Unique situation...pension overpayment

[adunham]

Looking for some opinions on the following unique situation...

Mark retired from Company A in 1998 and was receiving pension payments. In mid-2015, he was told he had a terminal illness and given only a few months. In his desire to assist his children/wife with dealing with his passing, he contacted Company A to learn what his wife needed to do after his death for her surviving spouse benefits. As a result of his call, Company A learned they had an administrative error and had been paying him as a single annuity since 1998, resulting in an over payment of $28K. He passed a few weeks after this call. Company A was notified of his passing and no future payments were made.

Now, Company A is requesting his wife repay the $28K overpayment in lump sum, or actuarialy offset her surviving spouse benefits to pay it back over time.

in my opinion, Company A should only be able to request repayment from the "estate of", and not from the surviving spouse. In the event there is no "estate", then Company A suffers a loss due to their administrative error.

Interested in hearing opinions and thoughts about related laws. Much thanks!

[Lou S.]

It sounds like the Plan is putting the surviving spouse in the state she would be in had the error not occurred.

[My 2 cents]

Not a lawyer, but I'm voting for the plan having to try to get the money back from the estate (if from anyone). His wife, after all, received no overpayments (technically, she received no payments at all), so how can they try to collect anything from her?

This sounds like one of those "we should try, but not too hard, to get the overpayments back" situations. Hasn't the IRS recently relaxed the circumstances under which plans have to really push for reimbursement of overpayments?

The worst that the spouse should have to deal with is getting 50% (or whatever the continuation percentage was) of the amount that should have been paid all along. For example, if the monthly benefits had been $1,000 but should have been $920 each month, and the form was a 50% joint form, then the payments to the spouse should be $460 per month and not $500 per month. That is OK, but the spouse should not be treated as owing anything for the years of $80 per month overpayments.

[adunham]

It sounds like the Plan is putting the surviving spouse in the state she would be in had the error not occurred.

Thanks! I feel the plan is putting the surviving spouse at a "less than" state than she would be had the error not occurred. They are saying, if she would have gotten say $600/month, and we think she will live for another 10yrs, then she should repay $233/mth, so now, we will only pay her $366/mth. They go on to say that if she lives longer than the 10yrs (needed to repay the overpayment), the monthly amount will not be increased back to what they should be, i.e. $600

[david rigby]

Don't forget to read the plan provisions. It may be imprudent to assume the Plan Administrator has unlimited authority.

Note: if Company A is involved, it may have to first document (1) it is the PA, and (2) the relevant plan provisions and claim procedures (and maybe relevant IRS statements), and (3) etc.

[My 2 cents]

It sounds like the Plan is putting the surviving spouse in the state she would be in had the error not occurred.

Thanks! I feel the plan is putting the surviving spouse at a "less than" state than she would be had the error not occurred. They are saying, if she would have gotten say $600/month, and we think she will live for another 10yrs, then she should repay $233/mth, so now, we will only pay her $366/mth. They go on to say that if she lives longer than the 10yrs (needed to repay the overpayment), the monthly amount will not be increased back to what they should be, i.e. $600

1. Unless they have determined that the $28K "overpayment" is equivalent to a life annuity to her of $233 per month, they obviously cannot continue collecting "reimbursements" after the "overpayment" has been recouped.

2. I continue to think that since SHE is not paid anything until after the death of the participant, SHE has received no overpayments and the plan has no right to go after HER for reimbursement, whatever the nature of the error. A QJSA is not a joint venture, with the participant and the joint annuitant being both held responsible for such issues. Prior to the death of the participant (assuming no QDRO), 100% of the amounts paid go to the participant and the joint annuitant has only an expectation of future payments.

[Peter Gulia]

Is it at least possible that the participant's surviving spouse might have proceeds from the pension plan's overpayments to the participant because the surviving spouse is a beneficiary, legatee, or other taker from the decedent's money and property?

[My 2 cents]

Is it at least possible that the participant's surviving spouse might have proceeds from the pension plan's overpayments to the participant because the surviving spouse is a beneficiary, legatee, or other taker from the decedent's money and property?

They would be taking back from her as the participant's heir, from the estate or her inheritance. They should not be taking back from her the benefits she is entitled to under the plan as the beneficiary of a deceased participant. The amounts overpaid to the participant should not be considered to have been paid to her.

Would it be necessary for the plan to establish that the estate proceeds were directly from the overpayment? Didn't the Supreme Court just rule (by not taking a lower court case?) that health insurance plans can only collect in a subrogation situation from proceeds directly received from a judgement or settlement, not from the individual's general assets? Wouldn't that apply in this kind of situation?

[Peter Gulia]

In Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, the Supreme Court decided an interpretation of law for courts to apply in their findings on whether relief a litigant seeks is or isn’t provided under ERISA § 502(a)(3).

The Court’s holding: If a person had money or property that in good conscience belonged to the employee-benefit plan but dissipated that money or property on nontraceable items, a fiduciary cannot under ERISA § 502(a)(3) attach the person’s general assets.

The Montanile rule might not preclude a pension plan from getting remedies for overpayments if the payee did not consume all the money and some amount remains traceable.

An answer to my question might help a fiduciary think through a discretionary decision about relative fairness regarding consequences of a mistake. For example, a fiduciary’s thinking about how much value to put on burdens from unsettling a beneficiary’s reasonable expectations might be influenced by considering whether some of that burden is ameliorated by the beneficiary’s enjoyment of some proceeds from the overpayments. I do not suggest any conclusion, or even that these are relevant considerations. It’s only that I imagine someone might choose to consider the information among several kinds of information and several modes of analysis.

By the way, the health plan’s case against Robert Montanile is (as much as I know) not yet decided. On the first try, both the trial court and the intermediate appeals court found that the plan could enforce its equitable lien even had Montanile dissipated all the money. The do-over now calls for fact-finding about how much is dissipated and how much remains in Montanile’s possession, including in traceable money or property.

[My 2 cents]

There is an article from the International Foundation of Employee Benefits Plans on the Montanile case in today's BenefitsLink Retirement Plans Newsletter, also coming to the conclusion that the same analysis applied to subrogation rights would also apply in retirement plan overpayment situations. If the money is spent, then there is no recourse, whatever the circumstances of the overpayment.

In the original post, I would not regard the "overpayment" as being one that in "good conscience" (to quote the latest post above) ought to be restored to the plan at all, at least not by the participant or the surviving spouse. The error was committed by the plan and left undisturbed for a sufficiently long period that the plan should be forced to absorb the extra cost, with no attempt to recover anything from the deceased participant or the surviving spouse. Trying to assess the extra costs against the participant/spouse is unconscionable.

While none of the above comments seem to have consider it, calling what happened "unique" is, unfortunately, completely inappropriate! It happens all too often!