Overpayment recovery among related union benefit funds

                         U.S DEPARTMENT OF LABOR
                LABOR-MANAGEMENT SERVICES ADMINISTRATION
                           Pension and Welfare Benefit Programs
                            Washington, D.C. 20216



April 4, 1977



Mr. Lawrence J. Lee                                          OPINION 77-32 A
[Recipient address omitted]                           403(c)(1)
                                                      404(a)(1)(B)

Dear Mr. Lee:

In your letter of October 16, 1975, you have requested rulings
on behalf of the Operative Plasterers and Cement Masons Local
Union 394 Health and Welfare Trust Fund; and the Operative
Plasterers and Cement Masons Local Union 394 Pension Trust Fund;
(the Funds). The rulings requested are whether, upon failure of
an employee to repay an overpayment he received from a Fund or
to provide requested information to the Fund it is permissible
for the trustees of (1) the Fund involved to either deny the recal-
citrant employee's eligibility to participate in the plan until he
cooperates or to withhold or offset against any benefits due
to the employee by way of recoupment, and (2) a sister fund, upon
demand of the Fund involved, to either deny the recalcitrant
employee's eligibility in the sister fund to participate in the
plan until he cooperates, or to withhold or offset against any
benefits due to the employee by way of recoupment and to pay
said amounts over to the Fund involved.

You explain that in the day-to-day operations of the Funds, over-
payments may arise from mistakes made by the Fund administrator
in making payment or by the participant in providing information
to the administrator. You advise that the Funds try to recoup
these overpayments but for a variety of reasons either elect
not to bring the matter to judgment (due to lack of collectability)
or are in fact unable to collect the amounts owed to the Fund.
Also, the Fund needs, from time to time, to police its account-
ing and records and to obtain specific information regarding a
participant, such as determining whether a recipient of a Fund
disability benefit is still eligible for social security disability
benefits or has returned to work. In both situations, you
believe that the simplest form of redress and that which brings
the most cooperation is either to refuse to recognize the
employee's eligibility for benefits or to refuse to pay any
benefits which are due to the employee until he repays the
erroneous amount or furnishes the information requested.

2                                                    OPINION 77-32 A

Although you did not submit copies of the plans under which the
Funds are maintained, you indicate that each plan permits the Fund
to use either of two specified remedies if a participant fails to
repay any unauthorized benefit he or his dependent(s) received
or fails to provide any requested information "which is pertinent
to the Fund's operations, whether by way of individual inquiry,
questionnaire, form or otherwise, and whether or not the informa-
tion is requested under oath." The specified remedies are (1) to
terminate the participant's (or his dependent's) eligibility for
benefits until the amount due is repaid in full or until the
information is supplied, or (2) to offset the unpaid amount due
against any benefits due to or for the participant (or his
dependents) until the Fund is repaid in full or to delay or withhold
payment of any benefit until the information is supplied. These
remedies may be used in addition to the remedies available to
the Fund at law or in equity and such other self-help remedies
the Fund may pursue. The plans also excuse the Funds from any
liability relating to exercising the remedies. The Funds were
all established pursuant to the same collective bargaining agree-
ment. You believe that each Fund qualifies under section 302(c)
of the Labor Management Relations Act and that employees are
eligible to participate in all three plans.

You state that it is proposed to amend the plan for each related
Welfare Fund, Pension Fund and Vacation Savings Fund to provide
that the trustees of each Fund are authorized and empowered to
honor the demand of its sister Fund, either for reimbursement
or to deny eligibility or benefits until the participant cooperates.
For example, if an employee secures an overpayment of welfare
benefits but fails to repay the Welfare Fund, it is proposed to
authorize the trustees of the Pension Fund and Vacation Savings
Fund, upon proper demand of the trustees of the Welfare Fund, to
either pay from the benefits accrued to the participant in the
Pension Fund or Vacation Fund the amount demanded, or to deny the
participant's eligibility or benefits in the Pension Fund or
Vacation Fund until he settles the matter with the Welfare Fund.

Section 404(a)(l)(A) and (B) 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, for the exclusive purpose of
providing benefits to participants and their beneficiaries and
defraying reasonable expenses of administering the plan, and 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.

3                                                   OPINION 77-32 A

Section 403(c)(l) of ERISA provides that, with certain exceptions
not relevant to this case, the assets of a plan shall never inure
to the benefit of an employer and shall be held for the exclusive
purposes of providing benefits to participants in the plan and
their beneficiaries and defraying reasonable expenses of admin-
istering the plan.

For discussion purposes, we are dividing the first ruling requested
into three questions:

A. If a participant or beneficiary fails to repay an erro-
   neous payment he received from the Fund, may the unpaid
   amount due from him as reimbursement be offset against any
   plan benefits due to or for the participant or beneficiary
   until the Fund is repaid in full?

B. If a participant or beneficiary fails to repay an erroneous
   payment he received from the Fund, may his eligibility for
   plan benefits be terminated until the amount due is repaid in
   full?

C. If a participant or beneficiary fails to furnish information
   requested by the Fund which is pertinent to the Fund's
   operations, may the Fund delay payment of any benefits or may
   the participant's or beneficiary's eligibility for plan
   benefits be terminated until the information is supplied?

With respect to question A, 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 collect money owed to the
plan, including recovery of erroneous payments made from a plan.
We believe that, depending on the facts and circumstances relating
to each erroneous payment, reducing future benefits payable by
a fund to a participant or beneficiary, in accordance with the
provisions of the plan, may be prudent if other reasonable
attempts to collect the erroneous amount have failed. In this
regard, payment of the erroneous amount to the participant or
beneficiary may be viewed at an advance payment of benefits due
him under the plan.

With respect to question B, we note that terminating the partic-
ipant's or beneficiary's eligibility for benefits until the
erroneous amount paid by the Fund to the participant or bene-
ficiary is repaid in full may result in denying benefits otherwise
due under the plan in an amount exceeding the amount owed by him.

4                                                    OPINION 77-32 A

We believe that denying benefits due under the plan in an amount
exceeding the amount owed would not be in the interest of the
participants and beneficiaries and for the exclusive purpose of
providing benefits to them and defraying reasonable expenses of
administering the plan. Such denial and any plan provision
permitting same would, therefore, contravene the requirements of
section 404(a)(l) of ERISA.

With respect to question C, we believe that section 404(a)(1)(B)
of ERISA requires a fiduciary to determine in a prudent manner
that a participant or beneficiary has satisfied all plan require-
ments for payment of benefits before any benefits are paid to
such participant or beneficiary. Therefore, if a participant
or beneficiary fails to furnish information requested by the
Fund which is necessary to determine whether such participant or
beneficiary has satisfied all requirements for payment of benefits,
the Fund is required to delay payment of benefits until the requested
information is furnished, provided the Fund has previously attempted,
unsuccessfully, to obtain such information with the prudence
described in section 404(a)(l)(B). However, we believe that
after the requested information is furnished and the fiduciary
determines that the participant or beneficiary has met the require-
ments for payment of benefits as of a given date, determined as if
the participant or beneficiary had furnished the requested inform-
ation timely, payment must be made for benefits due from such
date until the date payments actually began (as well as for later
benefits due). For example, if the plan would have paid monthly
benefits commencing January 1 for a participant who had furnished
timely the requested information necessary to establish his right
to recieve such payments, but such participant did not furnish this
information until June 15, the Fund must pay such participant the
benefits due for January through June, as well as benefits due for
later months. Forfeiture of benefits for January through June
would violate the requirement of section 404(a)(l) that a
fiduciary shall discharge his duties soley in the interest of the
participants and beneficiaries and for the exclusive purpose of
providing benefits to participants and their beneficiaries and
defraying reasonable expenses of administering the plan. We are
not commenting on the issue of whether such forfeiture would be
permitted under the vesting provisions of section 203(a) of
ERISA and section 411(a) of the Internal Revenue Code of 1954,
because this issue is within the primary jurisdiction of the
Internal Revenue Service, from whom you have requested identical
rulings.

According to your letter, the plans provide the remedies mentioned
in question C in the event the participant or beneficiary fails
to furnish requested information "which is pertinent to the Fund's
operation," which may include items other than information

5                                                   OPINION 77-32 A

required to establish a participant's right to receive benefit
payments--his telephone number, for example. If the requested
information is not required to establish a participant’s right to
receive benefit payments, delaying payments until such information
is furnished would also violate the above-mentioned requirements
of section 404(a)(l).

With respect to the second ruling requested, it appears that delay-
ing or reducing benefits under a plan to remedy a participant's
or beneficiary's failure to repay erroneous amounts received from
another plan or to provide requested information regarding the
operation of another plan would be primarily for the convenience
of the fiduciary of such other plan, rather than for the benefit
of the participants and beneficiaries of the plan under which
the remedies are applied. Problems relating to another plan
have no relevance to the plan in question, even if both plans
are established and maintained pursuant to the same collective
bargaining agreement and cover many of the same employees. There-
fore, applying remedies to participants or beneficiaries of the
plan in question for problems relating to another plan would
not be in the sole interests of the participants and bene-
ficiaries of the former and would not be for the exclusive
purpose of providing benefits to them and defraying reasonable
expenses of administering the former. Accordingly, applying
remedies in this fashion would violate the requirements of section
404(a)(1) of ERISA.
Furthermore, if the plan pays amounts to another plan to reimburse
the other plan for erroneous payments made by the other plan to
a participant or beneficiary, such reimbursement would not
constitute a use of plan assets for the exclusive purpose of
providing benefits to participants in the plan providing the
reimbursement and their beneficiaries and defraying reasonable
expenses of administering the plan providing the reimbursement.
Therefore, such payment would contravene the requirements of
section 404(a)(1)(A) and section 403(c)(1) of ERISA.

We sincerely regret the delay in replying to your letter.   If we
may be of any further assistance, please contact us.

Sincerely,




Fred W. Stuckwisch
Director
Office of Regulatory Standards
  and Exceptions