Question: I am a retiree in my late 70s, and I currently receive pension payments from a pension I acquired with a regional hospital. For the past 13 years I have received a check every month for the same amount – about $1,100.
I received a letter from the retirement plan administrator telling me that due to an error, I have been overpaid more than $25,000. They have notified me that my pension payments will be reduced by almost half the amount of the check. My wife and I have limited resources, and this will cause a lot of difficulties in meeting our bills. Is this legal? What can I do?
Answer: As unfair as this seems, it is legal, and it has happened to a growing number of retirees. The formal term for the retirement plan’s recovery of payments is known as “recoupment.” The retirement plan is seeking to “recoup” the funds it has erroneously paid to you.
Under federal law, the plan administrator has a fiduciary duty to the retirement plan to ensure that it has sufficient funds to pay all of its retirees. As part of that duty, the plan administrator must make reasonable efforts to recover overpayments. But plans frequently interpret this duty too strictly and employ overly aggressive collection efforts against retirees.
When an overpayment occurs due to an error, most people agree that correcting the amount of payment is the first thing to be done. Receiving $900 per month when you were receiving $1,100 may be disappointing, but if you were never entitled to more than $900 in the first place, it is hard to argue that you should continue to receive the same amount.
The real problem, however, arises when the plan claims that the overpayment has resulted in a huge “amount due” that the plan wants to see paid quickly from present pension payments — and sometimes with interest.
According to experts in this field of law, retirement plans have other means of recovering a shortfall that results from an accounting error. For example, the retirement plan can pursue the former plan administrator that made the error for negligence. Or the current plan administrator could seek reimbursement from the former employer’s liability insurance.
But it would seem that plans are finding it much easier to shift the burden to those who can least afford it — the retirees themselves.
Jennifer Anders-Gable is a supervising attorney at the Western States Pension Assistance Project, a unit of Legal Services of Northern California in Sacramento. She handles pension recoupment issues for the entire state. According to Anders-Gable, it is critical to seek documentation from the plan that shows how the plan arrived at its “correct” numbers.
In some cases, a plan incorrectly assesses the deficit — making a bad problem for the retiree even worse. Depending on the circumstances, a retiree also can appeal to the plan on grounds that having to repay the plan imposes a severe and undue hardship. But this can be quite challenging.
Our Congress can protect retirees like you by enacting a law that limits recoupment from retirees in your position. For example, something as simple as a time restriction on recoupment could help alleviate the pain.
In many other areas of the law, there are time limits in which a person must bring a lawsuit — statutes of limitation. But recoupment from erroneous pension payments has no such limitation. As in your case, the retirement plan is free to go back even as far as 13 years.
Maybe a time limitation could be passed that prevents a plan administrator from collecting on errors farther back than five years? Or perhaps a law could limit the amount of repayment to a percentage of a retiree’s income with consideration upon those who would suffer genuine hardship? Any idea would require Congress’ attention and action.
The loss of the retirement income and the resulting hardship imposed on seniors can be devastating. Even though the law has been slow to catch up and protect retirees in your position, fortunately there are people like Anders-Gable at Legal Services of Northern California who are on the front lines. Give her a call.