For decades, retirees receiving private or federal pensions have been vulnerable to an odd threat: overpayment of their benefits. A retiree who should be receiving $500 each month, for example, might have actually received $575 monthly for the last 15 years due to a small mistake in the actuarial computations. Suddenly the plan discovers its mistake and sends the individual a letter saying they need to pay back the difference, often tacking on interest charges.

“It could be a massive blow to people who are receiving retirement income and have no recourse,” says Tyler Compton, managing attorney at the Gerontology Institute’s Pension Action Center. Incidences of overpayment are “incredibly frequent,” she notes.

For years, the overpayment issue was a blind spot in the Employee Retirement Income Security Act, or ERISA, of 1974, allowing companies to seek recoupments as they saw fit. “There was no statute of limitations for collecting overpayment, and no restrictions on charging interest for the overpayment,” Compton says.

The SECURE 2.0 Act, which became law at the end of 2022, finally addresses the blind spot, establishing restrictions and protections including:

  • creating a three-year look-back period, meaning companies can’t collect overpayments after three years. The restriction helps both companies and individuals by ensuring the overpayments can’t grow to unwieldy amounts;
  • prohibiting plans’ ability to collect interest, a practice that penalized individuals who weren’t responsible for the overpayments;
  • capping the amount of an individual’s overpayments that can be recovered to 10 percent of their monthly annuity payment.

Throughout 2024 the Pension Action Center will be working to educate people across Massachusetts about SECURE 2.0 and pension basics through in-person events, webinars, and fact sheets, thanks to grant funding from the Investor Protection Trust.

PAC has already assisted people with the new law. “We’ve had at least three situations where people got a letter saying they need to pay back overpayments,” she says. “We’ve been able to call the plans and point to the new protections. If you receive a letter like this, it’s important to call right away.”

The new protections don’t apply to beneficiaries who are responsible for the overpayments by lying or providing inaccurate information to their plans, Compton notes. SECURE 2.0 also doesn’t apply retroactively for those who are already paying overpayments, Compton says. “But that doesn’t mean you can’t try to request it, citing that the law has changed.”

These days, Compton’s favorite part of training pension counselors is getting to the section on pension overpayments and SECURE 2.0, she laughs, because she finally has good news to share and positive steps for protecting retirees and their beneficiaries. “The law is so new, and we really need to get the word out.”