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ERISA Reimbursement, SSI Benefits, and the Limits of Equitable Claims

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A federal district court decision in Kentucky notes that an ERISA reimbursement claim cannot lead to a lien against an individual’s Social Security disability benefits – but that the ERISA plan may proceed with an equitable claim even when the individual has exhausted his plan proceeds and receives only SSI income.

The decision in Mullins v. Prudential Ins. Co. of America, Civil Action No. 3:09-CV-371-S (W.D. Ky. Oct. 25, 2010), is here, and an extended excerpt, including the footnote concerning SSI benefits, appears after the break.

4. The GFS Plan May Recover the Benefits Overpaid to Mullins

In order to make a proper equitable claim under [29 U.S.C.] § 1132(a)(3), the claimant must (1) identify a particular fund distinct from the plan member’s general assets and (2) specify the particular share of the fund to which the plan is entitled. Sereboff v. Mid Atlantic Med. Servs., Inc., 547 U.S. 356, 363-64 (2006). The Supreme Court explained in Sereboffthat, with respect to reimbursement provisions in plan documents, “the familiar rul[e] of equity that a contract to convey a specific object even before it is acquired will make the contractor a trustee as soon as he gets a title to the thing” applies. 547 U.S. at 363.

[Plaintiff John A.] Mullins [(a participant in the GFS Division Voluntary Employee Benefit Plan, which provides long-term disability benefits to eligible employees of Gordon Food Services, Inc., where Mullins worked, and which Plan includes a voluntary benefit administered by defendant Prudential Insurance Company of America)] argues that the GFS Plan’s action cannot sound inequity because it seeks payment only from Mullins’ general assets rather than from a specific fund. Mullins argues that because he has already spent the Social Security and GFS Plan benefits for the months in question, there exists no particular fund to which the Plan can lay claim, and any claim would necessarily be against his general assets.

Courts in the Sixth Circuit, however, follow Sereboff’s holding that an amount need not be directly traceable or currently intact to qualify as a “particular fund.” Longaberger Co. v. Kolt, 596 F.3d 459, 466-67 (6th Cir.2009) (“[A]n equitable lien by agreement does not require tracing or maintenance of a fund in order for equity to allow repayment.”).

In Longaberger, the Sixth Circuit held that an employee benefit plan could recover in equity funds owed under its reimbursement provisions even though those funds had been distributed and dissipated. 596 F.3d at 469. The plan at issue in Longaberger contained provisions giving it an automatic “first priority lien upon the proceeds of any recovery … from [a third party] to the extent of any benefits provided to you … by the Plan.” Id. at 467. The court held that this equitable lien attached to the proceeds of a participant’s settlement with a third-party insurance company once the settlement money was distributed to the participant’s attorney, thus providing the plan with an equitable entitlement to the money as soon as it was identified and received. Id. Although this settlement money was dissipated a few months later, the Longaberger plan retained its equitable claim against the fund. Id.

The Sixth Circuit reached a similar result in Gilchrest v. Unum Life Ins. Company of Am., 255 Fed. App’x 38 (6th Cir.2007) (unpublished). In Gilchrest,a participant in a long-term disability benefits plan received both disability and SSDI payments at the same time. 45. The plan documents provided that disability benefits “may be reduced by deductible sources of income,” including SSDI benefits. Id. The court found that this provision also created an equitable lien: “[T]he Plan’s overpayment provision asserts a right to recover from a specific fund distinct from Gilchrist’s general assets-the fund being the overpayments themselves-and a particular share of that fund to which the plan was entitled-all overpayments due to the receipt of Social Security benefits, but not to exceed the amount of benefits paid.” Id. at 46-47 (citing Dillard’s, Inc. v. Liberty Life Assurance Co., 456 F.3d 894, 901 (8th Cir.2006)).

The language in the GFS Plan has a similar effect to that at issue in Longaberger and Gilchrest. The GFS Plan provides: “If the Plan pays benefits which should not have been paid by the Plan, the Plan may recover the excess payments from the Participant, any provider, any persons to whom the payments were made, or any insurance company or other organization, in the Plan Administrator’s discretion.” GFS Plan § 15.10.

Like the plans in Longaberger and Gilchrest, the GFS Plan identifies a particular fund-excess benefit payments paid to a participant that should not have been paid – and the particular share of that fund-the amount of the excess payments. This language satisfies the requirements of Sereboff. The GFS Plan’s counterclaim is a proper equitable action under § 1132(a)(3), and its motion for summary judgment on its counterclaim will be granted. Footnote 7

Footnote 7. Mullins claims that because he has exhausted the benefits he received from the GFS Plan and is receiving income only from SSDI benefits, the Plan’s counterclaim is barred by 42 U.S.C. § 407(a). Under this statute, “[t]he right of any person to any future payment under [federal Social Security law] shall not be transferrable or assignable, at law or in equity, and none of the money paid or payable … shall be subject to execution, levy, attachment, garnishment, or other legal processes….” However, the GFS Plan does not seek a lien specifically on Mullins’ future Social Security benefits. Therefore, 42 U.S.C. § 407(a) does not bar this action. See Hall v. Liberty Life Assurance Co. of Boston, 595 F.3d 270, 274 (6th Cir.2010) (upholding the district court’s finding that plan was entitled to equitable lien against claimant for overpaid benefits, but reversing order imposing lien specifically on claimant’s future Social Security benefits).

Mullins v. Prudential Ins. Co. of America, Civil Action No. 3:09-CV-371-S.