The late 2000s and early 2010s saw a growth in litigation over 401k fees by employee-side ERISA attorneys. These often attacked large employers and major plan recordkeepers who profit from the kickback scheme known as revenue sharing. We’re still not done with that wave of litigation but we’re seeing a similar rise in litigation for pension overpayments. In these lawsuits employers pursue retirees for allegedly overpaid pension benefits based. The overpayments often arise due to shoddy recordkeeping, payment systems and benefit calculations. (Once again richly paid recordkeepers like Fidelity Investments and AONHewitt find themselves caught up in the plan administrator’s problems.)
Plan administrators, running audits long after benefit payments begin, discover their supposed mistakes and expect dependent retirees to suffer recovery of the overpayment. Litigation surrounding these pension overpayments, much like the 401k fee litigation before it, is helping to clarify the remedies available to participants to dispute and oppose these pension overpayment recovery efforts. Judges do not seem amused by the blanket insistence of many plan administrators that they have an absolute duty to recover the overpayment and an absolute right to recover the overpayment.
Pfizer pension overpayment recover fails on non-qualified defined benefit plan due to plan rules not permitting recovery
One good example of the courts cutting down the employer’s blanket assertion of a right to recover an overpayment is the summary judgment decision handed down in the ongoing case of Pharmacia Corporation Supplemental Pension Plan v. Weldon. The Pharmacia Corporation Supplemental Pension Plan is operated by Pfizer and it is a non-qualified pension benefit. I have some personal experience dealing with this plan and I can tell you it is a complex mess of a plan (as many non-qualified pension plans are.) Weldon was an executive at Monsanto in a division eventually acquired by Pfizer. As part of the supplemental plan the participants must make a written election of the payment option under the plan that designates the payment method and when payments will begin.
A phone call to Fidelity Investments sets up the problem…
Before Weldon retired in 1999 she elected to receive payment as a three year, monthly annuity beginning in 2003. Payments arrived accordingly. In 2006 Weldon continued to receive payments and called Pfizer’s pension recordkeeper, Fidelity Investments, to confirm the payment election. The phone rep at Fidelity reviewed the account and told Weldon her payments were lifelong payments. Weldon then donated over two million dollars to various charitable interests under the belief that these substantial pension payments would continue for life. In 2009 a Fidelity audit caught the error and stopped payments. Pfizer then asked for the approximately $1.3 million in overpayments to return. Letters were exchanged between the parties and in 2014 Pfizer sued to recover payment.
There are some interesting legal issues with Pfizer’s claims for pension overpayment recovery. Alright, they are interesting if you enjoy ERISA, which is almost nobody including other ERISA attorneys. So I’ll cut down the legal issues to what are most interesting out of Pfizer’s claims. The court took a big red pen and marked out most of Pfizer’s claims in the summary judgment opinion. There is a statute of limitations issue that is highly relevant but not worth discussing here. We really want to talk about Pfizer’s claim for recovery under ERISA, the federal law that governs benefit plans. Pfizer claimed it had a right to recover under an ERISA provision that allows the plan administrator to recover under the terms of the plan or as equitable relief (in other words, because it is the fair thing to do.)
Plan rules matter in pension overpayment recovery
The court ruled against Pfizer on the its claim of right of recovery under the plan terms because Pfizer could not identify any plan terms that permitted it to seek recovery. Pfizer can move forward on its claim for equitable relief but now Pfizer has to prove it’s fair to ask for the money back after waiting so long to recover. Especially after its agent tell Weldon the money was hers and Weldon acting on that information and giving the money away. It’s far more difficult to argue it’s really the fair thing to do. We’ll see what happens there.
Weldon is fortunate because she received all her payments owed from the plan. Also, as an executive her pension payments may not be the difference between medical expenses and food. Many retirees who receive these pension overpayment letters are not so lucky. Many make employment decisions under the reasonable belief in the value of their benefits. Once retired they may not have the luxury to afford to pay back money they were told belonged to them.
If you receive a pension overpayment letter contact employee benefits attorneys for help
What causes problems for retirees receiving annuity benefits is the employer often cuts monthly benefits to recover the overpayment. The employer sees the money before the retiree. Once a benefit reduction for overpayment recovery occurs the retiree must figure out how to cover living expenses. If you have received a pension overpayment letter then you should talk to employee benefit attorneys about your options. Law firms representing retirees in pension issues understand the law surrounding pension overpayments and can help advise you about your situation.