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LHD / ERISA Advisor: District Court Finds Reduction in Monthly LTD Benefits Due to IRA Rollover Appropriate Under Plan | Hinshaw & Culbertson – The LHD / ERISA Advisor

This alert was featured in the October 2021 edition of The LHD / ERISA Advisor

In DeBold v. Liberty Life Assur. Bos company., 2021 US Dist. LEXIS 120153 (D. Mass, June 28, 2021), a district court ruled that an ERISA plan administrator can reduce an insured’s monthly long-term disability (LTD) benefit based on the retirement funds that ‘she had transferred to an IRA.

Courts across the country are divided on whether such a transfer qualifies as “other income” under an ERISA plan that would warrant compensation with approved disability benefits. Part of the answer depends on the standard of review applied by the court.

In DeBold, Jami DeBold received LTD benefits in 2002 after an accident left her quadriplegic. At the time, she was an employee of the Wachovia Corporation (Wachovia) and a member of the group employee benefits plan (Plan). Liberty Life Assurance Company of Boston (Liberty Life) was the claims administrator for the plan.

DeBold received uneventful benefits until 2018. At that point, she made the choice to receive a one-time lump sum payment instead of monthly retirement payments from her employer’s cash balance plan. This lump sum payment was transferred to his IRA. Liberty Life, in its capacity as Claims Administrator, considered this payment to be “income from another source” and reduced DeBold’s monthly LTD benefit accordingly.

DeBold challenged the decision and, after exhausting his administrative remedies, sued several entities, including Liberty Life and the Plan, in federal court. DeBold has asserted claims under ERISA for wrongly denied benefits (§1132 (a) (1) (B)) and breach of fiduciary duty (§1132 (c)).

The defendants requested that DeBold’s second amended complaint be dismissed, highlighting the plan’s provision for compensation for “benefits from other income” which included “”[t]The amount of disability or retirement benefits that the member voluntarily elects to receive as a retirement payment under the employer’s pension plan. .

DeBold admitted that the plan required compensation to be taken, but argued that the wording of the plan is not enforceable because it is inconsistent with ERISA and the tax code. Applying a standard of discretionary review, the court rejected these arguments, noting that “whether his rollover had tax consequences is different from whether it affected his long-term disability benefits under the plan. Wachovia ”. The court also found unfounded the argument that the plan seeks to apply the ERISA requirements to its IRA. As such, the court allowed the defendants’ motion to dismiss.

Importance of the decision

Among others, the DeBold decision emphasizes the importance of the standard of review. Several ERISA cases dealing with the impact of transferring pension benefits to an IRA under de novo The review found the term “receive” from the plan ambiguous and concluded that the plan member had not “received” income as a result of the direct trustee-to-trustee turnover. See, for example, Blankenship v. Liberty Life Assur. Co., 486 F.3d 620 (9th Cir. 2007). In these cases, the reduction in the monthly benefit was refused. In DeBold, however, the arbitrary and capricious standard applied because Liberty Life had been granted discretion under the plan, which included the “right to resolve and remedy any ambiguities, inconsistencies or omissions in the plan”. Due to the favorable standard of review, the defendants were not faced with the argument that an ambiguous clause in the scheme should be interpreted against the drafter (contra proferentem).

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