One of the more perplexing questions in the ERISA world is how exactly to compute long-term disability (“LTD”) benefits. The Court of Appeals of Iowa faced this question in Bronner v. Sun Life Insurance and Annuity Company of New York, No. 0-598/10-0459 (October 6, 2010). The plaintiff was a participant in an LTD plan maintained by his employer (the “Plan”). Sun Life was the insurer and plan administrator of the Plan. The plaintiff brought suit against Sun Life under ERISA, alleging that Sun Life improperly calculated his monthly LTD benefit from the Plan. The district court granted summary judgment in the suit against the plaintiff, and he appealed. The Iowa Court of Appeals found that Sun Life’s calculation was consistent with the Plan’s terms and definitions, and therefore affirmed the district court’s decision.
Under the Plan, in general, a participant’s LTD benefit is a percentage of “Total Monthly Earnings” (up to a maximum amount), and is reduced by “Other Income” . The plaintiff claimed that Sun Life, as plan administrator, miscalculated plaintiff’s benefits by failing to include the value of his cafeteria plan benefits in ” Total Monthly Earnings “, and by including in “Other Income” his LTD benefits from Social Security.
In analyzing the case, the Court stated that where- as here-the plan gives the plan administrator discretionary authority to determine benefit eligibility or to construe the plan’s terms, the Court must review the plan administrator’s decisions-including a calculation of benefits-for an abuse of discretion. This review must take into account the plan administrator’s conflict of interest where-again as here-the plan administrator is both the payer and decider of benefits. Reviewing Sun Life’s calculation of the plaintiff’s LTD benefits under these rules, the Court found that Sun Life had adhered to the Plan’s unambiguous terms, so that there was no abuse of discretion. The Plan defines “Total Monthly Earnings” as the employee’s average monthly earnings from form W-2 (using the box on that form which reflects wages, tips, and other compensation), and those earnings (based on the number in that box) do not include the value of cafeteria plan benefits. Further, the Plan defines “Other Income”, which reduces the LTD benefit, to include the disability or retirement benefits under the United States Social Security Act. This clearly requires the plaintiff’s social security disability benefit to be included in “Other Income”. The Court acknowledged that the Plan contained, in effect, an exception to the inclusion of Social Security disability benefits from other income, but that exception applied only when the participant’s disability arises after the participant reached Social Security Normal Retirement Age, which did not happen here.