Michigan Gov. Rick Snyder and the Legislature get a failing grade for their handling of the Michigan Pension Tax exemption blunder that surfaced when the new tax took effect Jan. 1. Worse, they still haven’t taken the steps necessary to ensure exempt retirees know to stop the deductions.
The state’s first pension tax law exempts retirees born before 1946, but because of the state’s poor communications with pension plan administrators and retirees, the 4.35 percent tax was deducted this month from thousands who should not have to pay.
Imagine the surprise and confusion of many exempt seniors who found their January pension checks 4.35 percent lighter. For retired pilot William Blaha, 80, of Kewadin, $117 was deducted this month — about the same he pays monthly for medications.
Though this is the state’s fault, Blaha and other affected seniors won’t be able to get the money back until next year, when they can file for a refund on their 2012 state income tax. And unless they fill out required paperwork, the tax will be withdrawn from every subsequent pension check.
Until then, the state gets millions of dollars of interest-free loans from its oldest senior citizens.
State officials laid the blame on retirement plan administrators. But the truth is that the state did a lousy job of informing retirement plan administrators and exempt seniors that retirees born before 1946 needed to file a special MI W-4-P form to notify pension plan administrators to change their status from “withholding” to “exempt.” The mix-up is clearly the result of multiple state failings:
• State treasury officials decided to work through financial institutions and not individual taxpayers.
• They didn’t notify exempt retirees by mail of the need to file the new W-4-P form. Instead, the Treasury Department posted advisories on its website, a totally unrealistic form of notification. Earth to Mars, not all seniors use computers, and who checks — or has ever checked — the Treasury Department’s website?
• The state did not inform retirement plan administrators about the changes until October, even though the law was approved in May.
“That was as quickly as we could get the information pulled together,” Treasury Department spokesman Terry Stanton said. What hogwash.
The state should have delayed starting the tax until it informed tax-exempt retirees individually and notified plan administrators. The governor and Legislature also should apologize to exempt seniors and pension plan administrators.
If the situation was reversed, rest assured the state would find a way to get its money back, and now.
— TRAVERSE CITY RECORD-EAGLE