Retirement and Pensions: What is Recoupment?

When a pension plan realizes that it has made a mistake and has been overpaying a retiree, it typically reduces the retiree’s future monthly payments to the correct amount and then seeks to recover—or recoup—the amounts that have been overpaid. The plan recoups by reducing the retiree’s future monthly payments even more, by demanding a lump-sum repayment, or both. In extreme cases, monthly benefits are reduced to zero until the overpaid amount has been fully recovered. In addition, plans may charge interest on the overpayment.

Since overpayments are often made for many years before the plan realizes that a mistake has been made, the amounts demanded by the plan can be very large. There is typically no warning to the retirees before they receive the recoupment notice, and no formal process for challenging the plan’s action. 

If you receive an overpayment notice from your pension plan, don’t panic. Check the plan’s new calculation. Make sure that the pension plan administrator knows that the IRS does not require plans to recoup overpayments. 

Seek help! There may be a pension counseling project, legal services provider, or government agency that can: 

• Help you check the plan’s calculation
• Help you file a hardship waiver, which may require writing a letter or filling out a complicated form that is several pages long
• Negotiate with the plan on your behalf for a less burdensome repayment schedule, if your hardship waiver is denied
• Advise you whether the plan is likely to sue you if you do not respond to a demand for repayment of a lump sum. (In many cases, a lawsuit would not be worth the cost to the plan.)
• Call the Pension Rights Center at 888-420-6550 or the South Central Pension Rights Project.

See What Is Recoupment? by the Pension Rights Center.

Plans can always reduce future benefits to the corrected amount. However, in some instances, there are limits to the additional benefit reductions that the plan can make.

See What Is Recoupment? by the Pension Rights Center for more.

For fact sheets, legislative and regulatory summaries, statements, letters, friend-of the court briefs, statistics, etc., visit the Information Center section of the Pension Rights Center's website.