I was overpaid by my pension. Now I owe $67,000
Ed Cochran started receiving a monthly pension check from his union in 1995. Two decades later, he got a letter saying the fund was mistakenly overpaying him and demanded he repay $66,721.
“I literally thought I was going to have a heart attack. How was I going to come up with $67,000? I didn’t sleep all night,” Cochran told CNNMoney.
The pension fund said it miscalculated his benefit. It was paying him $1,319 a month, which was $262 more than he was owed. Cochran was never told the correct amount so he had no reason to believe the checks he was getting were too much. Not only does he have to repay what he wasn’t owed, but the fund wants the interest back, too.
Cochran is just one of 589 retirees overpaid by the Chicago-based Sheet Metal Workers Local Union No. 73 pension fund. It found the mistakes during an audit in 2010, and is now trying to recoup the $5 million it overpaid over the course of 40 years.
It’s unclear why the fund waited five years to go after the money. An attorney for the union did not respond to requests for comment.
In September, Cochran and seven other retirees filed a lawsuit, asking that the fund waive the repayment charges and continue to pay them their deserved pension benefits.
“I’ve never heard of another case where someone completely innocent is required to pay back tens of thousands of dollars,” said attorney Tim Kelly who is representing the retirees.
The fund has already reduced hundreds of checks to correct payments. Some were cut even further to make up for the overpayments, often by as much as 25%.
In Cochran’s case, that reduction isn’t enough to cover the $54,772 in overpayments and $42,464 in interest he owes. The fund actually determined he won’t live long enough to repay the full amount, so in addition to the reduced checks, he owes a lump sum of $66,721 now.
“I didn’t know what was worse: That I owe $67,000, or that they said I only have 10 years to live,” said Cochran, who is 65.
He started receiving his pension when he was injured on the job and could no longer work at age 45. Since then, he’s paid income taxes and child support based on the amounts he received.
There aren’t clear rules about what a pension fund can do to recoup money it overpaid. While it should take “reasonable steps to have the overpayment returned to the plan,” according to the IRS, the money does not necessarily have to come from the beneficiary. It can be recouped from the employer or another source instead, the IRS said in April.
“We’re trying to set a precedent here, that there are limits to what the union can do when collecting these overpayments. They don’t just have a magic wand they can wave to get extra money from people,” said Kelly.
The fund also overpaid Darrell Johnson, another plaintiff in the case, by $131 a month ever since he lost a leg in an accident and went on disability in 1999.
Since, May his monthly check has been reduced to $979 from $1,436 and the fund demands that he pay $2,080. Before the cut, that pension accounted for about one-third of his income. Johnson said he will manage OK financially, but he thinks what happened is wrong.
“If they made a mistake and told me within the first two years of retirement, I wouldn’t be against paying back what I owe them. But this went on for 14 years and they’re clawing back the money they paid and the interest, which is absolutely outrageous,” Johnson, 68, said.
“It’s like paying 8% interest on a bill you never thought you accrued,” he said.
Retirees do have the right to appeal. Both Johnson’s and Cochran’s appeals were denied.
The Sheet Metal Workers Union pension fund is not the first to have overpaid retirees.
Due to a clerical error, John Musso was overpaid $158 a month for 20 years by the local electricians union fund in Louisiana. In May, the fund stopped paying him his monthly benefit altogether and demanded he repay a total of $55,257 to cover the remaining balance.
The fund says that Musso, 79, was notified of his correct benefit amount and should have been aware of the error.
“I’m not saying they didn’t send the letter. I probably did receive the letter, but I just don’t remember,” Musso said.
If he can prove that the repayment would create a financial hardship for him, the fund said it will waive everything except for $5,147. It would still discontinue his monthly benefit check.
But Musso doesn’t want to hand over financial information.
“What I make a month should have no bearing on this case whatsoever,” he said. “They should accept responsibility for their mistake.”