District Court Finds Insurer Properly Applied ERISA Plan Language Prorating Plaintiff’s Lump Sum Pension Benefits as An Offset to Long-Term Disability Benefits

In Walker v. Reliance Standard Life Insurance Company, No. 2:22-CV-109, 2023 WL 3066708 (E.D. Tenn. Apr. 24, 2023) Tennessee Eastern District Judge Travis R. McDonough granted judgment in favor of the insurer, finding that Reliance Standard Life Insurance Company had correctly calculated Plaintiff’s LTD benefits by prorating his lump sum pension offset over sixty months.

Plaintiff previously worked as a finishing technician for Sonoco Products Company (“Sonoco”) and was covered under Sonoco’s long-term disability plan (“the Plan”). The parties agreed that Plaintiff is disabled under the Plan due to symptoms he experienced from post-concussive syndrome. On April 8, 2022, Reliance sent Plaintiff a letter detailing its calculation of his monthly benefit. The letter noted “we were informed by your employer that on May 14, 2021, you received a lump sum of $67,046.71 from the employer sponsored pension plan. This is considered [a long-term disability] Benefit offset; the monthly offset is $1,117.46 ($67,046.71/60).” Plaintiff appealed Reliance’s calculation, and after Reliance’s deadline to render a decision on appeal had expired, he initiated the instant action.

Plaintiff contends that Reliance incorrectly interpreted the Plan’s Lump Sum Payments provision—specifically the phrase “period of time,” and argues that, under the unambiguous terms of the Plan, the offset for other income received as a lump sum should be applied to the time period from his retirement until his death.

The Plan defines “Other Income Benefits” as: “(1) disability income benefits an Insured is eligible to receive because of his/her Total Disability under any group insurance plan(s) provided by you; …. (6) that part of Retirement Benefits1 paid for by you that an Insured is eligible to receive under a group retirement plan ….” In its Lump Sum Payments provision, the Plan provides: “[i]f Other Income Benefits are paid in a lump sum, the sum will be prorated over the period of time to which the Other Income benefits apply. If no period of time is given, the sum will be prorated over sixty (60) months.” Reliance concluded that the lump-sum pension payment did not apply to a period of time and, therefore, prorated the payment over sixty months.

The Court found that Plaintiff’s interpretation is contrary to the unambiguous language of the Plan. The Court reasoned that the Lump Sum Payments provision’s use of “period of time” denotes a fixed, definite length of time. Therefore, it provides for a fixed, definite length of time—sixty months—if no period of time is given. Any contrary interpretation would render the provision’s application impossible. The Court further noted that prorating requires dividing an amount proportionally over a set number of periods, and that Reliance could not prorate Plaintiff’s pension payment from the time of his retirement until his death because this time is an unknown length.

Further, the Court noted that because Plaintiff is only eligible for disability benefits until his retirement age, if the lump-sum payment is prorated only after his retirement, the payment would not affect his disability benefits, rendering the Plan’s provisions on retirement benefits and lump-sum payments as surplusage.

As this case demonstrates, an insurer’s interpretation of policy or plan terms may affect the benefits you receive. If your insurer has improperly calculated benefits and/or denied your disability insurance claim, contact us for assistance.