My colleague Kyle often brings to my attention news articles that might merit a response from us. Sometimes the article contains a factual error. Sometimes we disagree with a statement in the article and write an opposing view in a letter to the editor. Sometimes we have additional information to add.
Back in March, Kyle flagged a story in the Oakland Press about recoupment demands made by the city of Pontiac, Michigan, against 600 city retirees. The city’s pension plan had erroneously paid these retirees too much for 16 months, and now the plan was telling them to pay back the overpaid amount. Some of the retirees were told to cough up as much as $2300 – not a small amount for older Americans who are likely living on a fixed income.
I wrote to the reporter to let him know that the Internal Revenue Service had issued a revenue procedure, clarifying that pension plans are not required to seek repayment from individuals that have been overpaid (see Glimmers of hope for victims of unfair pension takebacks). Pension plans often claim that the IRS requires them to recoup, even though other steps can be taken to remedy the situation. I also pointed out that the trustees should forgive the overpayments, since the plan was significantly overfunded (150 percent!).
A few days later, the Oakland Press ran a follow-up article, highlighting the IRS guidance and quoting me. As a result of the article, the pension fund withdrew its decision to recoup the overpaid money and asked the city council to amend the plan so that the overpayment was treated as a one-time cost-of-living adjustment. The city council agreed to this measure at its July 16 meeting (see page 67 of the minutes), and in September, the move was approved by the Receivership Transition Advisory Board – the final step in the process (see pages 6-8 of these minutes).
Hurray! The retirees won’t have to pay back the money!
This case is a good example of the work that we do. Through our legal assistance work, the Pension Rights Center and the pension counseling projects that we support identified unfair recoveries of overpayments as a serious problem years ago. We informed IRS officials about the problem and urged them to act. In response, the IRS issued the revenue procedure to help mitigate the hardships caused by recoupment.
But our work on this issue isn’t over. We have made recommendations to the IRS to further protect retirees in overpayment situations, and we are getting the word out about the revenue procedure so that retirees and pension plans understand that alternatives to recoupment are available.
If you are a retiree who is facing a recoupment claim from your pension plan, make sure that the plan knows about the IRS’ revenue procedure, and read our fact sheet on recoupment. You might also be able to get help from one of seven regional pension counseling projects, which provide free legal assistance in 30 states to individuals who have questions about their pension plan, 401(k), or other employer-sponsored retirement plan. If you live in a state not served by a counseling project, you may be able to find help through our PensionHelp America online referral service.