Court Rebuffs Plan Suit to Recover Overpayments
Can plan fiduciaries sue to recover overpayments made many years ago?
Case law has recognized the right of a fiduciary to recover overpayments, but a recent case involving a pension plan’s attempted recovery highlights some of the potential hurdles.
The case in question involved the Pharmacia Corporation Supplemental Pension Plan and a retiree named Virginia Weldon. She retired in 1999 and elected to receive her pension (actually two payments/month, one from each of two pension plans) over a three-year period ending in 2005.
However, that date came and went and her monthly payments kept coming. She and her financial advisor reached out to the provider responsible for pension check disbursement, and were told that everything was fine, that she had, in fact, taken out an annuity that would continue for life.
It was not until 2009 that the plan sponsor found the mistake and cut off future monthly payments, and not until 2014 that the plan and Pfizer, Inc. filed suit to recover the overpayments — which had accumulated to over $1.3 million.
According to a Pension & Benefits Law analysis, in refusing to dismiss all of the claims or grant summary judgment, the district court made the following rulings:
- That equitable claims for repayment could proceed to trial, but plaintiffs would have to show that there were still identifiable funds (such as if the funds had been put into a bank account) or their proceeds in order to recover.
- The statute of limitations that applied was five years, based on the most similar state cause of action (ERISA’s statutes of limitations do not apply to these claims).
- Plaintiffs could not sue to enforce the terms of the plan because they could not point to a specific plan provision requiring repayment.
The analysis outlines several steps plan fiduciaries can consider to improve their chances of prevailing in these suits, including:
- Make sure that plans have specific provisions for recouping overpayments.
- Do self-audits regularly and if a lawsuit seems necessary, file it promptly.
- And perhaps the most obvious: Pay attention when retirees call to question whether they are receiving the right payments.
Note also that earlier this year, the IRS issued a Revenue Procedure (Rev. Proc. 2015-27) on the subject of recovering plan overpayments.