Pension Plan's $725K Refund Request For Overpayment Reasonable, Court Finds

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Jan. 6 --A pension plan didn't abuse its discretion in requesting the refund of more than $725,000 paid to a plan participant as a lump-sum distribution but based on an incorrect termination date and a miscalculation of the participant's credited service years, the U.S. District Court for the Northern District of New York ruled (Baackes v. Kaiser Found. Health Plan, Inc., 2014 BL 1198, N.D.N.Y., No. 1:12-cv-00583-FJS-RFT, 1/3/14).

The plan's third-party administrator initially determined that the participant was owed a lump-sum payment of $782,733 upon reaching retirement age and paid out that benefit. However, the plan later informed him of the mistake, notified him of his recalculated benefit of $57,232 and demanded refund of the $725,501 overpayment.

In a Jan. 3 decision, the court granted summary judgment to the plan, finding that it didn't abuse its discretion in interpreting the plan terms to discredit 20 years of service that the participant spent employed by a separate company that was merged with the plan sponsor less than two years before the participant left his employment with the sponsor.


John Baackes worked for his original company from 1976 until 1996 when it merged with the Kaiser Foundation Health Plan.

At that point, Baackes became an employee of the Kaiser and joined its pension plan.

In January 1997, the plan sent Baackes' financial representative a calculation of his future benefits assuming a termination date of November 2002, only crediting five years of service and not including the 20 years he had spent at the previous company.

Baackes' employment with Kaiser ended in October 1998, at which point he had accrued 1.78 years of credited service with Kaiser. Baackes retired in February 2011, after he reached age 65, and requested his lump-sum payment.

That same month, the plan's third-party administrator sent him a calculation of benefits for $782,733 that reflected 21.87 years of credited service and a termination date of Nov. 23, 2001.

In March 2011, the plan sent Baackes an overpayment notice informing him that his pension benefit should have been much lower as he had paid into “a Defined Contribution Plan from December 1, 1976 through December 1, 1996.”

Five months later, counsel for the plan sent a letter to Baackes informing him that the original rationale for reducing his benefits had been incorrect.

However, the plan counsel said, Baackes's benefit would still be reduced as his 20 years of service with the previous company could only be used for vesting purposes and not for benefit calculation. According to the letter Baackes was only entitled to $57,232, an amount that reflected only the 21 months of credited service that he had worked for Kaiser.

Baackes challenged this determination and the plan's appeals committee denied his appeal. The committee found that the plan administrator hadn't committed any procedural errors in calculating Baackes's years of credited service and that the plan documents in effect at the time of his employment only qualified him for the amount detailed in the letter from plan counsel.

Baackes filed an action in district court, alleging breach of contract, improprieties in the appeals process, violation of fiduciary duty under the Employee Retirement Income Security Act and estoppel. The plan filed a motion for summary judgment.

Summary Judgment

In granting the plan's motion for summary judgment, the court examined the vesting and benefits calculation language from the 1997 plan document and found that the appeals committee hadn't abused its discretion in interpreting the plan to only count Baackes's 20 years of employment for vesting purposes and not for benefits calculation.

The court also found that the committee was reasonable in its decision to allow the administrator to correct its original mistaken reasons for the overpayment.

The court also found that Baackes's breach of contract claim was preempted by ERISA claims and denied his motion to amend that claim as futile.

According to the court, the committee hadn't breached its fiduciary duties under ERISA as it had no financial stake in denying Baackes's claim and thus couldn't be accused of self-dealing. Finally, the court found Baackes's estoppel claims and claims for fiduciary breach for delays in the appeals process to be without merit.

Baackes was represented by Mark T. Walsh and Daniel A. Jacobs of Gleason, Dunn, Walsh & O'Shea in Albany, N.Y.

Kaiser was represented by Charles M. Dyke of Trucker Huss APC in San Francisco, and Mary Ahrens Vadasz of Seyfarth Shaw LLP in New York.

Text of the decision is at