Can the Virginia Retirement System claw back pension overpayments when it later finds it miscalculated a cost-of-living increase?

Plain-English summary

The Virginia Retirement System (VRS) discovered in 2012 that its actuary had miscalculated the 2009 Cost of Living Adjustment for retirees, survivors, and beneficiaries. The COLA applied effective July 1, 2009, had been set at 3.84%; the correct figure was 3.42%. Over the three intervening years, retirees received a fractional 0.42% per year in excess benefits. VRS recalculated each retiree's correct 2009 starting point, reapplied subsequent COLAs to arrive at a corrected 2011 figure, and used that corrected 2011 amount as the base for the 2012 COLA. Retirees received notice. Senator Richard Black asked the AG whether VRS could lawfully do this and reduce ongoing benefits to recover the prior overpayments.

The AG said yes. Va. Code § 51.1-124.9(A)(1) directs that "[i]f any change or error in records results in any member or beneficiary receiving more or less than he would have been entitled to receive from the Retirement System had the records been correct, the Board shall, subject to the provisions of subsection B, correct the error and as far as practicable adjust the payments so that the actuarial equivalent of the correct benefit shall be paid." The statute compels correction; it gives VRS flexibility on method.

The AG dispensed with one potential limitation right away. The Code expressly allows VRS to deduct overpayments from a retiree's group life insurance benefits. But the senator's concern was for retirees who don't have such insurance. The AG read that deduction as one available tool, not the exclusive one. The general "adjust the payments" authority of § 51.1-124.9(A)(1) supports a broader range of recovery methods, including reducing future monthly benefits and accepting voluntary lump-sum repayment. VRS offered retirees the option to repay the three-year overpayment in a single lump sum by November 15, 2012, in lieu of an ongoing benefit reduction. Both options, the AG concluded, fit comfortably within the statutory authority.

The AG also noted, but did not analyze in depth, the Board's discretionary power to waive repayment in hardship cases when the overpayment occurred through no fault of the member and could not reasonably have been detected by the member. That waiver authority remained available but was not at issue in the senator's question.

Currency note

This opinion was issued in 2013. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

What is a COLA?
A Cost of Living Adjustment is an annual percentage increase applied to retirement benefits to keep them from being eroded by inflation. VRS calculates COLAs on actuarial advice and applies them to service and disability retirement benefits.

Can VRS just keep deducting from monthly benefits indefinitely?
The statute requires correction "as far as practicable" and "so that the actuarial equivalent of the correct benefit shall be paid." That phrasing constrains VRS to adjustments that are actuarially fair, not punitive. In this case, the recovery was the 0.42% inflation of the prior three years, spread (in practice) over the future stream of corrected benefits, plus the future stream of correct (not inflated) COLAs.

What if a retiree can't afford the reduction?
The Code allows the Board of Trustees to "waive any repayment which it believes would cause hardship" provided the member was overpaid through no fault of his own and could not reasonably have detected the error. The Board has discretion on whether to grant the waiver. A retiree facing hardship should petition the Board directly.

Does the lump-sum option avoid recovery from future benefits?
Yes. Under the VRS approach the AG approved, a retiree who paid a one-time lump sum to repay the three-year overpayment did not have his future benefit reduced. Those who did not pay the lump sum had future benefits drawn from the corrected (lower) baseline. Either way the retiree paid back the same amount in actuarial terms.

Can VRS take the money out of group life insurance?
Yes, for retirees who participate in the group life insurance program. The Code expressly allows that deduction. But the AG made clear that it is one method among several, not the only one.

Background and statutory framework

The decisive statute is Va. Code § 51.1-124.9. Subsection (A)(1) compels the VRS Board to correct any error and adjust payments to actuarial-equivalent accuracy, "subject to the provisions of subsection B." The Code further gives the Board discretion to waive repayment in hardship cases involving blameless members.

The opinion read the statute's authority broadly. The Code allows VRS to deduct overpayments from life insurance benefits, but the AG noted those deductions "are not the only way" VRS may lawfully recover overpayments. Section 51.1-124.9(A)(1) provides the general grant, and the statute "does not dictate a specific methodology by which VRS is to 'adjust the payments.'" The broad authorization, the AG concluded, supports both the future-benefit adjustment and the optional lump-sum repayment.

Citations

• Va. Code § 51.1-124.9(A)(1) (correction of benefit errors)

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2013/12-103_Black.pdf

Original opinion text

COMMONWEALTH of VIRGINIA
Office of the Attorney General
Kenneth T. Cuccinelli, II
Attorney General

October 11, 2013

900 East Main Street
Richmond, Virginia 23219
804-786-2071
FAX 804-786-1991
Virginia Relay Services
800-828-1120
7-1-1

The Honorable Richard H. Black
Member, Senate of Virginia
Post Office Box 3026
Leesburg, Virginia 20177

Dear Senator Black:

I am responding to your request for an official advisory opinion pursuant to § 2.2-505 of the Code of Virginia.

Issue Presented

You ask whether the Virginia Retirement System ("VRS") is permitted to recover from retirees the overpayments in benefits resulting from an error that occurred in calculating the 2009 Cost of Living Adjustment ("COLA").

Response

It is my opinion that VRS may recover the overpayments in benefits paid out to its retirees that were a result of an error in calculating the 2009 COLA.

Background

Annually, the actuary employed by VRS calculates and presents to the VRS Board of Trustees the Cost of Living Adjustments. The VRS COLA is applied to the service and disability retirement benefits for retirees, survivors and beneficiaries. For fiscal year beginning July 1, 2009, the VRS actuary prepared and presented the COLA as 3.84 percent. VRS adopted this percentage and applied it to benefits beginning July 1, 2009.

In 2012, it was determined that the 2009 COLA should have been measured at 3.42 percent. The miscalculation resulted in an overpayment amount of 0.42 percent. To correct the overpayments, VRS recalculated the 2009 benefit amount using the correct 2009 COLA and reapplied the subsequent COLAs to arrive at a corrected 2011 benefit amount. This corrected benefit served as the baseline to which the 2012 COLA of 3.08 percent was applied to arrive at the gross benefit amount for 2012. This adjustment corrected the 2009 error and provided the correct COLA going forward. The correction was done automatically and no action was required by the retirees. All retirees affected were provided notice of such correction and the reduction in benefits that resulted.

Applicable Law and Discussion

Section 51.1-124.9 of the Code of Virginia enables VRS to correct any benefit error and adjust payments accordingly. Specifically, § 51.1-124.9(A)(1) provides that,

If any change or error in records results in any member or beneficiary receiving more or less than he would have been entitled to receive from the Retirement System had the records been correct, the Board shall, subject to the provisions of subsection B, correct the error and as far as practicable adjust the payments so that the actuarial equivalent of the correct benefit shall be paid.

The Code further provides that the VRS Board of Trustees "may waive any repayment which it believes would cause hardship" if a member has been overpaid "through no fault of his own and could not reasonably have been expected to detect the error." The language of these provisions clearly evinces a legislative intent to enable VRS to recoup overpayments resulting from miscalculations, but does not dictate a specific methodology by which VRS is to "adjust the payments."

The Code expressly allows VRS to recover overpayments by deducting the overpayment from the retirees' group life insurance. You note concern, however, regarding employees who do not receive such insurance benefits; yet, such deductions from insurance benefits are not the only way by which VRS may lawfully recover overpayments of benefits. In correcting the 2009 COLA error, VRS chose to adhere closely to the statutory requirement that it "adjust the [benefits] payments so that the actuarial equivalent of the correct benefit shall be paid." In lieu of a reduction in the monthly benefit going forward, VRS also offered the option that a beneficiary could elect to send VRS a specific lump sum payment by November 15, 2012, to repay VRS for the overpayment amount that had been made over the three-year period prior to VRS' discovery of the error.

Thus, it is my opinion that VRS acted lawfully in accordance with the terms of § 51.1-124.9(A)(1) in the methods utilized to recoup benefit overpayments to retirees resulting from an error in calculating to 2009 COLA.

Conclusion

Accordingly, it is my opinion that VRS may recover the overpayments in benefits paid out to its retirees that were a result of an error in calculating the 2009 COLA.

With kindest regards, I am

Kenneth T. Cuccinelli, II
Attorney General