ERISA-First Circuit Rules That Administrator’s Decision To Offest Disability Benefits Paid Under The Plan By Disability Compensation Paid Under The Veterans’ Benefits Act Was Incorrect

In Hannington v. Sun Life and Health Insurance Company, No. 12-1085 (1st Cir. 2013), the plaintiff (“Hannington”) had filed suit under ERISA against the defendant, Sun Life and Health Insurance Company (“Sun”). The suit challenged Sun’s reduction of Hannington’s disability payments under an ERISA-covered plan (the “Plan”) due to his receipt of disability compensation under the Veterans’ Benefits Act. The district court entered judgment for Hannington, and Sun appealed.

Hannington was receiving disability benefits from the Plan. The Plan provides a disabled participant with sixty percent of his pre-disability salary. However, the Plan reduces this benefit by amounts received as “Other Income.” Under the Plan, one type of “Other Income” is “any amount of disability or retirement benefits under: a) the United States Social Security Act . . .; b) the Railroad Retirement Act; or c) any other similar act or law provided in any jurisdiction.” The Plan grants Sun-the claims fiduciary-the sole and exclusive discretion and power to construe any and all issues relating to eligibility for benefits. Sun had treated the disability compensation under the Veteran’s Benefits Act as “Other Income” and reduced Hannington disability payments from the Plan accordingly. The question for the First Circuit Court of Appeals (the “Court”): was Sun correct in reducing the disability benefits being paid by the Plan?

In analyzing the case, the Court noted that, since the Plan gave Sun-the claims fiduciary- discretionary power to make benefit determinations, Sun’s decision to reduce Hannington’s benefit is entitled to a deferential review. However, to the extent that Sun is required, in the course of determining the meaning of the plan language, to interpret the law or other material outside the plan, the Court’s review of the law or other material is de novo. Here, Sun’s interpretation of the “Other Income” definition of the Plan depends wholly upon its interpretation of external, non-plan material: the Veterans’ Benefits Act, the Social Security Act and the Railroad Retirement Act. The Court determined-under a de novo review- that the Veterans’ Benefits Act is not similar to the Social Security Act or the Railroad Retirement Act, so that disability benefits paid under the Veterans’ Benefits Act is not “Other Income” under the Plan. As such, the Court concluded that Sun’s decision to offset Hannington” Plan disability benefits by the disability compensation paid under the Veterans’ Benefits Act was incorrect, and it affirmed the district court’s decision.

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