A federal appeals court has ordered a close look at the obligation of a federal retiree to return an overpayment, and in particular whether a standard letter from OPM puts retirees on notice that they may be overpaid and would be required to return the excess if so.

The case involved a woman who retired on disability while under the FERS system, which requires an application for disability under Social Security as well. OPM instructed her to apply for those benefits, inform OPM if she was awarded them, and set them aside to pay for a required reduction in her FERS annuity in that case. Later she was awarded those benefits and notified OPM but did not set money aside; OPM meanwhile failed to adjust her FERS annuity to take the offset into account, overpaid her, and then demanded repayment.

OPM denied her request to waive the overpayment, and on appeal the MSPB agreed. However, on a next-level appeal to the Court of Appeals for the Federal Circuit, that court found that she met a “prompt notice exception” that applies to individuals who inform OPM within 60 days of an apparent excess payment.

However, guidelines also require a determination as to whether the person “suspected or knew” that she had received an overpayment, in which case the person must prepare to make a repayment. The court ordered the MSPB to decide whether she knew or suspected that she had been overpaid, and if she did not, whether the recovery of the overpayment would be against equity and good conscience.