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Joint and Survivor Annuities


Guest samga
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A Participant has been receiving $600 per month under a 100% Joint and Survivor Annuity. Five years later the Participant's account is audited and it is found he was overpaid by $100 per month ($700 rather than $600) for 60 months or $6,000. The Participant then dies. What is the survivor's benefit, $600 or a survivor benefit of $600 reduced for the overpayments?

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A Participant has been receiving $600 per month under a 100% Joint and Survivor Annuity. Five years later the Participant's account is audited and it is found he was overpaid by $100 per month ($700 rather than $600) for 60 months or $6,000. The Participant then dies. What is the survivor's benefit, $600 or a survivor benefit of $600 reduced for the overpayments?

Number of issues need to be reviewed.

1. Can spouse's benefit be reduced for excess payments made to employee? While spouse's benefit is derived from employee's accrued pension, spouse is a separate beneficiary entitled to own benefit. If spouse is receiving correct benefit that would be received under plan then plan may be required to recover excess from participant's estate but 6k is not worth the effort and there may not be any estate from which to recover the excess.

2. Latches. Since ERISA is a law of equity any attempt to recover excess benefits is subject to the doctrine of latches- unreasonable delay by plan which causes detriment to the defendant, e.g. spouse. Why did plan not discover the error for 5 years? There are cases where courts have refused to order recovery of retroactive excess payments b/c plan delayed discovery of benefits mistake for years and only allowed prospective reduction to participant which would not apply here because spouse is receiving correct amount.

3. Equitable Estoppel. The participant relied on erroneous estimate given by plan in making retirement decision. Therefore plan cannot recover excess benefits from estate.

Edit: I am confused by the amount participant was receiving. Are you saying that the plan started paying the participant $600 a month but for the last 5 years increased the payment to $700 a month?

mjb

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4. Public relations debacle.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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