Overpaid by Your Retirement Plan? Here Are the 3 Ways the IRS Says You Can Repay It

The letter usually shows up without warning. Your pension plan says it paid you too much and wants the money back. Before you write a check, know that the IRS has a rules for exactly this situation, and it lets plans offer you more than one way to repay.

That rules is Revenue Procedure 2026-34, the IRS’s updated Employee Plans Compliance Resolution System (EPCRS), dated October 22, 2026. According to the document, a plan sponsor may let you repay by “(i) a single-sum repayment, (ii) an installment agreement, or (iii) an adjustment made to future benefit payments.”

What Counts as an Overpayment Under IRS Rules

The IRS defines an Overpayment as a payment “that exceeded the amount payable to the Overpayment recipient under the terms of the plan or that exceeded a limitation provided in the Code or regulations.” It also covers money paid out before the plan or the Code allows a distribution.

The revenue procedure also folds in Section 301 of the SECURE 2.0 Act, the retirement law Congress passed in December 2022. That section created section 414(aa), which “generally provides that no corrective payment is required for an Inadvertent Benefit Overpayment,” and section 402(c)(12), which gives those payments rollover treatment. The catch: that relief doesn’t cover failures under sections 401(a)(17), 415, and 436. Section 415 caps annual pension benefits, and it’s the limit behind the IRS’s own example below.

Three Repayment Options Your Plan May Offer

1. Single sum. Under the return of overpayment method, the sponsor “must take reasonable steps to have the Overpayment (adjusted for appropriate interest) returned to the plan” and must cut your future checks to the correct amount.
2. Installment agreement. This is the same method, paid back over time. It isn’t open to a disqualified person or an owner-employee.
3. Smaller future checks. If you get periodic payments, the adjustment of future payments method drops each check to the correct amount, then reduces it a bit more to recover the overpayment “over a period not longer than the remaining payment period.”

The key word is “may.” Your plan gets to decide whether to give you a choice. The document also says “any other appropriate correction method may be used to correct an Overpayment,” including, under certain conditions, a plan amendment that approves the past payments after the fact.

How the IRS Example Plays Out in Real Dollars

In IRS Example 21, Employee S retired and began receiving an annual straight life annuity of $290,000. The 2025 section 415(b) limit was $280,000, so an administrative error created a $10,000 Overpayment. Nobody caught it until the beginning of 2026.

The fix: future payments drop to the $280,000 cap, then shrink by another $1,000 annually for life. That’s because the actuarial present value of $1,000 a year for life equals the $10,000 plus interest. S receives $279,000 for 2026, and for each year thereafter.

Example 24 has a tax catch. The notice told S that the excess “was not eligible for tax-free rollover.”

When Your Plan Can’t Come After You for the Full Amount

• Small amounts: If the overpayment is $250 or less, the sponsor doesn’t have to seek repayment or make a corrective contribution.
• Death: If smaller checks recover less than the full overpayment “(for example, due to the death of the Overpayment recipient), the Plan Sponsor is not required to contribute any additional amount to the plan.”
• Surviving spouses: Recovery cuts to the retiree’s checks “do not reduce the amount of the spouse’s survivor benefit.”
• Shortfalls: Under the return method, if a recipient repays less than what’s owed, the sponsor or another person “(other than any spouse or beneficiary of the Overpayment recipient)” must make up the difference.

A footnote in the document adds that Section 206(h) of ERISA may limit how far a sponsor can go to recover money. This is one of a long list of IRS rules that quietly change retirement income (we mapped nine of the priciest in a free guide to the retiree’s tax traps).

Steps to Take Before You Repay a Dollar

1. Read the notice line by line. Check the principal, the interest rate, and whether it says the payment can’t be rolled over.
2. Ask which options the plan offers. Find out whether you can choose a single sum, installments or smaller future checks, and whether the error counts as an Inadvertent Benefit Overpayment.
3. Keep records. Save the notice, your payment stubs, Forms 1099-R and every repayment receipt. You’ll need them if your tax reporting has to be corrected.

Choosing between one check now and smaller checks for life changes your cash flow and your taxes, so run the numbers with a CPA before you sign anything.

Contact [email protected] for any questions or corrections.