PBGC proposes changes to recoupment rules for trusteed DB plans 

Overpayments can occur when PBGC begins administering a terminated plan because it can take the agency several months or years to determine final benefit amounts that reflect the application of statutory benefit limitations to participants’ accrued benefits. The agency pays estimated benefits in the interim, which may be greater or less than the final amounts. Overpayments can also occur for other reasons, for example, if PBGC is not aware of relevant plan amendments or other information when benefits were initially estimated.

When a participant is overpaid from a trusteed terminated plan, PBGC will usually attempt to recover the overpayment through an actuarially determined reduction in future monthly benefits. (PBGC calls this “recoupment” and refers to other overpayment collection methods as “recovery” and “administrative correction.”) The recoupment period ends when the overpayment is fully repaid but may end earlier if monthly benefits to the participant (and survivor, if any) cease. Participants pay no interest on overpayments, and PBGC has discretion to waive recoupment for de minimis amounts.

PBGC says the current recoupment methodology is “unclear and unpredictable” and difficult for participants to understand. The proposal would:

• Replace the current actuarial formula with a flat 5% recoupment rate
• Waive recoupment of overpayments of $250 or less
• Eliminate recoupment from surviving beneficiaries when a participant dies with an outstanding net overpayment
• Eliminate recoupment in most cases when PBGC revises the participant’s benefit

The proposal would also incorporate into the regulations PBGC’s current policy regarding use of administrative correction for certain payment errors, as well as clarifying when the agency pursues recovery instead of seeking recoupment. These changes would apply to recoupment, recovery, and administrative corrections PBGC initiates on or after the final rule’s effective date.

The SECURE 2.0 Act of 2022 includes a provision regarding the recoupment of overpayments from ongoing pension plans under ERISA Title I. Fiduciaries now have discretion not to recoup overpayments in many circumstances and must comply with several protective restrictions if they decide to proceed. PBGC notes that the SECURE 2.0 provision does not apply to PBGC or plans under its trusteeship, but the proposal’s changes generally conform to the law’s limitations. However, PBGC is considering the extent to which the new requirements interact with PBGC’s own recoupment and recovery efforts and invites stakeholder comments on how the agency should address the following situations:

• When the former plan administrator was already taking action to correct overpayments made before the plan’s termination date
• When there is a series of overpayments, some of which occurred before the plan terminated