Overpayment of retirement benefits

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Latest post 02-08-2013 8:00 PM by Drew. 12 replies.
  • 06-10-2011 1:51 PM

    • GLNV
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    Overpayment of retirement benefits

    I have been retired for 16 years.  My previous employer has notified me that they have overpaid my retirement benefit for the past 6 years.  They have given me a choice (in writing) of writing a check for the full amount of the alleged overpayment or accepting a reduced retirement benefit for the duration of my life.  They have not answered my written questions regarding the taxes that I have paid in good faith on the funds in question.  It appears they expect me to accept the loss caused by their errors and sloppy management.  They have also not answered my written questions to identify the legal authority which allows them to recoup losses produced by their negligence in the previous 6 years.

    If I accept the reduced retirement benefit, and I live past the actuarial age, I could pay them far more than the amount of the alleged overpayment.  If I die early, there is no indication that they would not pursue their recovery action against my estate.  Clearly this is a poor set of choices.  The employer's letter also makes the reduced-benefit-for-life the default option in the event the retiree does not make a selection.

    Since they have the control and write the pension checks, it appears their plan is to just reduce the monthly payout and stonewall any questions they receive.

    Can the employer recover their errors when they are 6 years old?

    Can the employer legally ignore the taxes paid by the retiree?

    Can the employer demand an open-ended repayment plan that potentially recovers more than their error?

  • 06-10-2011 3:10 PM In reply to

    Re: Overpayment of retirement benefits

    GLNV:

    Can the employer recover their errors when they are 6 years old?

    Yes. All he has to to is do it. If you don't litigate the issue, he gets away with it.

    GLNV:

    Can the employer legally ignore the taxes paid by the retiree?

    Yes. The taxes are not his concern. If you return the overpayment you can make an adjustment in your current year taxes or file amended returns for previous years. You'll have to check with a CPA to see how that gets done.

    If you take the reduction in future payment, you get less money and pay less taxes but you still got the money in the past that you paid the taxes on.

    GLNV:

    Can the employer demand an open-ended repayment plan that potentially recovers more than their error?

    Yes. He can demand that you wear green socks and stand on your head.

    What you do about it is what counts.

    If there is a lot of money involved it would be a good idea to consult an attorney. Your employer might be convinced by an attorney to let things slide or face costly litigation.

     

    • The right of the people 
    • to keep and bear arms,
    • shall not be infringed.
  • 06-11-2011 12:36 AM In reply to

    • GLNV
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    Re: Overpayment of retirement benefits

    Adjuster Jack-

    Thanks for the prompt and concise response.  I am not sure how many other retirees from this employer are in this situation, but I suspect the number is quite large.  The company has thousands of retirees and the file identification code for the letter I received indicated it was for the L-M section of the alphabet.

    I suspect this may have the potential of becoming a large class-action law suit.

    Thanks again for your comments.

    GNLV

  • 06-11-2011 4:17 AM In reply to

    • LG81
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    Re: Overpayment of retirement benefits

    adjuster jack:
    If you return the overpayment you can make an adjustment in your current year taxes or file amended returns for previous years. You'll have to check with a CPA to see how that gets done.

    Although I am a CPA, I haven't specialized in taxes in fifteen years.  However, I'm about 80 percent sure that OP would not be able to file an amended return for the prior years since OP did receive the money in those years and therefore owed the taxes.  Additionally, the SOL for filing an amended return in order to receive a tax refund is generally three years from the due date of the original return.

    OP - I recommend speaking with an attorney and have him review your situation and your pension plan documents, especially if it was a defined benefit plan.  As you well articulated, the reduction in all future payments in order to repay the overpaid amount could cause you to repay far more than was originally overpaid.  In my opinion, the employer should have made the reduction for the period it would take to repay the amount (with the possible factoring in the time value of money).

    One thing an attorney could also advise you on and possibly help you negotiate is the tax issue.  While it's true, the taxes are not the employer's concern, it did cause a situation for you and others affected.  An attorney may be able to negotiate (but there's no gaurantee) something that would make you whole.  I don't know what all options may be available there.  I've been through several corporate relocations.  In each case, my employer has grossed up the taxable portion of the relocation benefit so that I am made completely whole.  Of course, the employer did not have to do that, but it is something they offer to make the package attractive.

  • 06-11-2011 11:30 AM In reply to

    Re: Overpayment of retirement benefits

    LG81:

    Although I am a CPA, I haven't specialized in taxes in fifteen years.  However, I'm about 80 percent sure that OP would not be able to file an amended return for the prior years since OP did receive the money in those years and therefore owed the taxes.  Additionally, the SOL for filing an amended return in order to receive a tax refund is generally three years from the due date of the original return.

    This might be a potential answer for the OP if the overpayment is paid back in a lump sum:

    • "If the repayment occurs in a subsequent year, then the participant is entitled to a deduction under section 165(a) because the amount of the overpayment is attributable to compensation for services rendered to the employer. The deduction is allowed in the year of the repayment, but only if the taxpayer itemizes his deductions. If the amount of the excess distribution exceeds $3,000, the rules of section 1341 would apply in determining the taxpayer's income tax liability. The deduction under section 1341 is not subject to the two percent adjusted gross income floor."

    I don't know how current or accurate that is but it refers to sections of the tax code so it shouldn't be too difficult for the OP to follow up on.

    • The right of the people 
    • to keep and bear arms,
    • shall not be infringed.
  • 06-11-2011 12:00 PM In reply to

    Re: Overpayment of retirement benefits

    adjuster jack:

    This might be a potential answer for the OP if the overpayment is paid back in a lump sum:

    • "If the repayment occurs in a subsequent year, then the participant is entitled to a deduction under section 165(a) because the amount of the overpayment is attributable to compensation for services rendered to the employer. The deduction is allowed in the year of the repayment, but only if the taxpayer itemizes his deductions. If the amount of the excess distribution exceeds $3,000, the rules of section 1341 would apply in determining the taxpayer's income tax liability. The deduction under section 1341 is not subject to the two percent adjusted gross income floor."

    I don't know how current or accurate that is but it refers to sections of the tax code so it shouldn't be too difficult for the OP to follow up on.

    Unless the poster is a tax attorney, chances are just reading § 165 and § 1341 alone would mean nothing; indeed, it would likely not make a whole lot more sense to most folks than reading Greek. However, the problem is a "claim of right" issue, which is what § 1341 addresses. I don't really see that § 165, which provides for deductions for losses, applies here at all. Not having read whatever it is that you got that paragraph from, I can't say whether it's correct in the context it was provided.

    But the basic approach here is that the repayment of previous overpayment is dealt with as a deduction on the return for the year the repayment is made, not as an amended return for the year the OP received the overpayment. The issue that arises, however, is that the taxpayer may have been in a higher tax bracket when the income was received than he is in the year he makes the repayment. In that case, the taxpayer loses out with just a regular deduction because deducting income taxed a lower rate than the rate that applied to the previous overpayment means that the taxpayer has paid in the end more tax than he should.

    For example, suppose Amy received a $10,000 pension overpayment in 2006. During that year, while the economy was still booming, she had a lot of income, and thus her marginal tax rate that year was 31%. Her $10,000 overpayment thus means that she paid $3,100 tax on that overpayment. Then, in 2010, the pension administrator discovered the $10,000 overpayment and demands Amy pay it back. She does so in 2010. But in 2010, her income was lower and she was in the 28% bracket. A $10,000 deduction would result in reducing her 2010 tax by only $2,800. Thus, in the end she's paid $300 more in tax because she received $10,000 she never should have received in the first place. The right outcome would be to give her a deduction or credit that saves her $3,100 to put her back where she would be if she had never received the overpayment.

    This is the problem that § 1341 addresses. If the amount that is subject to the claim of right doctrine (a repayment this year of income received in an earlier year that the taxpayer appeared to have the right to receive at the time) exceeds $3,000, then Amy can use § 1341 to get a deduction worth $3,100 in 2010 to get the right result. The actual mechanics of the provision are more complex, but this is the big picture of the end result.

  • 06-11-2011 3:34 PM In reply to

    • Drew
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    Re: Overpayment of retirement benefits

    Odd--the statutue of limitations for a written contract mater is 6 years in NV and firm is seeking to correct back 6 years--makes one wonder how long this has been going on.

    They  say you were over paid--can they prove it--do thier facts seem to line up.

    If management  delierately overstated retirement benefits back them so as to induce retirements I'm not so sure its a slam dunk to change them now?

    If other are involved I'd dig as to a collective view via counsel beforea I agreed to anything

     



  • 06-12-2011 6:50 PM In reply to

    • GLNV
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    Re: Overpayment of retirement benefits

    Thanks to all who have been responding.  In light of the comments, let me add some additional information. I retired in 1995 at age 55.  The retirement plan I am in was supposed to provide an "increased payment" until age 65 when Social Security payments began and then a reduced benefit thereafter, thus providing a somewhat "flattened" retirement income.  10 years after I retired the benefit should have been reduced, but wasn't. Because of what appears to be poor management and dereliction of their fiduciary responsibilities the employer failed to reduce the benefit for me and some undisclosed number of other retirees.  Frankly, after receiving 10 years of direct-deposit payments and never receiving a retirement plan statement, in addition to being caught up with the life issues of family members passing, children marrying, selling houses, moving, getting married, etc., the retirement payment was not even on the list of things for me to think about when I turned 65.

    I have no problem returning any funds that were erroneously paid to me.  What I am unwilling to accept is the attitude of the employer that the employee must eat the loss of the taxes paid in good faith as a result of the employer's errors and dereliction.  I also cannot accept the employer's open-ended repayment scheme where he will receive repayment that may exceed the amount of his error and/or possibly go after the retiree's estate after death.

    In my case, their recovery efforts are for 6 years because I turned 65 in 2005, but I have no reason to not believe that there are other retirees who go back even further. 

  • 06-12-2011 8:20 PM In reply to

    Re: Overpayment of retirement benefits

    Drew:

    Odd--the statutue of limitations for a written contract mater is 6 years in NV and firm is seeking to correct back 6 years--makes one wonder how long this has been going on.

    What does the statute of limitations have to do with anything. A statute of limitations is a deadline for filing a lawsuit. The employer is not suing anybody. All he's doing is reducing the benefit to make up for the overpayment. He can go back 50 years if he wants to. He's not filing a lawsuit so there's no limit on how much of an adjustment he can make.

    If he does it wrongly and the employee wants to file a lawsuit to stop it, then the employee's deadline for filing will be subject to the statute of limitations starting from now.

    • The right of the people 
    • to keep and bear arms,
    • shall not be infringed.
  • 06-12-2011 8:31 PM In reply to

    Re: Overpayment of retirement benefits

    GLNV:
    In light of the comments, let me add some additional information. I retired in 1995 at age 55.  The retirement plan I am in was supposed to provide an "increased payment" until age 65 when Social Security payments began and then a reduced benefit thereafter, thus providing a somewhat "flattened" retirement income.  10 years after I retired the benefit should have been reduced, but wasn't

    Wonderful.

    Leave out the most important piece of information. That you KNEW that the reduction would occur when you were 65 and just kept on collecting the full amount when it didn't occur.

    GLNV:
     Frankly, after receiving 10 years of direct-deposit payments and never receiving a retirement plan statement, in addition to being caught up with the life issues of family members passing, children marrying, selling houses, moving, getting married, etc., the retirement payment was not even on the list of things for me to think about when I turned 65.

    Same old song. Nobody sent me a bill. Nobody told me I owed. Then complain when "nobody" catches up with you and wants the money back.

    GLNV:
    I have no problem returning any funds that were erroneously paid to me.

    Then write a check.

    GLNV:
    I am unwilling to accept is the attitude of the employer that the employee must eat the loss of the taxes paid in good faith as a result of the employer's errors and dereliction.

    You've already been explained the tax aspect. One way or the other you don't actually lose the tax money.

    GLNV:
    I also cannot accept the employer's open-ended repayment scheme where he will receive repayment that may exceed the amount of his error and/or possibly go after the retiree's estate after death.

    Then write a check for the full amount owed and be done with.

    You really don't have the "I don't accept" option.

    Your choices are to pay it back in full or the employer will do it for you by reducing your benefits.

    Now that you've explained that you've known about the overpayment for 6 years, he's well within his rights.

    GLNV:
    I have no reason to not believe that there are other retirees who go back even further. 

    What's happening to anybody else has nothing to do with you.

     

    • The right of the people 
    • to keep and bear arms,
    • shall not be infringed.
  • 02-08-2013 5:04 PM In reply to

    • Olddog
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    Re: Overpayment of retirement benefits

    Read this post and wondered what the outcome was. I find myself in a similiar situation. My retirement was split by two companies. Both give me benitefits per month. I was notified that second company overpaid me a bridge to 62. I was overpaid 6 yrs and now they want the money back. I was under the idea that the 1st company paid me the bridge cause I was grandfathered with benefits like health with them. Anyway I'm curious as to to how your routine worked out. I can't pay back the money unless they take it out of my future payments. Is a lawyer needed to work out tax issues? Any comment would be helpful.I'm on limited income and have to save up for a lawyer..The bank people who called me said it was their mistake.

  • 02-08-2013 5:10 PM In reply to

    Re: Overpayment of retirement benefits

    It seems the thread was fairly no-nonsense and pretty clear.

    You don't need a lawyer to deal with tax issues; you consult with a tax professional, even if that's one of the few basic companies out there that do commercials.

    I wouldn't presume some staffer from some bank saying "it was their mistake" is meaningful; that's grasping at straws.  Mistake doesn't equal liability if that's where the mind wanders.  If you'd mistakenly overpaid X person Y amount, that doesn't mean you're not entitled to the money back when you figure it out (and you're not Z concern with possibly millions of payees).  Bottom line is that claiming not to know the terms of one's pension and assuming if checks continue to come that they're earned is, as you're finding, a dangerous thing.  It sounds like you need to ponder a different/additional income stream.

  • 02-08-2013 8:00 PM In reply to

    • Drew
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    • Joined on 03-30-2000
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    Re: Overpayment of retirement benefits

    You post is quite unclear on what basis the firm claims you were overpaid..we're flying in a big fog.

    Adjusterjack and I disagree as to statutue of limitations..but if and when the fog lifts Im still of the lay view that you may have a viable defense to raise as to incorrect paymentents  older than the statutue of limitations as of the date of any court action in CA..4 years probably



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