Overpayment, Restitution & Recoupment: EPCRS or Great-West?

[Guest anygig]

The issue is that EPCRS allows for recoupment, in fact seems to require it, yet the Supremes have said legal restitution is not allowed for an ERISA 502(a)(3) claim by a plan fiduciary. My question is in the overpayment by plan operational failure category when the plan's language does not provide for recoupment of such, rather than recoupment by provisions provided for in a plan document.

In 2002, the Supreme Court decided Great-West. It is a subrogation case, but its language and effects have been much broader. Ogden, in the 5th, specifically stated that there is no federal common law right to restitution as a legal remedy against plan participants after Great-West. Neither Great-West nor Ogden's holdings were limited. Thus, if the participant has dissipated the funds, and the plan does not provide for recoupment, the plan cannot recoup from future benefits as a self-help remedy. How does that square with a fiduciary duty to not pay out more funds than a plan should?

That leaves a state law contracts claim, but Great-West refused to address whether such would be pre-empted by ERISA. Pre-emption may be colorable because recoupment does not appear to fall within the exemptions from pre-emption. If so, Great-West appears to eliminate a Plan's ability to recoup, unless funds have not been dissipated (or the provision is in the plan, which then is a contract or extra-judicial remedy according to Northcutt in the 7th Cir.).

EPCRS, Rev. Proc. 2006-27, App. B 2.05, addresses recoupment (including overpayments other than 415 excess payments).

Has anyone run into this situation, and/or found any legal authority specifically addressing either the Great-West v. EPCRS issue or the pre-emption issue? I know there are other posts about recoupment, but none seem to address these issues. Thanks in advance.

[J Simmons]

EPCRS doesn't quite require recoupment. Section 2.05 of Appendix B of Rev Proc 2006-27 specifies that an "Overpayment from a defined contribution plan is corrected in accordance with the rules in section 2.04(2)(a)(iii)" which requires the employer take "reasonable steps to have the Overpayment (i.e., the distribution of the §415© excess adjusted for earnings to the date of the distribution), plus appropriate interest from the date of the distribution to the date of the repayment, returned by the employee to the plan. To the extent the amount returned by the employee is less than the Overpayment adjusted for earnings at the plan's earnings rate, then the employer or another person contributes the difference to the plan."

EPCRS has a failsafe in the event that that reasonable steps do not result in the employee returning the overpayment (plus interest): the employer or another person contributes the difference to the plan. Great-West and EPCRS are thus reconcilable.