A Response to Aggressive Pension Plan Recoupment Practices

Brendan Jones went to work for a Connecticut manufacturing company straight out of high school and stayed until the plant closed more than three decades later. Once he turned 55, Jones began collecting a monthly pension check of $123.79. No one knew it at the time, but that was a serious mistake.

Twelve years later, in 2010, the pension plan informed Jones (not his real name) that it had made a calculation error from the start. His true benefit was just $82.53 per month and the plan wanted the past excess payments back. Its solution took the money from future payments and the pension Jones received for more than 30 years of work was cut to $24.78 per month.

Jeanne Medeiros, director of the Pension Action Center at the University of Massachusetts Boston, and Boston University law professor Maria O’Brien Hylton point to the Jones case as a clear example of a growing trend – aggressive efforts by pension plans to recoup past overpayments to beneficiaries who did nothing wrong and were never aware of a problem.

Writing in the Kansas Law Review, Medeiros and Hylton describe a variety of drastic ways plans attempt to recoup past overpayments. Some even characterize the overpayments as loans that have been accruing interest charges for years.

Those efforts often target older retirees who live on fixed incomes and do not have the resources to adapt to drastic recoupment efforts. “When plans are solely responsible for overpayments, they need to look elsewhere to make the plan whole following the discovery of their error,” Medeiros and Hylton write.

They point out that many pension plans were hurt in the economic downturn that began nearly a decade ago. They also note the enactment of the Pension Protection Act of 2006, which imposed greater financial monitoring and disclosure about the sufficiency of plan assets and funding status, was a likely factor prompting more aggressive recoupment efforts aimed at individual retirees.

Medeiros and Hylton recommend several reforms that would restrict overly aggressive recoupment efforts and the financial threat they pose to many older retirees. They suggest a three-year statute of limitations that would curb the ability of plans to claw back overpayments made many years or even decades in the past. They also argue a formal hardship test should apply to individual cases.

Finally, they suggest a strategy involving a standard approach toward limiting financial harm – insurance.

“The core of the recoupment story is invariably an act of simple or gross negligence which is not discovered for some period of time and which results in financial harm to the plan,” Medeiros and Hylton write. “Liability insurance is the well-accepted method for risk transfer in cases of negligence that causes harm.”

Fortunately for Brendan Jones and dozens of his former co-workers, they were able to stop efforts to claw back their past pension overpayments. Represented by the Pension Action Center, their benefits were restore to the correct levels set by the plan formula and recoupment efforts ceased.

The center provides free legal assistance to low- and moderate-income workers, retirees and their survivors in the six New England states and Illinois whose pension benefits have been wrongfully denied. It has recovered more than $55 million in benefits

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