In the fourth installment of articles looking at the employment law cases being heard by the US Supreme Court this fall term, Montanile addresses issues near and dear to every employer’s heart – ERISA plans and the reimbursement/recoupment of plan funds.  For those readers who manage and worry about these plans and issues, read on!

Supreme Court To Decide What is Required for Equitable Tracing

By James Goodfellow

On November 9, the Supreme Court will hear arguments in the Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan matter, which is up on appeal from the Eleventh Circuit. Montanile involves equitable tracing, and the question before the Court is limited solely to whether an ERISA fiduciary must identify a particular fund that is in a participant’s possession and control at the time that a fiduciary seeks to recover an alleged overpayment of benefits.

For something that seems complicated, the facts of Montanile are quite common.  The dispute arose when the ERISA plan paid the plaintiff’s medical expenses after the plaintiff was injured in a car accident. As the result of a separate personal injury lawsuit, the plaintiff received a settlement from the other driver, and the plan sought from the settlement funds reimbursement of plan medical expenses.  For the uninitiated, many ERISA plans enable the plans to recover reimbursement as the plan did here.

Practical problems arise, however, because often times, participants are not in possession of the money paid by the plan, and overpaid benefits can be significant. As such, the plaintiff in Montanile argued that in order to assert an overpayment claim, the plan needed to assert the claim against the very money that it paid to him.  The plan disagreed, stating that all it needed to do is identify that it paid the participant money, and the amount of that money that it paid. Put another way, the parties’ dispute is akin to one person loaning another person $20 by way of giving that person a $20 bill. The participant’s contention is that the plan can only seeks recover of the specific $20 bill loaned. The plan’s contention is that $20 is $20, and so long as it can show that it paid $20, it is entitled to recover $20. The Eleventh Circuit agreed with the plan.

Affirmance of the Eleventh Circuit’s decision would represent a practical solution to a common problem faced by fiduciaries and plans who attempt to recover from non-fiduciary plan participants or service providers asserting a right to plan benefits based on assignment. Often times, overpaid funds have been spent by the recipients.  And, query how a plan could equitably trace money paid by check or by wire, as so often is the case in this day and age. Additionally, should the Supreme Court reverse, non-fiduciary recipients of plan funds would be provided with a perverse incentive to spend plan money immediately upon receipt so as to avoid any repayment obligations set forth by plan terms.

Left for another day is whether the summary plan description is a plan document. The Supreme Court’s decision in Cigna Corp. v. Amara has left this open, and in Montanile, the plan’s authority to recover overpayments was found solely in the SPD.  This often is a critical question in benefits litigation that could have been addressed in Montanile.