As most ERISA claimants know, most LTD group policies contain a provision allowing for the reduction of monthly benefits by any amounts received from SSDI. This means your disability insurer has been allowed by law to use the social security system to “finance” part of their claim liability, which they are committed to pay you, if your claim is approved.
I strongly recommend to all my ERISA clients that they obtain a copy of their original Plan while still employed and read through the Plan provisions relating to “Other Income” in order to gain a clear understanding of each parties’ obligations when receiving SSDI. You should pay particular attention to whether your Plan allows for an offset of your SSDI award, awards for your children, or does not allow any offset. (Non-integrated policies) There should be no surprises when it comes to the issue of SSDI at the time of disability.
Although this article focues on SSDI, it should be noted that “offset” provisions also include Workers’ Compensation, Retirement Income, Lump Sum Payments and other income.
Most disability insurers require you to apply for SSDI and appeal (if you are denied) at least once. It’s in your Plan provisions. If you do not do this, in most cases, the disability insurer may reduce your monthly benefit by an “estimated” amount for any expected SSDI award you receive, or are entitled to receive.Notice that you don’t even have to be receiving the income, just “entitled to receive it.”
Also, most disability insurers will ask you to sign a “Payment Option Form” which asks you to agree to one of the following: (1) allow the company to reduce your monthly benefit by an estimated amount in anticipation of receiving a SSDI award, or (2) you do NOT want to receive a reduced benefit, but agree to return the SSDI lump sum to the insurance company when you receive it. Most claimants choose option 2 because they need the money in the short-term, but please realize when you sign the payment option form agreeing to “turn over” the lump sum, you may be obligated to actually pay back the money. Some disability insurers “drop the ball” in chasing you for this form, others are emphatic about it.
Since Unum Group is the largest group disability insurer, I will describe their internal SSDI repayment process first, then move on to some of the others, such as The Hartford. UNUM’s policies generally say they will not reduce your monthly benefit unless you do not, or refuse to apply, or first appeal for SSDI. Intake clerks send out the “Payment Option Form” for you to sign. UNUM’s management has many internal review processes which “track” the claims handlers’ success in getting you to apply for SSDI. If your original application is denied, you must appeal. If you are denied at the second level of application called “reconsideration” you must appeal, and UNUM may refer you to Genex, or other third-party advocates.
Genex assistance although sold as “free”, isn’t free. Genex will appoint a paralegal to assist you with further appeals (ALJ), and if awarded, Social Security will reduce your lump sum by 25% and give it to the Genex attorney, so the service isn’t free. Today, following the money may be difficult since what entity pays what other entities for advocacy is always in question. DCS, Inc. never recommends third-party SSDI advocates since they do not represent you, the claimant, but insurers who are probably paying for their services.
Because Social Security can take up to a year or more to obtain, there is a period of time when UNUM is paying you a full monthly benefit. When you are finally awarded SSDI retroactively, some or all of the lump sum money awarded to you by Social Security should be returned to Unum in accordance with your signed Payment Option Form, if in fact you signed one. Remember, you only owe Unum an amount equal to your social security award for the same periods of time when you were paid by both Unum and Social Security.
Unum’s policy for repayment is to receive a lump-sum reimbursement. They want their money in a lump-sum, and expect you to send it to them as soon as you get it, as you promised Unum you would. Unum has long since lost its patience with claimants who refuse to pay back money they promised to repay. New Payment Option Forms requiring claimants to agree to voluntary asset liens are now being used.
Claimants will also begin to receive phone and written communications instructing them to send overpayments as soon as possible. Typical wording might say the following: “Please send us the total amount of the overpayment within 30 days. If the overpayment is not received within 30 days, we will reduce your monthly benefit to $0 until the full amount has been recovered.”
Although Unum doesn’t advertise the fact they are willing to make SSDI repayment deals, it will work with claimants under hardship circumstances. Unum still prefers to recover the amount of the overpayment within 12 months. So, they ask you to agree to reduce monthly benefits by 1/12th of the amount of the overpayment. Some people can afford to do this, others cannot. “Deals” for repayment of the SSDI overpayment are made through the FSU (Financial Services Unit) and not the claims specialist as a general rule. My advice is to immediately pay back the money insurers “front you” while waiting for SSDI, or make the best deal you can for a monthly benefit reduction.
All disability insurers encourage claimants to apply for SSDI benefits, chase them for repayment of the lump sum award, then consider claims for denial at the 24th month. I know this sounds like an impossible dichotomy, but the Multi-State investigation results instructed Unum to place more weight on Social Security determinations due to past unfair claims practices in denying claims once SSDI has been awarded.
Do insurers really consider and accept SSA’s decisions? Of course not. In fact, Unum’s scam is to require an IME and then reject SSA’s award decision, “…since we have new information SSA didn’t have at the time benefits were awarded. What a shady scheme!”
One thing to keep in mind is that if there is a provision in your group policy allowing the disability insurer to reduce your monthly benefit by primary and family social security, your insurance company is entitled to any amounts owed. It is a matter of contract, and until the laws are changed, your employer buys certain policy provisions from the insurer, and employees must abide by the provisions agreed to. Signing documents where the claimants has “no say” as to the provisions are called “contracts of adhesion, and ERISA judges are expected to give “deference” of opinion” to claimants. In reality, judges rarely consider this.
My best recommendation for all employees covered under the employer’s group LTD plan, is to obtain a copy of your “certificate” or original LTD policy while you are still employed, and ask questions until you thoroughly understand what will happen when you have other income. Social Security may not be the only source of other income that may reduce your monthly LTD benefit. As a consultant, I am surprised everyday when claimants tell me, “…I didn’t know…. I didn’t know…”
All middle class working Americans should know well in advance what the provisions in their Plans allow long before it is necessary to file a claim. This relates to ALL provisions of the group LTD policy, not just those affecting SSDI and offsets for other income. If you haven’t already obtained a copy of your Plan, please do so now, and read the provisions carefully.
In summary, here are my recommendations:
Obtain a copy of your group LTD policy as an employee and understand all provisions, particularly those outlining obligations regarding applications for SSDI. As an American employee, you have an obligation to yourself to completely understand your LTD policy and how you and your family may be affected should you become unable to work. After all, you should know the net amount payable under the policy.
Be cognizant of what you are signing and agreeing to. If you sign a Payment Option Form and agree to an unreduced benefit with the promise of paying it back, you should be willing to live up to that agreement and pay it back. Far too many claimants want to receive 100% of their benefit while waiting for SSA’s decision, but then refuse to repay it back when benefits are received.
I hope this information will help you make the best financial decisions for you and your family.
