It is not an issue that arises every day, but it is worth exploring an employer’s remedies when it contributes too much into an ERISA plan. A recent decision in the 8th Circuit, Greater St. Louis Const. Laborers Welfare Fund v. Park-Mark, Inc., 700 F.3d 1130 (8th Cir. 2012), provides an opportunity to do so.

ERISA expressly provides a limited period in which an employer can recover a contribution made under a mistake of law or fact. 29 U.S.C. § 1103(c) permits recovery within one year from the date of a payment to a single employer plan, or six months after the plan administrator determines a mistake was made in the case of a multiemployer plan.

Outside of the statutory remedy, it has long been recognized that that an employer has a federal common law action for restitution of mistakenly made payments to an ERISA plan. See Young Am., Inc. v. Union Cent. Life Ins. Co., 101 F.3d 546, 548 (8th Cir. 1996); UIU Severance Pay Trust Fund v. Local Union No. 18–U, 998 F.2d 509, 512–13 (7th Cir.1993); Whitworth Bros. Storage Co. v. Central States, S.E. & S.W. Areas Pension Fund, 982 F.2d 1006, 1016 (6th Cir.1993); Jamail, Inc. v. Carpenters Dist. Council, 954 F.2d 299, 304–05 (5th Cir.1992); Kwatcher v. Massachusetts Serv. Employees Pension Fund, 879 F.2d 957, 966–67 (1st Cir.1989); Plucinski v. I.A.M. Nat’l Pension Fund, 875 F.2d 1052, 1053, 1057–58 (3d Cir.1989); Dumac Forestry Servs., Inc. v. International B’hood of Elec. Workers, 814 F.2d 79, 82–83 (2d Cir.1987).

Just because a cause of action exists, however, does not necessarily mean that an employer has an easy road to recovery of an overpayment.

In Park-Mark, the employer agreed to make monthly contributions to the health and retirement funds administered by the Laborers’ Union (“Funds”).  The parties had been involved in litigation over unrelated issues for several years when, in February 2010, counsel for the Funds notified Park–Mark that it discovered Park-Mark had made almost $550,000 in overpayments to the Funds from 2004 through 2009. The Funds refused to refund the overpayment or provide a credit; Park–Mark stopped making payments to the Funds for a period; the Funds sued to collect the missed payments; and Park-Mark asserted a setoff defense and a restitution counterclaim. The district court rejected Park-Mark’s defense and counterclaim, and the 8th Circuit affirmed.

The court began by noting that the Funds had acknowledged Park-Mark had sufficiently established that it made excessive contributions under a mistake of fact or law. But, it stated, a refund does not automatically follow proof of a mistake: “[r]ather, Park–Mark must demonstrate that restitution is equitable.” The court then listed five  non-exclusive factors to consider in analyzing whether restitution is equitable:

(1) Are the contributions the sort of mistaken payments that equity demands be refunded?

(2) Has the employer delayed bringing this action for so long that laches, or some other equitable defense, bars recovery?

(3)  Has the employer, by continuing the payments for years without apparent question, somehow ratified past payments? and

(4) Can the employer demonstrate that the Funds would be unjustly enriched if recovery were denied?

(5) Was the Fund’s decision not to refund the payments, or its procedures for evaluating a refund, arbitrary and capricious?

The court found that these factors lined up almost uniformly against Park-Mark’s claim for a refund.

First, equity did not demand a refund, because there was evidence that the overpayments had been credited to Park-Mark’s employees’ pensions. The court found that Park-Mark could be considered to have received a benefit by virtue of these contributions, “because the greater pension and welfare benefits [may] reduce the employees’ demands for higher wages.” The court did not find the Funds’ evidence on this point to be overwhelming, but ruled that Park-Mark had not submitted evidence to rebut it.

Next, the court found that Park-Mark had delayed bringing the claim from 2004, when it made the first overpayment, until 2010. The court described this delay as “inexcusable,” explaining that the mistake was really Park-Mark’s fault because the collective bargaining agreement “unambiguously” defined what payments needed to be made. The court held that the delay “prejudiced the Funds who are placed in the position of attempting to unwind six years of payments by trying to calculate whether Park–Mark’s employees truly received benefits from the payments.”

Third, addressing the ratification factor, the court held that this did not favor either side, even though Park-Mark had unquestionably authorized the overpayments for five years, because it had done so by mistake.

Fourth, the court held that Park-Mark did not establish that the Funds had been unjustly enriched, because it did not refute the Funds’ evidence that the overpayments purchased benefits for Park-Mark employees.

Finally, the court found that it was not arbitrary and capricious for the Fund to retain the overpayments, because the Funds had investigated the matter and determined that refunding the overpayments would negatively impact the pension credits that Park-Mark’s employees had accrued.

In finding that the Funds’ decision was not arbitrary and capricious, the court declined to follow the rule in several other circuits, including the 2d, 3d, 6th and 10th. Those circuits have held that a fund acts arbitrarily and capriciously in denying a refund unless the refund would undermine the fund’s fiscal stability. Whitworth Bros. Storage Co. v. Cent. States Se. & Sw. Areas Pension Fund, 982 F.2d 1006, 1016 (6th Cir.1993); Dumac Forestry Services, Inc. v. International Broth. of Elec. Workers, 814 F.2d 79, 83 (2d Cir.1987); Plucinski v. I.A.M. National Pension Fund, 875 F.2d 1052, 1053 (3rd Cir.1989); Peckham v. Board of Trustees of International Broth. of Painters and Allied Trades Union and Industry National Pension Fund, 719 F.2d 1063 (10th Cir.1983). These courts typically argued that allowing employers to more easily recover mistaken overpayments would discourage employers from underpaying their contributions. See, e.g, Kwatcher v. Mass. Service Employees Pension Fund, 879 F.2d 957, 966 (1st Cir.1989) (“In the long run, penalizing employers for undercontributing, while refusing to refund their excess contributions, could frustrate ERISA’s goal of expanding pension plan coverage”).