date published:	October 14, 2021