Every once in awhile, an employee’s benefit claim gets overpaid by the plan carrier. What are the plan sponsor’s rights in these situations?

It’s often legal for the plan sponsor or insurer to attempt to recover the money. In increasing order of difficulty, it’s possible to recoup overpayments by any of the following methods:

• negotiating a monthly repayment plan with the employee (usually via wage deduction)
• billing statements from the carrier to the employee
• deductions from future benefits until the overpayment is satisfied
• referral to a private collection agency or state revenue department
• intervention in workers’ comp or unemployment benefit claims
• court-ordered wage garnishments
• contesting state income or property tax refunds, and/or
• liens filed on property.

As you move toward the higher end of the scale, seeking repayment may cost you more than it’s worth.

Real-life example

Two years ago, the U.S. Supreme Court made it a bit easier for ERISA plans to recover overpayments. What happened: After a serious car accident, an employee received $75,000 in disability benefits to cover medical expenses.

The employee sued the other party involved in the accident and collected $750,000 for medical fees, plus damages. The employer’s plan asked for its original $75,000 back, since the beneficiary’s medical expenses were covered by the other judgment.

The employee refused, and the plan sued to recover the money out of the other settlement. The Supreme Court gave the OK, because the plan documents spelled out the possibility of seeking recovery.