ERISA-Sixth Circuit Rules That Equitable Lien Does Not Attach To Social Security Benefits

This is an interesting case, because it helps protect the Social Security benefits of a plan participant who, through no fault of his or her own, receives an overpayment of benefits from an employer-sponsored employee benefits plan.

In Hall v. Liberty Life Assurance Company, No.s 08-4738/4739 (6th Cir. 2010), the plaintiff, . Sonya Hall, had received long-term disability benefits (the “LTD Benefits) for nearly five years through the National City Corporation Welfare Benefits Plan (the “Plan”). Liberty Life Assurance Company of Boston (“Liberty Life”), the third-party claims administrator, terminated the LTD Benefits when it determined that Hall was no longer totally disabled. The Plan then sought reimbursement for overpayment of the LTD Benefits, caused by retroactive Social Security benefits being awarded to Hall. Hall responded by filing suit against the Plan.

Concluding that the termination of her LTD Benefits was not arbitrary and capricious, the district court denied Hall’s claim for reinstatement of the benefits. The district court further found that the Plan was entitled to partial reimbursement, and imposed an equitable lien on Hall’s Social Security benefits to allow the Plan to recover the overpayments. Hall then appealed those decisions.

In dealing with the case, the Sixth Circuit affirmed both the district court’s denial of the reinstatement of the LTD Benefits, and the district court’s ruling that the Plan was entitled to reimbursement for the overpayments. It then turned its attention to the imposition of the equitable lien. The Court noted that a plan fiduciary is permitted to bring a claim for equitable relief to enforce the terms of the plan, under Section 502(a)(3) of ERISA. For reimbursement of plan overpayments to be considered equitable relief, the reimbursement must involve the imposition of a constructive trust or equitable lien on particular funds or property in the insured’s possession. However, under 42 U.S.C. § 407(a) (generally prohibiting alienation or attachment of future Social Security payments), courts are not permitted to place a lien directly on Social Security benefits themselves. The equitable lien in this case must therefore be limited to a specifically identifiable fund (the overpayments themselves) within Hall’s general assets. The Plan cannot have a claim to Hall’s Social Security benefits prior to the point at which they are in her possession. Thus, the Court concluded that the lien in question, imposed directly on Hall’s Social Security benefits, is not permitted.

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