Equitable Relief under ERISA Redefined | DCR Workforce Blog

Equitable Relief under ERISA Redefined

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.

Case details

  • The plaintiff in the case is the Board of Trustees of the National Elevator Industry Health Benefit Plan (the Plan), an employee welfare benefit plan, which contractually reserved for itself a right to first reimbursement out of any recovery.
  • Montanile, a Plan participant, was injured in a car accident, and the Plan paid out more than $120,000 in medical expenses on his behalf. Montanile’s suit for personal injury damages was settled for $500,000.
  • The plaintiff attempted to enforce its right to reimbursement and subsequent negotiations broke down.
  • Montanile’s attorney notified the Plan that he would distribute the settlement funds to Montanile unless they objected within 14 days.
  • As there was no response, the funds were distributed to Montanile.
  • Six months later, the plaintiff sued under Section 502(a)(3)(B) of ERISA claiming an appropriate equitable relief by enforcing an equitable lien on the settlement funds, during which time Montanile spent most of the money.
  • The third party settlement funds earmarked to reimburse medical expenses paid by the Plan had either been spent or comingled by Montanile by the time the suit was filed.
  • Theoretically, this exposed Montanile’s general assets to a judgment. The Supreme Court had to decide if the spending settlement funds could destroy the enforcement of a lien.The Supreme Court clarified that enforcing an equitable lien over a participant’s general assets is not “typically available” relief under the principles of equity, unless the settlement funds were mixed up with the general assets of the participant.

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.

Future guidance

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?

The content on this blog is for informational purposes only and cannot be construed as specific legal advice or as a substitute for competent legal advice. They reflect the opinions of DCR Workforce and may not reflect the opinions of any individual attorney. Do contact an attorney for advice specific to your issue or problem.
Lalita is a people/project manager with extensive experience in operations, HCM and training and development across industries like banking, education, business consulting, BPO and information technology. She believes in a dynamic approach to life and learning as change is the only constant.