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Compliance September 2, 2015
Court Questions Ability to Recover Pension Overpayments
Questions about whether funds can be identified in the participant’s possession and when the statute of limitations started to accrue have pushed forward an ERISA lawsuit.
Reported by Rebecca Moore
A federal district court judge has moved forward certain claims brought by a plan sponsor against a retired plan participant from whom it is seeking recovery of pension overpayments.
U.S. District Judge Catherine D. Perry of the U.S. District Court for the Eastern District of Missouri, concluded that Pfizer’s Employee Retirement Income Security Act (ERISA) claims for restitution and unjust enrichment survive to the extent they seek to recover specifically identifiable funds (or the traceable proceeds of such funds) in Virginia V. Weldon, M.D.’s possession and control. She dismissed state-law claims as preempted by ERISA.
Perry denied Weldon’s summary judgment motion to dismiss the case, which alleged the claims were time-barred by ERISA statutory limitations. The court decided “genuine disputes of material fact remain as to when the cause of action accrued, and whether plaintiffs’ delay in bringing their claims was unreasonable.”
Perry cited the U.S. Supreme Court ruling in Great West Life & Annuity Insurance Co. v. Knudson, in which the high court determined that for purposes of restitution in equity, a plaintiff could seek to impose a constructive trust or equitable lien on money or property identified as belonging in “good conscience” to the plaintiff and that could be clearly traced to particular funds or property in the defendant’s possession. A court of equity would then order a defendant to transfer title or give a security interest in the property to the plaintiff, who was considered the true owner. However, “where the property sought to be recovered or its proceeds have been dissipated so that no product remains, the plaintiff’s claim is only that of a general creditor” and no equitable lien or constructive trust can be imposed. “Thus, for restitution in equity, the action generally must seek not to impose personal liability on the defendant, but to restore to the plaintiff particular funds or property in the defendant’s possession.”
Perry rejected Weldon’s assertion that Pfizer’s claim must be dismissed because it has failed to identify the location of the specific funds sought, concluding that identification of the location of the funds is not necessary at the pleading stage.
Pfizer had charged that, by refusing to repay the overpayment, Weldon violated the terms of the plan. However, Perry noted that Pfizer did not identify a plan provision requiring repayment by Weldon of any benefit overpayments. “Although the terms of the plan may be referenced to show that Weldon was overpaid and to determine the amount of the overpayment, without a specific provision requiring repayment, it cannot be alleged that Weldon is violating a plan term,” she wrote in her opinion.
Concerning the statute of limitations on the ERISA claims, neither party disputed that a five-year statute of limitations applies, but they disagreed about when plaintiffs’ claims accrued. In 2006, Weldon had reported to Fidelity, which was responsible for distributing payments, that she thought she was being overpaid, but a Fidelity representative told her she was not. It wasn’t until a reconciliation in 2009 that Fidelity discovered Weldon had been overpaid and contacted Pfizer about it. Pfizer filed the lawsuit in 2014. Perry denied Weldon’s motion for summary judgment based on the statute of limitations because disputed issues of material fact remain as to the time of accrual.
NEXT: The case
When Weldon retired she elected to receive her pension benefits in set monthly payments over a period of three years. In 2006, after the plan benefits had been fully paid over the specified three years, the monthly payments continued to arrive.
Weldon and her financial adviser brought the payments to the attention of Fidelity, which the company had contracted to address, among other things, customer questions about pension payments. A Fidelity representative told them that Weldon had selected a single life annuity and would receive payments for the rest of her lifetime. The opinion noted that after this assurance, Weldon significantly bumped up contributions she made to charities.
Plaintiffs Pharmacia Corporation Supplemental Pension Plan and Pfizer, Inc. alleged that Weldon should be required to reimburse them for more than $1.3 million in pension distributions that they mistakenly paid to her.
In September 2009, Fidelity was working on a reconciliation project between its historical records system and its disbursement system, and discovered that Weldon’s benefit payments had mistakenly been paid to her since January 2006. It notified Pfizer, which told Fidelity to stop making the mistaken payments.
Pfizer sent a letter to Weldon notifying her of the overpayment and requesting that she reimburse more than $1.3 million to the plan. Correspondence between Weldon and her attorney and Pfizer continued for several years.
The plan and Pfizer brought suit in 2014, asserting a variety of claims under ERISA and state law.
The opinion in Pharmacia Corporation Supplemental Pension Plan and Pfizer v. Weldon is here.