This development sounds like a good thing for plan sponsors.
Sponsors after all, do not want to have to chase down typically small overpayments or subject former employees (who have relied on the benefit calculations of the plans’ service providers) to the hardship of returning to the plan years of overpayments.
But plan sponsors opting for the contribution (in lieu of recoupment) approach should exercise caution.
In fact, making a contribution without first seeking recoupment is problematic. Arthur A. Marrapese, III, Employee Benefits Practice Leader of the law firm of Hodgson, Russ in Buffalo, New York remarks “ the prudent person rule requires a fiduciary to attempt to collect an overpayment.
The minimum effort and process that is required.
This effort should include, at a minimum, notice to the participant of the determination to collect overpayments and of the participant’s right to dispute the determination under the plan’s regular claims procedures, but would not necessarily include litigation.” Mr. Marrapese also warns “failure to seek recoupment could set a bad precedent in future overpayment situations.”
Failure to seek recoupment may also have a negative impact on the plan’s ability to achieve recovery from the service provider whose miscalculations caused the overpayment.
Summing it Up
A “make the plan whole” contribution should be preceded by an effort to recapture the overpayments that is well documented, applies the rules of the plan uniformly and consistently, and provides participants with their full ERISA rights. Such an approach will be consistent with one’s fiduciary obligations and protective of the plan’s ability to recover overpayments from plan service providers.