Reduction of LTD Benefits for Social Security is Reasonable

September 12, 2008 ( - The 11th U.S. Circuit Court of Appeals ruled that the Coca-Cola Company acted reasonably in reducing participants' long-term disability (LTD) benefits based on their receipt of social security benefits.

The appellate court also agreed with a lower court ruling that Coca-Cola was right in trying to recoup overpayments of benefits. The court said the Coca-Cola’s interpretation of both a provision in the Coca-Cola Long Term Disability Income Plan that permits an offset for the receipt of other disability benefits and one that allows the plan to recoup overpayments of benefits was correct.

According to the opinion, both the plan document and the summary plan description describe an offset provision that the 60% of compensation participants will receive will be reduced by the amount of disability payable from all other sources. The plan and SPD also say benefits under the plan will be stopped if disability payments from all other sources exceed 70% of a participant’s average compensation. The SPD provides an arithmetic example of the offset.

The court also pointed out that both the plan and the SPD explain that any overpayment of disability benefits will be deducted from a participant’s future payments under the plan.

The 11th Circuit conceded that the offset provision was “de novo wrong” because it conflicted with other provisions of the plan. “But it makes no sense to have both a 60% cap and a 60% floor when section 4.2(a) [of the plan] otherwise states that disability benefits cannot exceed 70% of the participant’s average compensation,” the opinion said.

However, using a framework it established in a previous similar case and in the Supreme Court’s decision in Metropolitan Life Insurance Co. v. Glenn (See  Supreme Court Considers Conflict for Plan Administrators That are Also Payers ), the appellate court found that Coca-Cola was vested with discretion in reviewing claims, had “reasonable” grounds supporting its decisions, and did not operate under a conflict of interest.

The two participants who brought the suit against the soda maker on behalf of themselves and all others similarly situated argued that the plan administrative committee operated under a conflict of interest because the third-party administrator pays benefits to participants and is later reimbursed by the trust. The court said the delegation of a ministerial task to the third-party administrator does not create a conflict because benefits are paid by the trust and Coca-Cola

“incurs no immediate expense as a result of paying benefits.”

The decision in White v. The Coca-Cola Company is here .