Company makes pension calculation error in favor of participant

[Gary]

A company found out that it overpaid someone by the tune of $40,000 w/r to his lump sum. Can a company require the individual to pay back this amount? WHat can the participant do? Any thoughts.

[david rigby]

Did any EE communication contain any caveats about accuaracy of plan data, recalculation required, etc? If so, then you may have some hope. It is probably important to at least try to get it back, especially an error of that magnitude. If you don't try, then you are effectively penalizing someone else, probably in this case the plan sponsor.

Was the error made in this year? If so, what about this approach:

Communicate to the EE that the error means the excess amount is not a qualified distribution, won't be eligible for rollover, will be subject to FICA self-employment tax(?), will be subject to regular income tax, etc.

There is a (sort-of) implication that if the EE does not return the excess, then he will be opening up himself to IRS scrutiny/audit.

I would be interested in other opinions on this general approach.

All that said, you won't get very far unless you have convincing evidence that there was actually an error.

[This message has been edited by pax (edited 12-18-1999).]

[Gary]

the payment was made in 1999. And your point about the tax issues is being used. So we'll have to look into othis closer.

[KJohnson]

Look at Rev. Proc. 99-31 Section 4.05 for APRSC correction. This refers you back to 415 correction method and generally the money has got to come back to the Plan either from the participant of from the employer.

Action for overpayment will be an "equtiable" action for restitution under 502(a)(3) of ERISA. What this means is that return is not "automatic" and equitable defenses will apply. In some cases if participant has "changed positions" in reliance on the payment Courts will consider this as an equitable factor. Generally, the quicker you act the better.