Overpayment recovery among three union benefit funds

P/OPINION   77-33

                                              403(c)(1)
                                              404(a)(1)(B)


                     April 4, 1977


Dear          :

In your letter of October 23, 1975, you have requested
rulings on behalf of the (named) Health and Welfare Trust
Fund; the (named) Pension Trust Fund; and the (named)
Savings Trust Fund (the Funds). The rulings requested are
whether, upon failure of an employee to repay an over-
payment he received from a Fund or to provide requested
information to the Fund, it is permissible for the
trustees of (1) the Fund involved either to deny the
recalcitrant 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,
either to 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, overpayments 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 accounting
and record 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

                          - 2 -


P/OPINION   77-33

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.

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 information 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 agreement. 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

                          - 3 -


P/OPINION   77-33


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)(1)(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 partici-
pants 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.

Section 403(c)(1) 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 administering 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
   erroneous 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 partici-
   pant or beneficiary until the Fund is repaid in full?

                          - 4 -


P/OPINION   77-33


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 bene-
   ficiary'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, reduc-
ing 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 as an advance payment of
benefits due him under the plan.

With respect to question B, we note that terminating the
participant's or beneficiary's eligibility for benefits
until the erroneous amount paid by the Fund to the
participant or beneficiary is repaid in full may result in
denying benefits otherwise due under the plan in an amount
exceeding the amount owed by him. We believe that denying
benefits due under the plan in an amount exceeding the
amount owed would not be in the interest of the partici-
pants and beneficiaries and for the exclusive purpose of
providing benefits to them and defraying reasonable
expenses of administering the plan. Such denial and any

                          - 5 -


P/OPINION   77-33


plan provision permitting same would, therefore,
contravene the requirements of section 404(a)(1) 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 requirements 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, unsuccess-
fully, to obtain such information with the prudence
described in section 404(a)(1)(B). However, we believe
that after the requested information is furnished and the
fiduciary determines that the participant or beneficiary
has met the requirements for payment of benefits as of a
given date, determined as if the participant or bene-
ficiary had furnished the requested information 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 receive 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)(1) that a fiduciary shall discharge his duties
solely in the interest of the participants and benefici-
aries 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.

                          - 6 -

P/OPINION   77-33


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 required to establish a
participant's right to receive benefit payments--his
telephone number, for example. If the requested infor-
mation 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)(1).

With respect to the second ruling requested, it appears
that delaying 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. Therefore, 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 beneficiaries of the
former and would not be for the exclusive purpose of pro-
viding 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

                          - 7 –

P/OPINION    77-33


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,