By Emily Gilbert
In my last blog post, I talked about how often we hear from people who cannot locate their retirement plans, and how Congress is taking steps to address this issue. Provisions related to lost retirement plans are included in legislation now pending in the Senate and House of Representatives. Two of these bills also include provisions related to another longtime Pension Rights Center priority—unfair recovery of mistaken overpayments, or “recoupment.”
In her recent article, Congressional proposal would limit when retirees must return pension overpayments, CNBC reporter Sarah O’Brien explains how recoupment often works: a retirement plan realizes that they have mistakenly been paying someone too much, and then will seek to recover the money they have accidentally overpaid. Many plans will give the retiree the choice of either paying back the overpayment in a lump sum, which can be tens or even hundreds of thousands of dollars, or he or she will see their monthly benefit reduced. This reduction to recover the overpayment happens in addition to the reduction of the monthly benefit to the correct amount, and the result is sometimes as much as a 60-70% reduction in a person’s monthly benefit.
As mentioned in the article, there is usually no way for someone to know that their retirement plan has been overpaying them. Retirement benefit calculations are complicated, and it’s common for mistakes to be made. Generally, a retirement plan will discover the mistake when undergoing a routine audit. Here at PRC we have even heard from people who have asked their retirement plan to double check that their benefit has been calculated correctly, only to have the plan come back to them years into their retirement when they discover an error in the calculation.
The amount of money a retirement plan is seeking to recoup can be very high, because there is currently no legal limit on how many years back the plan can go when calculating how much they have overpaid someone. This is one of the things the new legislation will change if passed, by prohibiting “plans from seeking recoupment if the first overpayment occurred more than three years before the participant (or beneficiary) is notified in writing about the error,” O’Brien explains. The legislation would also prevent plans from charging fees or interest on the overpayments, and it would also limit the amount that retirement plans can reduce a benefit, so that the amount “being paid back yearly could not exceed 10% of the amount the person was overpaid.”
These provisions are included in the Securing a Strong Retirement Act of 2021 (H.R.2954), which was passed unanimously out of the Ways & Means Committee in the House of Representatives on May 5, 2021, and in the Retirement Security and Savings Act (S.1770), introduced in the Senate on May 20, 2021.
While recoupment is a common practice among retirement plans, it is not legally required that a plan recoup an overpayment. If you are facing a benefit reduction because your retirement plan has been overpaying you, one of the regional pension counseling projects funded by the U.S. Administration on Community Living may be able to help you, or you can reach out to us.