Recoupment of Pension Overpayment

[SteveNU]

My wife retired Aug 1 and started collecting a small pension. They say it could take up to six months before they figure out what her final pension payment will be. She always worked part time at this job but they are paying out as if she had been full time.

At least we know she is getting overpaid now and understand that it will be adjusted later.

 

[kcowan]

This discussion reminds me of a documentary I saw on big insurance companies defrauding their clients. It seem that when a person dies, the executor notifies the company so they stop the annuity payments. But they do not trigger the death benefit unless a separate application is made. Millions in payments were held back.

 

[Music Lover]

This discussion reminds me of a documentary I saw on big insurance companies defrauding their clients. It seem that when a person dies, the executor notifies the company so they stop the annuity payments. But they do not trigger the death benefit unless a separate application is made. Millions in payments were held back.

Recouping an overpayment isn't fraud...

 

[Bestwifeever]

I hear ya ! Just wonder / hope they elect to audit all of my co-works forced into early retirement same time I was. Number of us numbered at least 200 within the course of a month.

If they miscalculated and overpaid 200 pensions, I imagine they will most definitely come after all of you. Sorry this happened to you.

 

[pb4uski]

lump sums are not immune from overpayment situations

Perhaps, but the retiree is a bit in the drivers seat since the plan has nothing to garnish to collect and have to rely on the retiree volunteering to pay or taking the retiree to court to collect.

It seems to me that the employer or servicer should also take responsibility for the error as well, perhaps by either chipping in to mitigate the cost or by allowing for liberal repayment terms so the retiree isn't pinched so badly or a combination of both.

I could also make an argument that the auditor of the pension plan's financial statements might bear some responsibility for not catching the error if it was systemic and had a material impact on the plan.

 

[pb4uski]

OP, do you still have any information on what they told you that you were going to receive? Especially in the years shortly before you were laid off and retired? If so, how do those amount compare to what they have been paying you or what they say that you should be receiving?

 

[Walt34]

I'd definitely talk with a lawyer about it. The attorney might not be able to do anything about it but you'll at least have a better idea of what the law is (if any) and what your legal options are. With that much money at stake I'd think an hour or so of an attorney's time would be worthwhile. Not knowing what either the law is in that state or what the wording of the pension agreement or contract is, or the terms of the contract between the former employer and the pension servicer, we're all just guessing.

 

[Big_Hitter]

Perhaps, but the retiree is a bit in the drivers seat since the plan has nothing to garnish to collect and have to rely on the retiree volunteering to pay or taking the retiree to court to collect.

if the lump sum was spent or not, the plan sponsor has the duty to repoup

 

[Big_Hitter]

I'd definitely talk with a lawyer about it. The attorney might not be able to do anything about it but you'll at least have a better idea of what the law is (if any) and what your legal options are. With that much money at stake I'd think an hour or so of an attorney's time would be worthwhile. Not knowing what either the law is in that state or what the wording of the pension agreement or contract is, or the terms of the contract between the former employer and the pension servicer, we're all just guessing.

it's an ERISA issue

 

[Texas Proud]

lump sums are not immune from overpayment situations

I think that depends on what kind of plan it is....


A defined contribution plan has a cash balance and that amount is known... kinda hard to overpay when you do not have to do any calculation...


The plan I have with my mega has a cash balance... I know what my lump sum amount will be... the only question is if I turned it into an annuity what I would get... and it they later came to me and said I had to pay back overpayments due to them using the wrong interest rate I would kinda be upset.... I would have compared what I could get in the open market with what they offered knowing the exact amount I had to invest...

 

[Big_Hitter]

I think that depends on what kind of plan it is....


..

regardless of plan type, the plan sponsor has a duty to make the plan or participant whole

 

[pb4uski]

if the lump sum was spent or not, the plan sponsor has the duty to repoup

True, but not necessarily from the plan participant... it could come from the employer/sponsor or the servicer. Also, in some cases, like where a certain calculation has been used and is what was intended but the plan differs from what has historically been done, the plan can be amended to confirm to what has been done.

The IRS found that employers have attempted to recover large Overpayments from plan participants and beneficiaries, particularly where errors in plan administration have occurred over an extended period of time, and have not considered other ways to correct the error. Rev. Proc. 2015-27 addresses this by explaining that plan sponsors have more than one option when correcting Overpayments. Specifically, the new guidance explains that it may be appropriate for the employer or another person contribute the amount of the Overpayment to the plan in lieu of attempting to recoup the amount from the recipient. Alternatively, a plan sponsor may adopt a retroactive amendment to conform the terms of the plan to its operations with respect to the Overpayment. The retroactive amendment option is particularly helpful when an employer has operated the plan in a consistent manner but in a way that deviates from the plan language (perhaps because of a drafting error or some other miscommunication). In such cases it may be preferable for a plan sponsor to re-draft the plan in a way that reflects the consistent treatment of all participants, rather than attempting to recover funds from participants and beneficiaries both past and present.

If it has been spent and there is no way for the participant to pay, you can't draw blood from a stone. There is a difference between it being due to the plan and the plan being able to collect it.

 

[Texas Proud]

regardless of plan type, the plan sponsor has a duty to make the plan or participant whole

OH yes... I agree 100%....


An interesting side note.... when I first started working the company allowed a 16% contribution and matched it 8%.... I got a couple of years in before they got in financial trouble and made it lower....

But, that was higher than the law allowed.... so they were forced to give out excess contributions which for many created a tax issue... so the company agreed to pay everybody extra to make them whole.... like a tax true-up... the plan did not make the extra payments but the company did...

 

[kcowan]

When I was in charge of a nationwide computer operation, our network budget was huge. One year the network supplier came hat in hand and admitted to underbilling us for 3 years. We were very gracious and said we would adjust our budget and charging to cover the current year as soon as possible (3 months) and that any discussion of collecting arrears would be handled by our CFO and lawyer. They settled on a 70% discount for the arrears with 3 years to pay, starting in the following fiscal year.

(Not saying this is relevant to the current situation, but the telecom supplier did have a legal case although they had misled their client.)

 

[Cruise42]

Just an update...I was successful in negotiating a lower monthly recoupment payment, which of course will extended payment period to year in future where I will be close to having one foot in the grave. Any payments due after I pass will be deducted from what would be due my wife since I originally signed up to receive my pension with 50% survivor benefit going to my wife at time of my passing.

I was able to learn my pension service provider messed up...they had a programming error which created my situation.

Hard to come to grips with this issue...I've heard enough double talk from their reps about having to make plan whole, etc., etc. but have yet to hear anyone on their end stepup, admit they made a mistake for which they take accountability. Not so much a flinch on their end when I suggested they should make overpayment go away thru liability insurance I'm guessing they carry or at least share in the overpayment.

Speaking from 40+ years of service with one company, if I had made such an error I would have received a swift, much deserved kick in the ass.

Chalkup another one for corporate America & have a nice day.

 

[Sunset]

Thanks for the update.

So I wonder how this affected your returns for the past few years, vs going forward.

Getting paid a lot could have pushed you into a higher tax bracket, vs where you will be when they take back the money, so you ended up paying extra taxes on it.

If you were not near the transition points from say 15% to 25% then it would not make any difference.

 

[MooreBonds]

Speaking from 40+ years of service with one company, if I had made such an error I would have received a swift, much deserved kick in the ass.

Chalkup another one for corporate America & have a nice day.

You would be surprised at how many things like what you suggest are never pursued - because no one pursues them.

For example - in the "Errors and Omissions" insurance arena, there are many true "errors" and "omissions" made by architects and engineers. A small fraction of them are ever pursued as claims against the insurance they carry.

I'm sure many people who are in the same boat as you have no idea that such insurance policies exist. Wouldn't hurt to demand to see a copy of their insurance coverage...if for no other reason than to just to see them sweat a little.

While there may not be a hard legal claim against them, it sure could make for an interesting possible "negotiations" to avoid a legal issue, which would surely cost them a bit to become engaged in, even if they are confident they would win. But put it to a jury of your peers (many of whom would likely be less sophisticated in terms of how the business world works), and I'm sure you'd easily get a majority of them to side with the poor pensioner victim who was duped by a big, bad pension operator.

 

[pb4uski]

I dunno.... OP relied on their calculations and representations as to what he would receive under the plan and was damaged as a result of their error... seems to this non-lawyer like the OP may have a legit claim for damages... at worst the satisfaction of rattling their cage and at best perhaps some $$$$.

There are some similarities to pension mis-selling in the UK or vanishing premium cases in the US where insureds were promised a certain level of non-guaranteed benefits or premiums vanishing, investment results caused the insurer to re-neg and in class action suits the policyholders received large judgements.

 

[ivinsfan]

In the original post the OP said, that the overpayment was due to a "miscalculation of interest rates" to me that sounds like grounds to press on the insurance issue.

 

[ivinsfan]

Just an update...I was successful in negotiating a lower monthly recoupment payment, which of course will extended payment period to year in future where I will be close to having one foot in the grave. Any payments due after I pass will be deducted from what would be due my wife since I originally signed up to receive my pension with 50% survivor benefit going to my wife at time of my passing.

I was able to learn my pension service provider messed up...they had a programming error which created my situation.

Hard to come to grips with this issue...I've heard enough double talk from their reps about having to make plan whole, etc., etc. but have yet to hear anyone on their end stepup, admit they made a mistake for which they take accountability. Not so much a flinch on their end when I suggested they should make overpayment go away thru liability insurance I'm guessing they carry or at least share in the overpayment.

Speaking from 40+ years of service with one company, if I had made such an error I would have received a swift, much deserved kick in the ass.

Chalkup another one for corporate America & have a nice day.

And now they are blaming the programmer, I'd be messing with them just to hear the real truth.

 

[brett]

I had the opposite challenge. The outsourced pension consultant provided me with a number that I did not agree with. I was on salary continuance and was in no rush to start my pension. The issue was significant. They chose not to include bonus in my pensionable earnings. These bonuses ranged anywhere from 30 percent to 58 percent of salary during my best five year period.

Inclusion in my pensionable earnings made a huge difference to the pension number. Bottom line was the outsourcer staff had not bothered to read our DB plan nor the subsequent ammendments. I did.

After months of back and forth I sent a letter to my employers VP legal who was also the pension plan sponsor. I knew him well, had worked closely with him for years, and knew him to be a fair and and efficient manager. Issue was resolved and I had the correct numbers in front of me within 10 business days.

There was no intent by my employer to cheat me. It was underqualified staff of a pension outsourcer who probably underbid the contract and was under pressure to spend as little time as possible on the file/research. As a result at least one other person in the same situation re-visited their pension amount and had it increased along with back payments.

I was always amazed at colleagues who blindly accepted the pension calculations without doing a quick rough calculation of their own.