6th Cir: ERISA lien can’t be put on future SSD benefits

In Hall v Liberty Life Assurance Co of Boston, the 6th Cir. held that the an ERISA plan couldn’t put an equitable lien on future Social Security benefits to recover overpayment of benefits paid from a long-term disability policy.

Sonya Hall went on disability in 2002. She was required to seek Social Security disability benefits under her disability policy, so that the the social security benefits were to offset a portion of her insurance payments.  Between 2002 and 2006, she was denied benefits several times. Finally, in 2006, she was granted benefits retroactively to 2002 for her disability.

Liberty Life, the disability insurer, sought an equitable lien as restitution for the amount she was overpaid when she received retroactive social security benefits.  The court said that, while Liberty Life was entitled to the equitable lien, by statute, such lien could not be placed on future social security benefits:

We similarly agree with the district court’s conclusion in this regard, and we affirm on the basis of the court’s Opinion dated October 31, 2008, with the exception of the court’s decision to impose an equitable lien directly upon Hall’s future Social Security benefits for reimbursement of the Plan’s overpayments. Such a lien is prohibited by federal statute.

A plan fiduciary is permitted to bring a claim for equitable relief to enforce the terms of the plan. 29 U.S.C. § 1132(a)(3). For restitution of insurer overpayments to be of an equitable nature, the restitution must involve the imposition of a constructive trust or
equitable lien on “particular funds or property in the [insured’s] possession.” [Great-Life]. The plan must identify a particular fund, distinct from an insured’s general assets, and the portion of that fund to which the plan is entitled. [Sereboff]. Courts are not permitted, however, to place a lien directly on the Social Security benefits themselves. 42 U.S.C. § 407(a) … The equitable lien in this case must therefore be limited to a specifically identifiable fund (the overpayments themselves) within Hall’s general assets, with the Plan entitled to a particular share (all overpayments due to her receipt of Social Security benefits, not to exceed the amount of benefits paid).

The lien imposed by the district court deviated from the principles set forth in Gilchrest because the court imposed the lien directly on the Social Security benefits received by Hall. This is impermissible because the Plan has no claim to Hall’s future Social Security benefits prior to the point at which they are in her possession. The Plan conceded this point during oral argument. Accordingly, we find that the district court erred in imposing an equitable lien directly upon Hall’s future Social Security benefits.