LTD Overpayment

[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.

[mroberts]

The determination of whether or not part of the $45,000 can be recouped is determined by your LTD plan. First, does your LTD plan consider any amounts paid out under WC as other income amounts that can be deducted from any monthly benefits?

Secondly, since the WC carrier paid out $45,000, this employee is probably going to be out of work for awhile. How LTD carriers usually handle situations like these is that they will take the $45,000 and prorate it over the amount of time they figure this employee to be out on LTD. This monthly amount will then offset any future LTD payments. For example, if the LTD carrier figures the employee is going to be out another 45 months, the LTD carrier would offset any monthly benefits going forward by $1000. If this employees is no longer out on LTD, this point is moot.

Lastly, as far as the recovery of overpayments go, once again the LTD plan document is going to determine what needs to be done. You're probably not self-insured for LTD, so I would touch base with the insurance carrier and let them work through the mess.

If you'd like to discuss further, please let me know.

[Guest blackacre]

Thanks for your reply. I have since learned that the company self-insures the LTD plan and that the Plan document is silent on overpayment or set off. Do you have any other thoughts? The arbitration is coming up and I am still unclear on the what the problem could be. Thanks...

[mroberts]

Since the SPD does not indicate that WC awards can be used as offsets, that's probably what this new negotiator is talking about. If it's not in the SPD, you can't force the employee to give any funds back. I would suggest updating your plan document so that the next time this happens you can offset some of your LTD liability.

[Kirk Maldonado]

If your plan document provides for such an offset (even though the SPD does not), you could possibly prevail, but it would be a real long shot.