Recouping Pension Overpayments

[Miner88]

If overpayments in pension benefits are mistakenly made to participants/beneficiaries, and the full amount cannot be recouped from the participant (for example, if there are no future payments to be made from the plan and the participant cannot repay the full amount), is the balance of the amount required to be paid back by the "plan sponsor?" I can understand this approach in a single employer plan where the company is the plan sponsor, but how does this work in the multiemployer world where a Board of Trustees is the plan sponsor? Should they file a fiduciary liability claim with the insurance company to recoup the overpayment? Any thoughts?

[Effen]

I think this really depends upon the magnitude of the issue, who should have known it was wrong, and who is complaining.

Can you provide a little more detail about what you are dealing with?

[Miner88]

In this particular situation, the in-house administrator of a multiemployer pension fund erroneously neglected to stop payments for several beneficiaries on a 10-year certain and life pension. Overpayments range from $5,000 to $125,000. Legal counsel has tried to pursue the beneficiaries to recoup the overpayments, but they just don't have the assets to repay the fund (most are widows in their 70's and 80's). Some have offered to repay a portion of the amount owed.

If the money can't be recouped from the beneficiaries or the in-house administrator, and can't be corrected by amendment, must some other party (e.g., the Board of Trustees via their fiduciary liability insurance) make up for the missing assets in the plan?

[Effen]

They didn't know they were dead, or they didn't know it was a 10cc? Probably lots of blame to be thrown around. The custodian should have caught it, the auditor should have caught it ,the actuary should have caught it, etc... Was there any way anyone could have known? Who was really responsible for the error? Who ultimately caught it?

Why can't it be corrected using a plan amendment? They could amend the plan to pay additional death benefits based on selected dates of death.

What percentage of the total assets was this? What is the funded status of the plan?

Obviously fund counsel should be driving the boat on this. I think ultimately it is the Trustees responsibility, but this doesn't seem like a significant enough problem to try too hard to collect. Yes, maybe somebody needs to be fired, and the Plan needs to make some effort to collect. But you can't get blood from a stone, so cut your losses, correct your procedures, and move on.

Not sure if it would be covered under the liability insurance, but the deductible is most likely pretty high.

[jpod]

This may not be something warranting a "move on" approach. Miner says overpayments RANGE from $5k to $125K. I interpret that to mean per case. The overpayments could be in the mid or high six figures or higher, and if they are it may be a breach of fiduciary duty to forego claims against the responsible persons.

[Miner88]

Thanks for the responses. The in-house administrator, through system/process error, did not realize that the benefits were 10-year certains and continued to pay the surviving spouses as if the benefits were J&S benefits. I'm not sure how the error was caught. Legal counsel is pursuing collection efforts against the surviving spouses and is in the process of settling some of the claims where there is no hope of recovering the full amount. I'm trying to figure out whether, after all reasonable collection efforts have been made, the fund can just move on, or must it try to get the remaining amounts from some other party (the Board of Trustees, the union, the employer association, the insurance carrier)? From my standpoint, the "responsible party" (other than the surviving spouses who may/should have known that they weren't entitled to the money) is the in-house administrator. But, they are just employees of the Plan and don't have assets to reimburse the plan for its errors.

[jpod]

What about the plan's auditors? I don't know how long this has been going on but if it went on long enough this might be the type of thing an auditor should have detected and perhaps it should have been detected by the auditors at a point in time where some of the bleeding would have stopped earlier. Presumably they aren't fiduciaries, but the plan could maintain a non-ERISA negligence/professional malpractice claim against them. I would have counsel investigate, because the auditors certainly have insurance and are otherwise deep pockets.

[david rigby]

Regardless of identifying "fault", this screams for better controls in daily administration.

[hr for me]

I'd also see if any of the parties have an E&O insurance policy that would cover this type of error. If not, they might consider it. Especially if they aren't well versed in administering plans.

[Effen]

Miner88 - what is our role in this plan? Why don't you agree with legal counsel on this?

The Plan Administrator is clearly at fault on this. Yes, maybe the auditor, or the actuary, had sufficient information that they could have seen the problem if they were looking, but getting a court to decide that they were responsible is a whole different thing.

I think they would be better served looking for the responsible party in a mirror, rather than a window.

[jpod]

Effen's advice is quite sound. However, the fiduciaries still have a duty under ERISA to explore all possible avenues of recovery.

[J2D2]

Agree with jpod. If the fiduciaries decide not to pursue those who received the excess payments, or if they decide to discontinue efforts to recover, the fiduciaries should thoroughly document the reasons for their decision. For example, the costs of recovery would far exceed the potential recovery, etc.