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Glimmers of hope for victims of unfair pension takebacks

Glimmers of hope for victims of unfair pension takebacks

In a recent article, “Can They Grab Your Pension?”, AARP Bulletin highlights the problem of recoupment – when a pension plan overpays a retiree and then demands that the retiree pay back the overpayment. To recoup the money, the plan usually reduces the retiree’s benefit. It might also demand that the retiree pay a lump sum on top of the benefit reduction. Some plans even charge interest on the overpaid amount. 

The Pension Rights Center has long been concerned about pension takebacks, because they can cause anxiety and financial hardship for retirees living on a fixed income. In most cases, the overpayment is the plan’s fault, not the retiree’s, yet the retiree is unfairly penalized. We have seen cases in which benefits have been drastically reduced. We have seen cases in which a plan demands that the retiree pay tens of thousands of dollars in a lump sum. The issue has become more urgent as we see an increasing number of recoupment cases.

Pension plans often claim that the IRS’s Employee Plans Compliance Resolution System (EPCRS) requires them to recoup. Fortunately, last month, the IRS published guidance, known as a Revenue Procedure, related to recoupment, which clarifies that pension plans, both public and private, do not necessarily have to seek repayment. It reads in part (emphasis added):  

The Service has been informed that some plans have demanded recoupment of large amounts from plan participants and beneficiaries on account of plan administration errors made over lengthy periods of time, and that plan participants and beneficiaries, particularly those who are older individuals, may have financial difficulty meeting some corrective actions that have been sought by plan administrators, including the return of Overpayments with substantial accumulated interest.

(2) Flexibility in correction of Overpayment failures. Some plans may be interpreting the correction rules in Rev. Proc. 2013-12 as requiring a demand for recoupment from plan participants and beneficiaries in all cases. However, depending on the facts and circumstances, correcting an Overpayment under EPCRS may not need to include requesting that an Overpayment be returned to the plan by plan participants and beneficiaries.

(3) Description of modifications to clarify that there is flexibility in correcting Overpayment failures. Sections 6.06(3) and 6.06(4) of Rev. Proc. 2013-12 are modified to clarify that that there is flexibility in correcting an Overpayment under EPCRS. For example, depending on the nature of the Overpayment failure (such as an Overpayment failure resulting from a benefit calculation error), an appropriate correction method may include using rules similar to the correction methods of sections 6.06(3) and 6.06(4) in Rev. Proc. 2013-12 but having the employer or another person contribute the amount of the Overpayment (with appropriate interest) to the plan in lieu of seeking recoupment from plan participants and beneficiaries

This clarification by the IRS is a welcome first step towards curbing needlessly cruel recoupment actions, but the Pension Rights Center believes that more can and should be done. As part of this Revenue Procedure, the IRS has requested suggestions for more extensive changes in its EPCRS rules. You can be sure that we will weigh in.

To read more about the issue of recoupment and to see what other changes we believe need to be made to the recoupment process, read our fact sheet, What is Recoupment?

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