If a retirement plan overpays benefits, does it have a fiduciary obligation to recover the money?
Turns out the IRS has issued a Revenue Procedure (Rev. Proc. 2015-27) on the subject — and, along with a request for comments on recoupment of overpayments, provides some interim alternatives that your plan sponsor clients may find useful, should such a situation arise.
The IRS lays out two possible alternatives: retroactively amending the plan to conform to the way it was actually operated (thus making it so that the overpayment wasn’t actually an overpayment, according to the terms of the plan), or having the employer make up the overpayments.
In either case, the correction itself must still be permissible under the tax qualification rules applicable to retirement plans (such as nondiscrimination rules).
The new rules are effective July 1, 2015. However, plans have been allowed to apply them since March 27, 2015.
Remember also that overpayments can jeopardize the tax qualification of the plan — and depending on the size of the error, and how quickly it is discovered, the plan may need to file with the IRS and pay a penalty in order to avoid plan disqualification.