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Offsets and Other Income Benefits – What are they, and what do they mean for your short term and long term disability benefits?

Offsets and Other Income Benefits – What are they, and what do they mean for your short term and long term disability benefits?

One of the important issues that I think every ERISA short term/long term disability claimant needs to know about is what offsets or “other income benefits” are and how they affect short term and long term disability benefits.  Basically, the insurer gets credit for any other income that a claimant receives from other sources.  Here is a sample “Other Income Benefits” section from a long term disability policy.

Other Income Benefits An Employee for whom Disability Benefits are payable under this Policy may be eligible for benefits from Other Income Benefits. If so, the Insurance Company may reduce the Disability Benefits by the amount of such Other Income Benefits.

Other Income Benefits include:

  1. any amounts received (or assumed to be received*) by the Employee or his or her dependents under: the Canada and Quebec Pension Plans; the Railroad Retirement Act; – any local, state, provincial or federal government disability or retirement plan or law payable for Injury or Sickness provided as a result of employment with the Employer; – any sick leave or salary continuation plan of the Employer; any work loss provision in mandatory “No-Fault” auto insurance.
  2. any Social Security disability or retirement benefits the Employee or any third party receives (or is assumed to receive*) on his or her own behalf or for his or her dependents; or which his or her dependents receive (or are assumed to receive*) because of his or her entitlement to such benefits.
  3. any Retirement Plan benefits funded by the Employer. “Retirement Plan” means any defined benefit or defined contribution plan sponsored or funded by the Employer. It does not include an individual deferred compensation agreement; a profit sharing or any other retirement or savings plan maintained in addition to a defined benefit or other defined contribution pension plan, or any employee savings plan including a thrift, stock option or stock bonus plan, individual retirement account or 401(k) plan.
  4. any proceeds payable under any franchise or group insurance or similar plan. If other insurance applies to the same claim for Disability, and contains the same or similar provision for reduction because of other insurance, the Insurance Company will pay for its pro rata share of the total claim. “Pro rata share” means the proportion of the total benefit that the amount payable under one policy, without other insurance, bears to the total benefits under all such policies.
  5. any amounts received (or assumed to be received*) by the Employee or his or her dependents under any workers’ compensation, occupational disease, unemployment compensation law or similar state or federal law payable for Injury or Sickness arising out of work with the Employer, including all permanent and temporary disability benefits. This includes any damages, compromises or settlement paid in place of such benefits, whether or not liability is admitted. 6. any amounts paid because of loss of earnings or earning capacity through settlement, judgment, arbitration or otherwise, where a third party may be liable, regardless of whether liability is determined.

Other Income Benefits sections are very broadly written so that, essentially, any income received by a claimant will be deemed “other income benefits” and, therefore, an offset (reduction) to short term/long term disability payments.  By way of example, if a claimant is drawing $2,000 in long term disability benefits per month and is awarded $1,400 in Social Security Disability benefits the long term disability payment becomes $600 per month.

The difficulty with other income happens when it takes a few months or even years for a claimant to be awarded other income benefits.  During this time, it is likely that the claimant is drawing an unreduced disability benefit from the insurer.  Using the above example, if it takes the claimant 18 months to be awarded Social Security Disability benefits the claimant will draw the full $2,000 until Social Security Disability is awarded.  Once Social Security Disability is awarded, a check for back benefits will be issued to “catch up” the payments.  These Social Security Disability payments will be backdated for the same period that the claimant has been drawing long term disability, causing the claimant to be overpaid for those 18 months.  The disability insurer will then contact a claimant and assert that it should have only paid $600 per month, not $2,000 per month, therefore, the claimant owes the disability insurer back $1,600 per month for 18 months.  If the overpayment is not paid back the insurer can withhold future benefits or even institute litigation to recover the overpayment.  Consequently, it is very important that all claimants read and understand the other income benefits section contained in his/her disability policy.

If you have a denied ERISA claim, please contact me, Leila Louzri, to discuss at 864-242-6200.

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