legal & legislative reporter
Court Upholds Disability
Offset by IRA Rollover
T
Disability
Benefits
62
he United States Court of Appeals for the
Ninth Circuit affirms a plan administrator’s decision to reduce the plaintiff ’s long-term disability benefits by the amount of a lump-sum rollover
to the plaintiff’s individual retirement account (IRA).
The plaintiff participated in the defendant company’s pension benefit plan (the pension plan) and
its disability benefit plan (the disability plan). In
February 2005, the plaintiff stopped working because of a disability. He began receiving long-term
disability benefits under the disability plan. In
October 2005, after termination of his employment,
the plaintiff chose to roll over his benefits under the
pension plan to an IRA. The pension plan administrator sent the plaintiff a check for a lump-sum
amount, payable to the trustee of his IRA.
In August 2008, the plan’s claims administrator
determined that the plaintiff ’s benefits under the
disability plan should be reduced by the amount of
the IRA rollover. The disability plan provided that
long-term disability benefits would be “reduced by
. . . pension benefits you may receive from any [defendant] company pension plan.” The plaintiff protested the reduction, arguing that he had neither
“received” nor been “actually paid” the pension
benefits. He contended that the pension benefits
had been deposited directly into an IRA, which
imposed restrictions on his access to the funds, including substantial penalties for early withdrawals.
The claims administrator upheld its decision by
concluding that the plaintiff received his pension
benefit for purposes of determining his disability
benefit. The claims administrator interpreted the
election to take benefits from the pension plan “as
having been actually paid to the participant.” The
plaintiff initiated an action seeking benefits due,
and the district court granted the defendant’s motion for summary judgment. The district court concluded that the claims administrator’s decision was
entitled to deference under the terms of the disability plan, and its interpretation of the plan was not
unreasonable. The plaintiff then filed this appeal.
benefits magazine november 2012
The Ninth Circuit first considers the plaintiff ’s
argument that the district court improperly applied the abuse of discretion standard of review.
The plaintiff maintains that heightened or de novo
review is required because the claims administrator (1) was biased, (2) provided inconsistent reasoning for its denial and (3) engaged in procedural
misconduct. Regarding the plaintiff ’s bias claim,
the Ninth Circuit agrees with the district court’s
assessment that there is no inherent or structural
conflict of interest for the claims administrator.
The court notes that the disability plan is funded
by the employer, not the claims administrator.
With no conflict of interest, the court finds no
bias by the claims administrator. The court also
dismisses the plaintiff ’s claims of inconsistent
reasoning and procedural misconduct. The Ninth
Circuit finds these claims without foundation and
determines that the district court was correct to
apply the abuse of discretion standard.
The Ninth Circuit then considers whether the
district court properly applied the abuse of discretion
standard. The court notes that under this standard,
the plan administrator’s determination “will not be
disturbed if reasonable.” Upon review of the disability plan and the summary plan description, the
court finds that the documents mandated an offset
for any retirement benefit that was (1) elected as a
cash out, (2) paid to the participant or (3) received by
the participant. The court upholds as reasonable the
claims administrator’s determination that a rollover
to an IRA is receipt of such benefits. The court recognizes that the plaintiff may not have taken possession
of such benefits, but he had control over the assets,
which is sufficient to establish receipt.
The Ninth Circuit then considers the plaintiff ’s
argument that the defendant failed to disclose
the disadvantages of choosing the IRA rollover
option. The plaintiff contends that the defendant
breached its statutory and common law fiduciary
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legal & legislative reporter
Court Upholds Disability Offset
continued from page 62
duties by failing to affirmatively advise him of the
financial consequences of electing a rollover. The
court notes, however, that the plaintiff does not
dispute that he had a copy of the summary plan
description, which detailed the offset policy. The
court also finds no legal basis for the plaintiff ’s argument that the defendant had an affirmative duty
to remind the plaintiff of the policy upon separation from service. Accordingly, the court finds
that the defendant satisfied its disclosure duties.
Finally, the court considers the plaintiff ’s contention that the defendants violated the Age Dis-
Court Dismisses Fiduciary Claims
continued from page 64
cluded that the third-party administrator was
not an ERISA fiduciary, and the Sixth Circuit
agrees. The Sixth Circuit notes that the thirdparty administrator’s role “was limited to sending conversion notices” and agrees with the district court’s assessment that there is no evidence
it did anything more than perform administrative duties. The Sixth Circuit further notes that
the third-party administrator was not directly
involved in the plaintiff ’s dispute over her husband’s life insurance benefits. In addition, the
court notes that the professional services agreement between the defendant company and
third-party administrator explicitly stated that
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benefits magazine november 2012
crimination in Employment Act (ADEA) by offsetting his pension benefits by disability benefits.
After finding that the defendant waived its ability
to challenge the applicability of ADEA, the court
finds that the offset does not violate ADEA. The
court dismisses the plaintiff ’s argument that the
case is analogous to another case in which the
employee was coerced to retire in order to receive
the full value of the offset. After distinguishing the
cases, the court finds no violation of ADEA in the
offset of the plaintiff ’s disability benefits by the
rollover of his pension benefits. The Ninth Circuit
affirms the judgment of the district court.
Day v. AT&T Disability Income Plan, No. 10-16479 (9th
Cir. July 3, 2012).
the third-party administrator is not a fiduciary
under ERISA.
Finally, the Sixth Circuit considers the plaintiff ’s claim that ERISA requires the defendants
to notify individuals of their life insurance conversion rights. The court concludes that “ERISA
does not contain any provision that requires a
plan administrator to provide notice to plan
participants other than a summary plan description and information of the benefits plan.”
Because the plaintiff received a summary plan
description, the court finds that the defendants
satisfied any notification duties regarding conversion rights. The Sixth Circuit dismisses the
plaintiff ’s claims.
Walker v. Federal Express Corporation et al., No.
11-5201 (6th Cir. July 11, 2012).