Broad Discretion Enough to Recoup Plan Overpayments

February 28, 2007 ( - The U.S. District Court for the Eastern District of Tennessee ruled that a pension plan can recover the $70,000 it made in overpayments to a participant, who claimed that he didn't have to give back the money because the plan language did not explicitly authorize the plan to seek its repayment.

U.S. District Judge Thomas Varlan argued that the right for a plan administrator to request reimbursement for overpayments did not have to be spelled out explicitly because the plan at the U.S. Department of Energy Facilities at Oak Ridge, Tennessee gave the administrator considerable discretion – enough that allowed for the collection of overpayments.

D.H. Johnson retired from his job with Martin Marietta Energy System Inc. in January 1995, at which point he began collecting monthly pension benefits from the Retirement Program Plan for Employees of Certain Employers.

Johnson’s ex-wife was also set to get 50% of his retirement benefits that had been accrued up until the date of their divorce, per a qualified domestic relations order (QDRO) issued in 1990. The court said that Marietta miscalculated the benefits due to Johnson’s ex-wife, giving her $244 per month instead of the $825 per month she was entitled to under the QDRO agreement.  

When the company realized in 2005 that it had overpaid Johnson by $70,363, it notified him that his monthly benefits would be cut to $1,500. The notice also said that amount would be shaved even more because the company planned to take out $500 in monthly installments to recover what it had overpaid.  

Johnson filed a suit against the administrator, claiming that neither the plan nor the Employee Retirement Income Security Act (ERISA) authorized Marietta to recoup the overpayments. Johnson concedes that the plan does “confer discretionary authority on the Plan Administrator to make determinations concerning ‘benefit eligibility’ and ‘the interpretation and construction of Plan provisions,” but that the arbitrary and capricious standard of review should not apply to Marietta’s actions here, because it acted outside of its discretion in this case, according to the opinion.

Specifically, Johnson argued that:

  • Recoupment is only authorized where the ERISA plan at issue contains an explicit provision authorizing such an action, and since the Plan does not contain such a provision, defendants “may not act extra-judicially to enforce a right it does not have at law or equity….,” citing a 6 th U.S. Circuit Court of Appeals opinion.
  • The “[d]defendants do not have any general power or duty as fiduciaries to collect mistaken overpayments.”
  • The plan’s failure to specifically provide for the recoupment of overpayments must be construed against the drafter of the plan, or the defendants in this case, and that defendants should therefore be prevented from interpreting this “ambiguity” in the plan in a way favorable to them;
  • Defendants cannot collect overpayments made to plaintiff because “recoupment would be inequitable in this case” and therefore contrary to 6th Circuit precedent.

The court granted summary judgment in favor of the plan, saying that “while the Plan does not have an express provision concerning overpayments, the broad language of the Plan allows for the recoupment of overpayments by defendants,” according to the opinion.

Varlan further wrote that it is undeniable that the plain language of the Plan grants substantial power with the Plan Administrator, giving it “exclusive and final responsibility and complete discretionary authority to control the operation, management and administration of this Plan” as well as “the power to construe this Plan, to determine eligibility for benefits and to resolve all interpretive, equitable or other questions that arise under the Plan.

The case is Johnson v. Retirement Program Plan for Employees of Certain Employers at the U.S. Department of Energy Facilities at Oak Ridge, Tenn.,E.D. Tenn., No. 3:05-cv-588, 2/27/07.