ERISA plans offset other benefits, like SSDI benefits and workers’ compensation benefits, which can cause very unfortunate results for unweary claimants. An ERISA disability benefit plan is a contract, written by an insurer and chosen by an employer to offer as a benefit to employees. Employees who join the plan have entered into a contract. Insurers write into that contract offset provisions that allow them to deduct just about everything from what they would have to pay a beneficiary who becomes disabled. One of them allows the plan to offset “profits from any speculating on personal property that results in the locating and extracting for profit any precious metals or other commodities, as, for instance, in the case of the Beverly Hill Billies.” Okay, I made that one up, but they typically can offset SSDI awards, workers’ compensation benefits, veterans’ benefits and many others. As I will explain, these offset issues can set an ERISA claimant up to lose a case in court and then owe money back to the plan.
Here is what can happen: A person who applies for SSDI benefits may have to wait many months before an award of benefits. When an award is made, it is typically made retroactive to the date that the person became disabled, usually about the time that the person stopped working. Social Security does not pay benefits for the first five months of disability, but will send the person a retroactive benefit check for the time after the five-month waiting period up to the day of the award to catch the person up. Let us say that the person is also receiving ERISA disability benefits during some or all of this time as well, but has since had her ERISA benefits terminated, and has exhausted her administrative remedies. She now wants to sue in federal court to have those benefits reinstated.
You see the problem: The person sues in federal court to have her benefits reinstated. The plan counterclaims, asking the court to order her to repay the retroactive Social Security award under the terms of the plan. If the court upholds the denial of ERISA benefits, it will no doubt order the repayment of retroactive benefits, since there is no question that the person owes the benefits. And viola! A lawyer who sued a plan to reinstate benefits for a client now has to explain to his client that not only did she not get her benefits back, but now she owes money to the people who cut off her benefits.
If it was a relatively small amount, say less than $5,000, the plan likely would not have spent the time and money to sue for the money back in federal court. But since the person dragged the plan into court in the first place, the plan can countersue without much added expense. Given the difficulty of prevailing in an ERISA litigation, lawyers and potential clients have to consider the possibility that filing suit could cost the client money, a perverse result, and not a fun one to have to explain to a client or to experience as an already disgruntled denied beneficiary.