Plan fiduciaries have become more aggressive in their attempts
to recover mistaken overpayments to retirees. The plan may elect to
recoup the overpayments by reducing future pension payments, but
what if the participant received a lump sum or the recoupment
method will not work, for example, because the retiree is
elderly and the value of the future payments is not large, or
because the payee wasn't really entitled to any vested
I have previously written about obstacles
fiduciaries may face if requests for repayment have been
ignored and they decide to sue to recover the overpayments. These included the statute of
limitations, whether they failed to provide a process for
challenging the amount or existence of the overpayment, and the
possibility of equitable counterclaims that would prevent the
fiduciaries from adjusting the payments. Recent actions by
the U.S. Supreme Court may make it even more difficult to prevail
in a lawsuit to recover pension overpayments.
The Montanile Case
A retiree's current assets should be available to repay the
plan, right? Well, maybe not.
The Supreme Court will be issuing a decision in Montanile v. Board of Trustees of the National
Elevator Industry Health Plan determining whether
welfare plan fiduciaries seeking to recover overpayments must
identify and trace the payments to specific assets in the
possession of the plan participant. In Montanile, the
participant had been reimbursed for medical expenses by a plan,
which then sought reimbursement out of the amount Montanile
received in settlement of a suit for his injuries. Montanile
spent his settlement, which he argued defeated
the plan's claim.
Several federal courts of appeal do not require tracing in these
recovery suits, but a minority do, so it will be significant if the
Supreme Court upholds Montanile's position. If it does, no
recovery of overpayments would be available if the pension were
regularly used to pay ordinary living expenses. Stay
United Refining Company v. Cotillion
This is a case the Supreme Court declined to review. It's
also a minority interpretation, but one that could be equally
troublesome for repayment lawsuits. In Cotillion, the U.S. Court of Appeals for the
Third Circuit reviewed a plan that failed to apply actuarial
reductions to early pensions of deferred vested
participants. The version of the plan in effect when
plaintiffs retired did not have a specific provision providing for
these reductions, but the actuaries said they were required.
The court ruled that the "new" interpretation of the plan
requiring such reductions was a plan amendment, and that
ERISA and Section 411(d) of the Code prohibited its
application to previously earned benefits. The result?
Under this interpretation, the mistake could have to be followed
permanently, and could adversely affect the plan's funding.
At least in the Third Circuit, this is another potential trap
for fiduciaries trying to recoup overpayments. The court
might possibly have reached a different result, however, if the
plan had explicitly required the reductions but the administrator
inadvertently failed to make them.
The Bottom Line
There is no hard and fast rule that fiduciaries are always
required to sue to recover overpayments. Fiduciaries should
be able to take factors such as hazards of litigation into account
in agreeing to settlements of claims. However, these cases
illustrate why we should have more guidance from the agencies with
ERISA jurisdiction, and perhaps from Congress, on when and
how fiduciaries may attempt to recover overpayments.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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