Overpayment of Pension Benefits

[Guest chlomer]

A DB Plan has a tricky benefits overpayment problem:

A Participant died and the Plan made pension payments to his surviving spouse for many months. However, the company recently discovered the payments were in error because the Participant had elected a Single Life Annuity to which the spouse had consented.

Here's the twist: The spouse who received the overpayment is also a former company employee and is receiving a pension. However, the spouse is a participant in a different pension plan than her husband.

Issue: Can we offset the overpayment amount from the Participant's plan against the amount the spouse is receiving from the other plan??? (I know it would be permissible if they were in the same plan, but is it permissible when there are two different plans at issue?)

[david rigby]

No lawyer I, but it seems like a bad idea. Seems like the plan should stand on its own. But I await other opinions.

I also ask a different question. Has anything like this happened before? If so, is there an administrative practice to state how it was handled? It may be that the plan will (should?) decide to eat the loss.

[RCK]

The assets of any plan are to be used for the exclusive benefit of the participants. Using the assets of plan two to reimburse plan one for a blunder is clearly not acceptable.

I'm not even sure that you could do it within a single plan.

pax's suggestion that you look for precedent is always a good one, but we'd certainly like to think that there have not been so many mistakes that we have a precedent.

RCK

[JanetM]

In one of our DB plans we had situation where a deceased elected 50% J&S - surviving spouse cashed checks for 3 months (had direct deposit to joint account) before we were notified of death.

We told spouse she had choice between paying back three months of checks or not getting a check for 6 months. We were betting the spouse would live at least 6 months and all would be even.

We have also had situation where participant was paid twice a lumpsum (under $5,000) amount - Legal department sent her a letter saying she knew she had received too much and would have to pay it back. We are collecting monthly checks from her till it is paid in full. Threat of legal action was all it took.

[david rigby]

Such threats can be useful, but flexibility is also useful. As the prior post notes, a lump sum was paid in error, but the plan is willing to permit repayments monthly. This can go a long way toward solving the problem without rancor.

However, it is also prudent to identify what will happen if the repayment stream is interrupted by death. There is not a single correct answer, just advisable that all parties know.

[jpod]

Chlomer -

There is a very clear answer to your question: "Don't even think about it."

The only solution is to get the money back from the surviving spouse. Be careful with threats and intimidation, however, so that the employer does not violate any employment laws.