SCOTUS Weighs in on ERISA Plan Overpayment

A recent Supreme Court ruling may have implications for retirement plan overpayment recoveries.

Now, the payments made in the case of Robert Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, case number 14-723 (U.S. Supreme Court Jan. 20, 2016) weren’t made from a retirement plan, though they were made from an ERISA plan.

Case Background

The National Elevator Industry Health Benefit Plan had paid plan participant Robert Montanile about $122,000 to cover medical expenses stemming from a car accident in which Montanile was injured by a drunken driver. Montanile subsequently sued the driver, receiving a $500,000 settlement. The National Elevator plan then sued Montanile, seeking reimbursement of the expenses the plan had paid him. After Montanile had paid his attorneys, $240,000 in settlement funds remained, and were initially segregated in his attorneys’ trust account.

Now, the employer/plan here didn’t do itself any favors; when the plan attempted to enforce its right to reimbursement and subsequent negotiations broke down, Montanile’s attorney notified the plan that he would distribute the settlement funds to Montanile unless the Plan objected within 14 days. And, after the plan failed to object within that timeframe, the lawyer did what he said he would do. And then the plan waited six months before suing under Section 502(a)(3)(B) of ERISA to enforce an equitable lien on the settlement funds. By that time, Montanile had spent most of the money.

Lower Courts

The district court had found that the plan had a right to reimbursement on the grounds that “a beneficiary’s dissipation of assets is immaterial when a fiduciary asserts an equitable lien by agreement.” That position was affirmed by the Eleventh Circuit upon appeal, in line with its holding in AirTran Airways, Inc. v. Elem, 767 F.3d 1192 (11th Cir. 2014).

Justice Clarence Thomas, writing for the majority in the 8-1 decision (Justice Ginsburg dissented), explained that where a defendant has already spent proceeds that are subject to reimbursement, a restitution claim may only be asserted where funds or property in the defendant’s possession are clearly traceable back to the proceeds that were subject to reimbursement. Thomas said that, notwithstanding ERISA’s general objectives, concepts of fairness and the fact that the equitable lien was set forth in the Summary Plan Description (SPD), enforcing an equitable lien over a participant’s general assets was not “typically available” under the principles of equity.

Not that that is the last word on the subject; the Supreme Court remanded the case back to the district court to determine “how much dissipation there was” and whether Montanile had, in fact, commingled the settlement funds with his general assets.

Lessons Learned?

The lesson for retirement plans, if there is one, might be found in the Supreme Court majority’s suggestion that the plan’s failure to move on a timely basis to collect its recovery, even when Montanile’s attorney gave them 14 days to respond, not to mention the 6-month delay in suing for the recovery, was to blame.

As for participants/beneficiaries, the best lesson may be found in Justice Ginsburg’s brief dissent where she describes the conclusion of the majority as “bizarre” and goes on to say that the decision means that the best way to avoid the reimbursement obligation is by “…spending the settlement funds rapidly on nontraceable items.”

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