I often hear people who are receiving a pension or Social Security benefit proclaim that their long-term disability insurance company cannot touch their pension or Social Security benefit. Sometimes I have heard this from lawyers as well. While it is true that there is an anti-lien statute barring liens against pensions and Social Security benefits, what happens after those monies are in a personal bank account or paid toward an asset may be different. Also, that doesn't mean that the insurer cannot take such benefits into account as to how it pays your long-term disability claim in the future.

Once people deposit Social Security or pension money into a bank account and it is commingled with other funds, the money loses its protection.  Also, if the long-term disability benefit was used to make a house or car payment or payment on some other traceable asset, it may represent a potential source for a recovery. Finally, what happens to your ongoing long-term disability benefit must be taken into account as well.  If your long-term disability plan document has an offset (a plan provision that allows for benefits to be reduced under certain circumstances) that could impact your ongoing future benefits.  Ongoing benefits may be held and applied to the offset, or the claim may be terminated. While ERISA is a little strange as to how a long-term disability recipient can be sued, that can occur. A somewhat recent case demonstrates that.

Unum Life Ins. Co. of Am. v. Reynolds, No. 3:23-cv-512-RAH-JTA [WO], 2024 U.S. Dist. LEXIS 73562 (M.D. Ala. Apr. 23, 2024) involved a lawsuit against Ms. Reynolds. In 2009, Ms. Reynolds had received a form from Unum asking her to disclose other sources of income which listed pension benefits as one of those potential sources. She submitted forms over the course of four different years certifying that she was submitting all information, but she omitted her pension information according to Unum. Years later Unum learned about that and then asserted that Ms. Reynolds had been overpaid benefits because the pension benefit was an offset.

Unum demanded prompt return of the overpayment money, and when it wasn't returned it sued Ms. Reynolds. Unum contended she owed over $160,000, including interest and attorney's fees.  It is always interesting to me that companies like Unum think that disabled people like Ms. Reynolds, don't have any living expenses or bills.  They seem to think she must have put all of her disability earnings into a savings account.  Nonetheless Unum asserted a lawsuit alleging three counts. One for equitable relief, another for equitable restitution, and a third as an equitable lien.

Ms. Reynolds sought dismissal with a 12(c) motion as to all three claims. Unum eventually conceded that the equitable restitution and equitable lien claims should be dismissed but argued that it should be allowed to proceed on the equitable relief claim.  Ms. Reynolds contended, however, that because there is a three year limitation of action provision in the policy that should apply here. Unum should only be allowed to go back three years. Unum countered that this three-year provision is only as to a benefits claim and does not apply to its claim for equitable relief. It argued that it should have at least six years and then only running from the date that it discovered the existence of the pension benefit.

The Court specifically held, “The plain language of this provision, when subjected to the federal common law rules of contract interpretation, shows that it applies only to benefit claims (proof of claim) made by Reynolds (you). Accordingly, Reynolds is not entitled to dismissal of the case under her three-year statute of limitations argument.” Id. at 5.   What's good for the goose is not good for the gander here. That does not exactly sound fair, but the Court was following an interpretation of the language in the plan.

What is clear is that Unum was within its rights to file a lawsuit.  This could happen to any claimant. A belief that ERISA must be fair is not well-founded. It is typically better to make sure all offsets are timely disclosed, and it is best to deal with these issues as they arise.