Recoupment of pension benefit overpayments

P/OPINION 77-08

404
April 4, 1977

Dear              :

In your letter of December 8, 1975, you have requested
rulings on behalf of (named) Local Pension Trust Fund and
Health and Welfare Trust Fund (the Funds) as follows:

(1)    Do the Funds have the authority to seek recoupment
against those participants and beneficiaries who have
been distributed a net overpayment of pension (or if
such is the case, health and welfare) benefits?

(2)    Assuming the authority to do so, must the Funds seek
recoupment?

(3)    Assuming the authority to do so and assuming that the
Funds must seek recoupment, may the Funds recoup on a
time payment basis, i.e., give the participant or
beneficiary six, twelve, or longer months, depending on
the amount involved, to repay the overpayment?

(4)    Assuming the authority to do so and assuming that the
Funds must seek recoupment, may the Funds withhold the
amount of the recoupment (per month, as the case may be)
from the amount of benefits distributed each month?

(5)    What are the trustees' responsibilities to the public,
as, for example, in advising other trust funds who
employ the same plan administrator of the mistakes made
in respect to these Funds so that the other funds can
examine into their affairs to see if the plan
administrator is performing according to contract
standards?

You advise that on or about April 1973, the Funds engaged
the services of (A), Inc., to perform, for the Funds, the
various administrative functions of accounting for, keeping
records of, and determining the benefits payable under the
Pension Plan and Health and Welfare Plan. You understand
that (B) is the successor in interest to (A), Inc.

You have submitted an undated and unsigned copy of Agreement
Pertaining to Administrative Services, between (A), Inc.,
and the Pension Trust Fund, commencing May 1, 1973. This
agreement indicates the relationship between the administrator, the trustees, and others: it shows that the
administrator is an independent contractor; that the
trustees have no liability for debts or obligations of the
administrator; that the administrator is not liable for its
acts or failure to act so long as its actions are in
accordance with instructions of the trustees; that the
administrator may arrange for data processing of Fund
records with a local firm, subject to the trustees'
approval; that the administrator will make appropriate
retroactive adjustments based on the annual audit of the
Fund by the Fund auditor; that the administrator agrees to
provide annual actuarial and statistical data in accordance
with the actuary's instructions; that the administrator
shall attend meetings of the board of trustees; that the
administrator shall be bonded as required by the trustees
and Federal and (State) law; that the agreement may be
terminated by either party upon written notice within a
specified time; and that the agreement may be modified upon
agreement of the parties. Exhibit A, attached to this
agreement, lists the services to be provided by the
administrator under the agreement. In addition to the
services described in the preceding paragraph, Exhibit A
shows that the administrator also processes applications for
Fund benefits. You have also submitted a copy of a
substantially similar agreement, dated April 3, 1974, and
signed by representatives of both (A), Inc., and the Health
and Welfare Trust Fund.

You believe that the administrator has been negligent in its
administration of the Funds and that pension benefits have
been computed incorrectly, resulting in a net overpayment of
$21,936. You have submitted copies of (1) Pension Audit of
(Local) Files since April 1973 through September 1975
Benefit Payments, showing underpayments and overpayments to
37 individuals in amounts ranging from $1 to $5,856 per
person: (2) a letter dated January 21, 1975, to Mr. (X),
Administrator of the Pension Trust Fund, from (Y}, of
Company, Consultants and Actuaries,
itemizing alleged errors in employee census and work data;
and (3) a letter dated November 7, 1975, to you from (Z),
President of (B), the successor in interest to the
administrator, presenting an offer of settlement. You state
that the trustees of the Funds expect to commence a suit
promptly against (B) seeking the full amount of the
overpayments, including health and welfare benefits if
errors are found in that account.

You explain that there are presently 130 participants
receiving pension benefits from the Pension Fund, and an
average of 409 participants enjoying health and welfare
benefits. You believe that the average pensioner lives on
his pension benefits (averaging $276.10 per month) and
social security benefits and that recoupment of an
overpayment of pension benefits will work a hardship.

Section 404(a)(1)(3) of the Employee Retirement Income
Security Act of 1974 (ERISA) provides that, subject to
certain sections not relevant to this case, a fiduciary
shall discharge his duties with respect to a plan solely in
the interest of the participants and beneficiaries, with the
care, skill, prudence, and diligence under the circumstances
then prevailing that a prudent man acting in a like capacity
and familiar with such matters would use in the conduct of
an enterprise of a like character and with like aims.

With respect to the first two questions, we note that in
accordance with section 404(a)(l)(B) of ERISA, a fiduciary
must attempt, with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent man
acting in a like capacity and familiar with such matters
would use in the conduct of an enterprise of a like
character and with like aims, to recover erroneous payments
made from a plan. If the plan recovers the full amount of
the erroneous payments from the administrator, whose alleged
negligence caused the overpayments to be made, the plan need
not, of course, consider recoupment of the overpayments from
the plan participants and beneficiaries who received them.
Depending on the facts and circumstances relating to each
overpayment, it may be prudent, within the meaning of
section 404(a)(1)(B), for the Fund that made the overpayment
to recoup on a time payment basis, as indicated in question
(3) above, or to withhold the amount of the recoupment from
the amount of benefits distributed each month, as indicated
in question (4) above. In this regard, payment of the
erroneous amount to the participant or beneficiary may be
viewed as an advance payment of benefits due him under the
plan. We are not commenting on the issues of whether such
recovery would constitute a forfeiture for purposes of
section 203(a) of ERISA and section 411(a) of the Internal
Revenue Code of 1954, or would constitute an assignment or
alienation for purposes of section 206(d) of ERISA and
section 401(a)(13) of the Code, because these issues are
within the primary jurisdiction of the Internal Revenue
Service, from whom you have requested identical rulings.

In other cases, again depending on the facts and circumstances involved, the hardship to the participant or
beneficiary resulting from such recovery or the cost to the
Fund of collection efforts may be such that it would be
prudent, within the meaning of section 404(a)(1)(B), for the
Fund not to seek recovery from the participant or beneficiary
of an overpayment made to him.

With respect to the fifth question, ERISA does not require
the trustee of a plan to advise the public of mistakes made
by a plan administrator so that other plans hiring the same
administrator can examine their affairs to see if the
administrator is performing according to contract standards.
However, we appreciate your advising this Office of the
errors you believe were made in this case.
Sincerely,