PBGC Amends its Policy for Recouping Benefit Overpayments
FOR IMMEDIATE RELEASE
May 28, 1998
The Pension Benefit Guaranty Corporation (PBGC) has amended its policy for recoupment of benefit overpayments to ensure that no participant will repay more than the actual amount of the overpayment.
"This change will make sure that participants and beneficiaries never pay more than they owe," said PBGC Executive Director David M. Strauss.
In order to avoid any interruption in benefit payments, when PBGC takes over a pension plan it pays estimated benefits until it determines the exact amounts due under the law. Because these are estimated benefits, overpayments and/or underpayments may result.
PBGC recovers overpayments by reducing future monthly payments. To avoid financial hardship for the recipients, the reduction is usually no more than 10 percent of the monthly benefit. Under previous rules, this reduction was permanent, making it possible that in some cases repayments could exceed the amount of the overpayment.
Under the change, which is effective with its publication in the May 29, 1998 Federal Register, the monthly benefit reduction will end once the overpayment has been repaid, without interest. In cases where the overpayment has already been repaid, monthly benefits will be adjusted, as of the May 29 effective date.
The amendment also changes the way PBGC calculates the amount to be recouped or reimbursed in situations where participants have received both underpayments and overpayments, and increases the interest rate PBGC uses when it makes up underpayments. The new method ensures that a participant or beneficiary will never be charged interest on an overpayment.
Comments on the proposed changes, which were published last December, were received from two organizations: the American Association of retired Persons (AARP) and the Association of Former Pan Am Employees (AFPAE). Both commended PBGC for its action.
The changes follow closely those that were proposed, with just minor modifications.
PBGC is a federal agency created by the Employee Retirement Income Security Act of 1974 to guarantee payment of basic pension benefits earned by workers. It covers some 42 million American workers and retirees participating in about 45,000 private-sector defined benefit pension plans. The agency receives no funds from general tax revenues. Operations are financed largely by insurance premiums paid by companies that sponsor pension plans and by investment returns.
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PBGC No. 98-26