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Volume XIII, Number 147


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SECURE 2.0: Oops! So the Employer-Sponsored Retirement Plan Overpaid?

SECURE 2.0 may cause some insecurity. However, the law’s changes to the treatment of overpayments from employer-sponsored retirement plans may replace that insecurity with relief.

In the case of overpayments, SECURE 2.0—a sweeping overhaul of private-sector retirement plan laws enacted late last year—does not require retirement plan fiduciaries to seek recovery of the overpayments from participants or their beneficiaries. That does not mean that a plan fiduciary is forbidden from seeking recovery or reducing future payments. SECURE 2.0 provides flexibility. However, past overpayments to a participant cannot be recouped from the participant’s beneficiary, including a spouse, surviving spouse, or the participant’s estate.

SECURE 2.0 sets limitations on recoupment. There cannot be any interest included in a recouped amount. For example, suppose the recoupment method is to reduce future payments for a nondecreasing periodic benefit. In that case, the reduction must cease once the amount has been recovered, the yearly recoupment amount may not exceed 10 percent of the overpayment, and the regular benefit payments may not be reduced below 90 percent of the amount allowed under the plan. The same rules apply to installments.

There is a three-year statute of limitations for recoupment. Recoupment may not be sought if the first overpayment occurred more than three years before the participant or beneficiary first received written notice of the error. If recoupment is proper, the plan fiduciary may seek litigation if there is a reasonable likelihood of success to recover an amount greater than the cost of recovery, and the fiduciary may use a collection agency if the participant or beneficiary ignores or rejects a federal or state court judgment or settlement. The secretary of the U.S. Department of Labor may determine requirements for benefits recouped by methods other than decreasing annuity benefits.

There is good news for the participant and beneficiary! The amount not sought in recoupment may be rolled over into an eligible retirement plan. The amount sought in recoupment may be contributed to the original plan and treated as a rollover. There is also good news for the employer as well. To the extent that recoupment of past overpayments is not sought, the employer is no longer required to make the plan whole. There are exceptions if there are amounts needed to restore an impermissible forfeiture for a defined contribution plan or if the overpayment would cause a defined benefit pension plan to be underfunded.

Of course, the participant or beneficiary is entitled to dispute recoupment efforts through the plan’s claims procedures.

Key Takeaways

SECURE 2.0 provides plan fiduciaries with additional options for handling retirement plan overpayments. They may seek recoupment subject to the statutory guardrails in place or choose to forgo recoupment and be able to avoid a breach of fiduciary duty, provided prudent procedures were in place to avoid overpayments. Either way, SECURE 2.0 provides flexible remedies.

© 2023, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.National Law Review, Volume XIII, Number 41

About this Author

David Rosner, Shareholder, Ogletree

Mr. Rosner devotes his practice to a variety of plan design, compliance, and administration issues in matters relating to employee benefits and related areas of tax law.  He has particular experience with benefit plan correction programs.  Mr. Rosner routinely prepares and submits filings to the Internal Revenue Service and the Department of Labor.

Specifically, Mr. Rosner’s practice focuses on tax-qualified retirement plans, including pension, profit-sharing, cash balance, and 401(k) plans, as well as on multiemployer plans and plans sponsored...

Conley J. Scott III Atlanta ERISA Attorney Ogletree Deakins

Conley J. Scott III, Esq., LL.M.T., is an associate attorney with Ogletree Deakins’ Atlanta, office. His focus is ERISA compliance and works on all types of qualified retirement plans and related issues. He is barred in the State of Georgia and admitted to practice in the Georgia Supreme Court as well as the United States Tax Court.

Conley has a wide breadth of education and will receive his Master of Divinity in 2023. Conley received his law degree from Mercer University School of Law and his Master of Taxation (LLM) from the University of...