ERISA-Ninth Circuit Rules That Plan Administrator Abused Its Discretion When It Recalculated The Participant’s Long-Term Disability Payments After He Was Awarded A Social Security Disability Benefit

In Elliot v. Elliot, Leibl & Snyder, LLP Long-Term Disability Plan, No. 09-56730 (9th Cir. 2011) (Unpublished Memorandum), the plaintiff, David Scott Elliot (“Elliot”), became permanently disabled and began receiving a long-term disability (“LTD”) benefit from the defendant, the Elliot, Leibl & Snyder, LLP Long-Term Disability Plan (the “Plan”), in December 1999. The plan administrator of the Plan was Unions Security Insurance Company (“USIC”). Elliot was eligible to receive the maximum LTD benefit payable-$10,000 per month plus subsequent, annual cost of living adjustments (“COLA Adjustments”). This benefit had reached $10,716 per month by February 2003.

Elliot applied for a Social Security Disability (“SSD”) benefit from the Social Security Administration in March 2004. In June 2006, he received an award of an SSD benefit retroactive to February 2003. The award totaled $72,954.50, for the period from February 2003 through April 2006, with a monthly benefit of $1,811/month starting in February 2003. Following Elliot’s receipt of this award, USIC recalculated the LTD benefit payable to Elliot by the Plan from February 2003 onwards. This recalculation resulted in a permanent reduction of Elliot’s LTD benefit going forward to $8,775/month, and the determination that USIC was entitled to a clawback of $79,384.15 in the LTD benefit paid to Elliot by the Plan between 2003 and 2006. This $79,384.15 clawback was greater than the $72,954.50 retroactive SSD award Elliot had received. The parties agreed that the Plan was entitled to reduce the LTD benefits on a “going forward” basis and to receive a clawback. The question for the Court: did USIC correctly calculate the amount payable by the Plan going forward from February 2003 and the clawback?

In analyzing the case, the Court noted that, since the Plan conferred unambiguous discretionary authority on USIC to determine plan benefits, USIC’s decisions regarding plan benefits are reviewed for an abuse of discretion. Neverthess, the Court determined that USIC had abused its discretion when it recalculated the LTD benefit payable by the Plan. In calculating the “going forward” LTD benefit, USIC first subtracted Elliot’s SSD monthly payment of $1,811 from the original 1999 $10,000 monthly payment from the Plan. This calculation resulted in a new monthly pre-COLA base payment of $8,189 from the Plan. Then, it multiplied that amount by a COLA Adjustment factor, resulting in $8,775/month. The Court said that, by decreasing Elliot’s original $10,000 award, conferred in 1999-dollars, by the $1,811 SSD benefit conferred to Elliot in 2003-dollars, USIC mixed past and present dollar amounts in a single calculation, a computation which is mathematically unsound. Since Elliot did not receive an SSD benefit in the years prior to 2003, and since his SSD benefit was conferred in 2003-dollars, USIC should have subtracted his $1,811/ month SSD benefit from the $10,716 per month amount he was receiving from the Plan in 2003, with a resulting “going forward” amount of $8,905 /month. The Court remanded the case back to the district court to make additional calculations, including the amount of the clawback.

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