Plan Overcharged Employee for Premium Payments - Is the Plan Required to Reimburse the Employee? Must the Plan Add Interest to the Reimbursement of the Overpayment?

Employee A works for Company X. For 2025, A elected family medical coverage under X's health plan. Family coverage costs the employee $275 in monthly premium payments. Employee A was actually charged $300 per month for such coverage. X's health plan discovers the error in the third quarter of 2025. Is X required to repay A the amount of the extra premium amount? Is X required to include interest on the reimbursed premium amount?

Is the group health plan coverage provided by a health insurance contract? Or is the coverage provided under an employer's "self-funded" arrangement?

Were participant contributions paid into a trust? Or were participant contributions a set-off from the employer's obligation to pay wages?

The group health plan is self-funded. The participant contributions are deposited into a trust. The employer also contributes for a portion of the premiums.

If participant contributions were paid into a trust, shouldn’t the participant get the return of the mistaken amount with no less net interest or time value of money than the trust obtained?

But might this be a small amount?

There's no doubt the excess has to be refunded.  If nothing else, it would be a violation of state wage withholding laws to fail to refund.  Probably ERISA fiduciary duties also implicated.  The refund will be taxable income because presumably these amounts were initially pre-tax health plan contributions through the cafeteria plan.

As to whether the employee has to be paid interest, that's a good question.  I'm not aware of any guidance directly addressing the issue.  As Peter noted, this is likely a very small amount anyway.

Even if the amount might be small, the trust ought to return the mistaken amount with no less net interest or time value of money than the trust obtained or, if more, the amount required under an applicable State wage-payment law.

Even if no Federal or State statute specifies that the return is with interest (and nothing in the plan’s or its trust’s governing documents specifies how to deal with mistaken amounts), the law of trusts, agency, or other fiduciary relationships requires a fiduciary that has received money or other property that does not belong to the fiduciary (whether personally, or for the fiduciary relation) to return the property. The property interests to be returned might include not only the mistaken amount but also the time value of money.

In correcting the error, consider which person—the trustee or the employer—bears the expenses of the return and other aspects of the correction.

This is not advice to anyone.

Following up on this, in the responses citing state wage payment laws, I have seen a number of cases holding that such laws are preempted by ERISA (even applying the more narrow view of preemption that the courts now seem to be following). I know that refunding the overcharge (versus overpayment) is the right thing to do and that it is also the right an ethical thing to include interest, but I am not convinced that reliance on state wage payment laws, in itself, is something compelling the employer or trustee to do so. Any thoughts on that point would be especially welcomed.

A State's wage-payment law isn't preempted if it includes criminal provisions, as some do.

The ERISA preemption point is a fair one I think.  There seem to have been decisions going both ways. 

This is a pretty strong case in the Fourth Circuit for your position @rocknrolls2: 

https://www.ca4.uscourts.gov/opinions/Unpublished/011232.U.pdf

Jackson sued Wal-Mart under the South Carolina Payment of Wages Act, S.C. Code Ann. §§ 41-10-10 to 41-10-110 (Law. Co-Op. Supp. 2000), alleging that Wal-Mart made excessive deductions from his wages for insurance premiums...Because Jackson’s claim entails an inquiry into the terms and administration of the employee benefits plan to determine whether Wal-Mart deducted unauthorized amounts from Jackson’s wages, Jackson’s claim relates to the employee benefit plan. Therefore, we find that the district court correctly found that ERISA preempted the application of the South Carolina Payment of Wages Act.

Nonetheless, no employer wants to have to litigate the issue of ERISA preemption of a state wage withholding law.  There seems to be enough conflicting case law and general disagreement in the courts about how preemption applies to wage withholding laws to open at least the potential exposure--either from the state law itself or the cost to litigate its status under ERISA.

Brian and Peter,

You have raised some pretty good points, I agree.