LTD Payments and Worker's Comp Offset -- Prohibited Transaction?

[Guest blackacre]

An employee was paid about $45,000 in LTD. She then received a WC award. The plan provides that LTD payments are integrated with WC awards. So, the Company notified the employee that she had to repay the $45,000 of LTD. A staff negotiator almost had a repayment agreement with the Company that took into account (as a credit against the amount she owes the Company) LTD payments that have not been paid to her but to which she is entitled. The Company negotiator changed. The new negotiator says that there can be no offset of unpaid LTD because it is a violation of ERISA? She won't clarify her position. Does anyone know what she means? Is she referring to the prohibited transaction regs perhaps? Maybe the proposed regulations about Release of Claims and Extensions of Credit are the answer? Any thoughts will be appreciated.