Under the Employee Retirement Income Security Act (ERISA) of 1974, employers are required to pay covered medical expenses when a plan participant is injured by a third party. Most plans contain terms and clauses which require a plan participant to reimburse the plan when they recover monetary damages through a tort claim. Under Section 502(a)(3) of ERISA, plan fiduciaries can sue to “obtain . . . appropriate equitable relief . . . to enforce . . . the terms of the plan.”
However, the definition of ‘appropriate equitable relief’ under ERISA has always been a moving target. So it’s time employers noted the latest definition provided by the U.S. Supreme Court recently in Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan. The Supreme Court held that when a plan participant has spent all the settlement proceeds that could have been used to reimburse the plan, on non-traceable items like fees for services or travel the plan fiduciary may not have access to the participant’s other assets as a broader means of recovery.
The judge held that equitable liens can only be enforced against “specifically identified funds that remain in the defendant’s possession or against traceable items” purchased with those funds. While there is still some possibility of recovery by the Plaintiff, it is slim as the Plan fiduciary failed to act expeditiously when they had the opportunity to secure the settlement proceeds before they were spent.
Tort recoveries are subject to a plan fiduciary’s reimbursement rights provided the participants are made aware of their obligation to guard and not spend any medical expense funds received in a tort recovery, which may be subject to a plan fiduciary’s claim for reimbursement.
The plan fiduciary needs to establish administrative procedures which make it necessary to monitor personal injury scenarios, keep lines of communication open, follow up promptly on important deadlines to enforce any claim over plan assets paid and to recover them without delay. If they fail to do so, they can’t even sue under ERISA’s Section 502(a)(3) anymore! Any erroneous overpayments from retirement plans may also be impossible to recover after this precedent-setting case, which limits the definition of equitable relief to exclude a plan participant’s personal funds. Are you prepared?
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