Pension & Benefits News Participant’s former spouse must return $240,000 in overpaid pension benefits
Tuesday, February 23, 2021

Participant’s former spouse must return $240,000 in overpaid pension benefits

By Pension and Benefits Editorial Staff

A pension plan committee did not act arbitrarily and capriciously when it required the divorced spouse of a participant to return over $240,000 of a lump-sum pension distribution erroneously paid to the spouse four years earlier, the U.S. Court of Appeals in Cincinnati (CA-6) has ruled. The plain language of the plan requires a beneficiary to return amounts paid as a result of an error in calculating the benefit.

The former spouse and her husband, a participant in his employer’s pension plan, divorced in 2009. The participant had retired in 1998. The divorce decree awarded the spouse half of the marital portion of her husband’s pension. After talking to the employer’s plan, the spouse delayed drawing down the pension until 2013. She then accepted a lump sum in place of her future monthly benefits. She also accepted a retroactive payment in the amount of $351,690 to make up for her postponed monthly benefits.

Four years later, the plan discovered an error: the retroactive pension payment mistakenly included benefits going back to 1998, when the husband retired, instead of 2009, when the two divorced. The $351,690 payment should have been just $108,500, meaning the spouse received $243,190 more than she should have.

The plan asked for the money back. The spouse’s administrative appeals failed. She also declined the plan’s offer to apply for a hardship reduction of the amount she would have to repay. Instead she filed suit, seeking a declaration that she was entitled to keep the money. The district court granted summary judgment to the employer.

Plan terms. The Sixth Circuit affirmed the lower court’s ruling in favor of the plan ordering the spouse to make restitution for the overpayment. The plan provides that “in the event of an error” in calculating a pension, a beneficiary must return the amount of overpayment to the fund. Further, the plan’s benefit committee has discretion to decide to reduce any overpayment amount, but it need not do so. Thus, the benefit committee did not act improperly. “Decisions that respect a plan’s terms aren’t arbitrary or capricious,” the court explained.

The court noted the spouse’s refusal to apply for a financial hardship reduction, which would have permitted her to pursue what the court described as any “the money’s gone” arguments as rationale had she been unmade to repay. But she declined to apply for one.

Equitable estoppel. The court also rejected the spouse’s equitable estoppel claim. The plan made a mistake, but no evidence showed the malfeasance that a winning estoppel argument requires. Moreover, the spouse failed to show she justifiably relied on the plan’s error. By her own account, the spouse knew the retroactive payment was too much when she accepted it. Indeed, doing her own calculations, using the correct commencement date of 2009, she had arrived at estimate of $112,000, not far off the correct amount of $108,000.

Equitable remedy. The plan filed its counterclaim for restitution under ERISA Sec. 502(a)(3)(B). The court agreed that the remedy in the case amounts to equitable restitution. The court rejected the spouse’s argument that the language of the plan authorizes a legal remedy rather than an equitable one because it uses the word “amount.” Under Sixth Circuit precedent, similar plan language, which established a plan’s right to recover overpayment but no “more money than the amount we paid you,” established an equitable lien.

Source: Zirbel v. Ford Motor Company (CA-6).

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