Recoupment of Pension Overpayment

[Cruise42]

I was forced into early retirement in 2009 at age 61. Opted to start taking my pension in 2013 in form of annuity with 50% survivor benefit for my wife. Company that services pension benefits for my former employer did all the calculations all I had to do was sign the papers (which I did in December 2012) to start checks coming in 2013.

Fast forward to 2016. Received letter a few weeks ago from benefit service provider stating due to miscalculation related to interest rates I had been overpaid every month for past 3 years.

Letter went on to say that effective Decemember 2016 my monthly pension would be permanently reduced every month to reflect new calculation. In addition, they are seeking recoupment of overpayments made over past 3 years. I can either pay this amount back as a lump sum of as monthly installments deducted from new pension amount until overage is paid back.

In rough numbers, my new pension amount is approx. 30% reduction in what I had been receiving each month. If I factor in installment payment, my monthly benefit is reduced almost 50% from what it had been each month. Amount of overpayment they claim is due is well in excess of $10,000.

I have asked service provider to recheck the math and informed them that lump sum repayment is not a consideration. I also asked them to consider accepting reduced installment payments so as not to further create additional hardship reduction will create in our household. Waiting for their response.

Hard to understand how gross mistake / negligence on their part becomes my problem.

Anyone else have similar experience ? Suggestions please.

 

[Teacher Terry]

I think most pension plans as well as SS have the ability to claw back over payments that were their fault. I am really sorry.

 

[Cruise42]

I understand all the "weasel wording" in employee benefits handbook gives employer right to do most anything they want to their employees. What's hard to understand is how can someone on their end not be liable for gross mistake on their part. "Their mistake becomes my problem.

Wouldn't you think they'd carry insurance for these types of errors on their part that would cover overpayment amount ?

 

[Teacher Terry]

Yes I personally think it is terrible that they can take back the $. It was their mistake. I hope you are able to negotiate reduced installment payments for a longer term.

 

[Cruise42]

I too hope they agree to reducing monthly installments. Unfortunately, at the end of the day I'm the one who ends up taking the hit.still Permanent reduction in monthly pension checks will impact us by $100,000+ over my lifetime.

 

[RobbieB]

Bummer dude.

Another reason a lump sum is attractive, it's your dough now and any mistakes will be yours, not some financial guys at your old mega corp that could care less if you live or die.

Well they hope you die as soon as possible yes?

 

[Cruise42]

Lump sum can be attractive, but according to pension benefit service provider if they had miscalculated that amount they would also seek return of overpayment.

 

[RobbieB]

Yeah, but they would have a much harder time getting the dough eh?

"Send us the dough"

"The check is in the mail"

"We haven't received your check yet"

"The mail must be slow these days"

 

[Cruise42]

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.

 

[Just_Steve]

That sucks, I couldn't imagine what I would do if that happened to me. I am thankful that my pension formula was just simple basic math.

2% times Final Average Salary (FAS) times the number of years of Allowable service.

 

[Cruise42]

I only put in 40 years of service...guess this is my reward...lol

 

[Just_Steve]

Loyalty rewarded by insult.

 

[Chuckanut]

In my last job our contract had a claw-back clause that governed what happened when an incorrect payment was made. Basically, it limited how far either party can reach back to correct errors. IIRC, there was a three year limit. Once the three years were over anything extra the employee got could be kept, but if the employee had been underpaid the same thing applied. It really helped in several situations where overtime pay was incorrectly calculated and another time when the SS deduction was wrong. IMHO, these clauses should be part of all of these plans.

 

[Cruise42]

That pretty much sums it up !

I would like to hear from anyone in the same boat.

 

[pb4uski]

How do you know that their revised calculations are correct?

It might behove you to insist that they provide details on the calculation and explain why it is correct before agreeing to the change.

If they refuse, threaten to file a complaint with the Employee Benefits Security Administration.

https://www.dol.gov/agencies/ebsa/about-ebsa/about-us/what-we-do

 

[Texas Proud]

I would also find out if you could have received a lump sum payment when you made your decision....


I would ask you, OP... what kind of plan is this? IOW, I do not see it being a defined benefit plan since interest rates do not come into the calculation... so it probably a defined contribution... that means the lump sum is the lump sum... no interest rate calculation...

That means the decision you made might have been different IF they had provided you the correct info when you were making your decision.... if the lump sum would have been a better deal, I would insist on them giving me my lump sum less the money they had sent to me with their new interest rate used for the claw back...

I cannot see where the lump sum would be so much worse than a 30% or 50% reduction....

 

[pb4uski]

Good point about if you had options at the time you retired, then you should be able to revisit the options based on the new dollar amounts.

Also see: What is Recoupment? | Pension Rights Center

 

[Cruise42]

You read my mine. When they come back to me I plan on insisting to receive copies of both old & new calculations. In addition to explanation I also want to know who is responsible for mistake...employer or pension service company used by my old employer.

You raise good point of contacting EBSA if they refuse to provide info.

 

[militaryman]

How sad this is!

I have done calculation several times through the years as to what my pension should be --- I'll definitely bulk if the amount is significantly different than the amount I calculate it should be....

 

[Danmar]

This happened to me as well. I happened to see the head of my previous employers pension department one day while walking near their offices. She came up to me and after a little small talk said they had made a mistake and overpaid me a little less than $10,000 over the previous 18 months. It was a very complicated calculation but she asked me if I knew they overpaid. I certainly did not and was offended by the suggestion I would knowingly accept an overpayment. I told her to send me the documentation after which I promptly sent them a cheque.

Errors happen. The right thing to do is repay them even if not required to by the rules. I guess if the overpayment went on for a very long time, you might make a case it would be too onerous to repay. Might be able to negociate a lower repayment in such case.

 

[militaryman]

It certainly would be useful for companies to give payment estimates every several years for long term employees. ( like SS does annually )

That way if it was significantly different at retirement it would throw up a flag in an annuitants mind.

 

[Big_Hitter]

It certainly would be useful for companies to give payment estimates every several years for long term employees. ( like SS does annually )

That way if it was significantly different at retirement it would throw up a flag in an annuitants mind.

PPA requires triennial/annual benefit statements

 

[Big_Hitter]

Bummer dude.

Another reason a lump sum is attractive, it's your dough now and any mistakes will be yours, not some financial guys at your old mega corp that could care less if you live or die.

Well they hope you die as soon as possible yes?

lump sums are not immune from overpayment situations

 

[ERD50]

That hurts.

But is the formula complicated, or the inputs complicated? I knew exactly what my MegaCorp pension would be. The formula was basic math, complicated only by the fact that you had to sum two formulas, one for an earlier period with more generous payout, and one for the remaining years. Then an offset is applied for estimated SS payout that worked with those two formulas. I put it all in a spreadsheet.

I got written verification of what my pension would be at 65, and it matched my calculations to the dollar - with the exception of their estimate of SS, but that was because they use an age 65 number, while my mailed estimate has the 'stop working and take at 62' and the 'continue working until age 66' numbers - but their number was between these, so that makes sense, and I think I verified it later with the SS calculator.

So why didn't you know you were being overpaid, or conversely, how do you know their new calculation is correct?

-ERD50

 

[Music Lover]

It sucks, but to be fair...had they underpaid you, you would definitely expect them to make up the difference.