Annuity Overpayments: What You Need to Know
Each year, insurers pay out millions of dollars on annuities that are not owed. This not only results in financial loss, but also leads to over-inflated reserves. The problem persists because it is increasingly difficult for companies making the payments to obtain timely information and to identify issues. Most cases involve life contingent payments and the failure of survivors to report the death of the annuitant, but some overpayments occur due to clerical errors even when such payments are not at issue. While in some cases those receiving the funds actually spend every last dime, others leave the monies untouched. Finding the recipients and the funds can be challenging but once connected, success in recouping the overpayment can occur even years after discovered.
Why Do Overpayments Occur?
Putting aside clerical errors, life-contingent annuities may have conservators, guardians, or trusts, and the payments are paid to those entities rather than the payees themselves. Although payments are supposed to stop at the death of the measuring life, often the annuity owners/issuers are not notified of the death(s) in a timely manner — if ever. Not all failures to report annuitant deaths are intentional.
The Social Security Administration Death Master File (DMF), which was traditionally the source for identifying deceased Americans, was amended in 2011 to remove certain protected state records for privacy concerns and restrictions. Thus, the DMF is no longer accurate and only captures a fraction of minor deaths.
How are Overpayments Identified?
Evaluating the human and automated elements of the payment process to minimize the potential for mistakes is key.
Routinely review currently paid life contingent annuity contracts. Indicia of potential overpayment situations include: notable differences in mortality rates from one period to the next; payees with rated ages that suggest survival is unlikely; chronological ages that suggest the measuring life is unlikely to be alive (e.g., payees over 85); payments being made to the same guardian, conservator or trustee for an extended period of time after the measuring life would have reached the age of majority; failure to respond, or inadequate responses, to requests for current information; and mail directed to the measuring life is returned but the checks continue to be cashed and direct deposits accepted.
Take advantage of websites that provide helpful information and consider public records, social media searches or private investigations for uncovering fraud.
Consider the National Death Index (“NDI”), a database of death record information, including dates of death concerning American citizens. Access has been expanded in recent years through regulation to include private entities with a medical or clinical research purpose for seeking the data.
The sooner the overpayments are recognized, the easier it is to recoup them. Thoughtful and carefully planned pursuit of the appropriate persons/entities can result in full recovery without much expense. Similarly, strategic affirmative litigation (and claims) can lead to full recovery plus fees, costs and interest incurred.