In applying an abuse of discretion standard of review, the Ninth Circuit Court of Appeals affirmed the district court’s judgment to uphold an ERISA plan administrator’s decision to offset a former employee’s disability benefits by the amount of his pension benefits distribution.
Plaintiff David Day (“Day”) was a former employee of AT&T (subsequently acquired by SBC) who stopped working due to a disability and was subsequently terminated for reasons not relevant here. Day received LTD benefits pursuant to the AT&T Disability Income Plan (the “Plan”) and participated in the AT&T Pension Benefit Plan. The Plan granted the administrator discretionary authority. Following his termination, he elected to roll over his pension benefits into an IRA and was sent a check in the lump sum of $17,203.93 payable to the trustee of his IRA. The plan administrator determined that Day’s LTD benefits should be reduced by the amount of the rollover.
The terms of the Plan provided that LTD benefits would be “reduced by . . . pension benefits you may receive from any SBC company pension plan.” The plan administrator considered Day’s lump sum rollover as his having “received” his pension benefits and in accordance with the terms of the Plan, reduced his LTD benefits by the amount of the rollover. The Court found this to be a reasonable interpretation of the Plan and deferred to the plan administrator’s decision pursuant to the applicable abuse of discretion standard of review.
Day argued that he did not actually receive the funds as they were deposited directly into an IRA and subject to tax penalties for early withdrawals. The Court reasoned that “when a beneficiary rolls a pension into an IRA, he may not take possession of it, but he has control over the assets. For instance, he can choose the IRA and change it; and he can withdraw funds from it, albeit perhaps having to pay penalties for early withdrawal. It is therefore not unreasonable to say that he has received these benefits.”
The Court also rejected Day’s argument that the District Court’s holding was in conflict with Blankenship v. Liberty Life Assurance Co. of Boston.1 The Court noted that Blankenship was plainly distinguishable because the subject ERISA plan did not grant the administrator discretionary authority to interpret ambiguous plan terms.
Finally, the Court held that: (1) AT&T had properly provided Day with Plan documents during his employment and, therefore, was not obligated to remind Day of the offset provisions in the Plan or advise him that electing a lump sum rollover of his pension benefits could result in a reduction of his LTD benefits; and (2) Day failed to establish a violation of the Age Discrimination in Employment Act.
Accordingly, the Ninth Circuit affirmed the judgment of the district court.
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1 Blankenship v. Liberty Life Assurance Co. of Boston, 486 F.3d 620 (9th Cir. 2007)