Proper Handling of Pension Overpayments Still Unclear Without Guidance, Panelists


Discovering that a plan participant has been overpaid is a common and unpleasant experience for retirement plan administrators, and the proper way to handle the situation isn't always clear, benefits attorneys said during a panel presentation.

In addition to correcting the error through the Internal Revenue Service's Employee Plans Compliance Resolution System (EPCRS), plan administrators should carefully consider their options moving forward, which include reducing the participant's future payments, requesting reimbursement, using the plan's administrative claims procedures and filing a lawsuit, the attorneys said.

They discussed these options during a Feb. 5 panel presentation, Overpayments, Underpayments, Fiduciary Duty and IRS Qualification. The panel was part of the American Bar Association Section of Labor and Employment Law's 2015 Employee Benefits Committee Midwinter Meeting in Coronado, Calif.

One common overpayment situation occurs when a pension plan administrator discovers that a participant is receiving a monthly benefit in excess of the amount he or she is entitled to under the plan, said Brian J. Dougherty, a partner with Morgan, Lewis & Bockius in Philadelphia.

According to Dougherty, despite there being “very little guidance” on how to proceed, this situation offers administrators “a little more flexibility and a few more alternatives” than situations in which the overpayment involves a one-time lump sum payment.

Most people would agree that the administrator can reduce future benefit payments to the correct monthly amount, Dougherty said. However, an administrator's ability to reduce future payments to recoup prior overpayments is less clearly established, he said.

This situation raises a host of complicated questions, such as whether an administrator is entitled to “shut off the tap entirely and stop payments”—a position Dougherty said is supported by “some authority.” Further, he queried, if the administrator elects to simply reduce payments, rather than stop them entirely, must the administrator take into account the participant's financial situation and monthly expenses?

Appeal Rights

Regardless of how an administrator attempts to recoup the overpayment, the participant should be extended appeal rights pursuant to the plan's administrative procedures, said Joyce A. Mader, a partner with O'Donoghue & O'Donoghue LLP in Washington.

Mader, who represents multiemployer pension plans, said that she advises her clients to extend appeal rights to any overpaid participant, allowing the participant a right to respond and present additional evidence. In her view, the plan may reduce the monthly benefit to the correct amount, but it should complete the administrative appeal process before imposing any further reductions to recoup overpaid amounts.

Denise M. Clark, a participant-side attorney and founder of Clark Law Group PLLC in Washington, agreed that any reduction to recoup overpaid benefits should be treated like an adverse benefit determination subject to the plan's internal appeals process.

“If a plan denies appeal rights, I'd be in court,” Clark said.

Excerpted from a story that ran in Pension & Benefits Daily (02/10/2015). 

Stay on top of the latest industry trends and news coverage with a free trial to the Benefits Practice Resource Center.