Workers in Illinois and the Midwest may be stunned in disbelief at the notion that payments to their children from the Social Security Administration could reduce the workers’ benefits under a disability insurance policy. Most–if not all–long term disability insurance plans provided through employment and covered by ERISA contain certain offsets. The plan will calculate the monthly benefit based upon a percentage of pre-disability earnings, but then reduce those benefits if the disabled participant receives any Social Security disability benefits. Many such plans will even provide the participant with all the necessary paperwork to apply for such benefits, and in some cases even a referral to an attorney who will handle the claim before the Social Security Administration.
After commencing payment of benefits to participants, some disability insurance plans have later demanded either a refund for overpayment of benefits on account of these offsets, or withhold future payments to make up for the supposed overpayment. How could a plan demand an offset for benefits paid to somebody else, though? The answer is that it depends on the language in the plan.
Several such disability plan participants recently experienced this in Schultz v. Aviall, Inc. Long Term Disability Plan, 2011 U.S. Dist. LEXIS 37125, at *10 (Apr. 4, 2011). In that case, the plan provided the monthly disability benefit could be reduced by several different types of “deductible sources of income”, included amounts received by either the participant’s spouse or children for “loss of time disability payments because of [the participant’s] disability under [Social Security]”. Id.
There, the claimants–suing on behalf of a class of similarly situated individuals and on their own behalf–argued that Social Security payments to the participant’s children for the participants’ disability did not constitute “loss of time” payments. The court, unfortunately, disagreed. If you have submitted a claim for disability benefits, or anticipate doing so, and need advice concerning whether there may be any offsets to your benefits, consult an ERISA lawyer.