ERISA Plans: Recovery Possible If Funds Expended?

Ashleigh Hall, CPA

Who’s Involved?

Board of Trustees (135 S. Ct. 1700)

What Happened?

In 2008, Robert Montanile was in an accident and incurred approximately $120,000 of medical expenses, which were covered by the National Elevator Industry Health Benefit Plan (the Plan). Upon receiving a $500,000 settlement for the incident, Montanile paid legal fees but did not reimburse the Plan. The Plan filed a lawsuit to recover its expenditures for the accident, specifically by enforcing a lien provision that is found in its SPD.

The Plan’s position was upheld by the Middle District Court of Florida and the Eleventh Circuit, but Montanile continues to appeal the ruling. Montanile is relying on ERISA 29 U.S.C., Sec 1132(a)(3)(B), saying that the Plan is not seeking “appropriate equitable relief” because the settlement funds have been spent.

What’s the Issue?

The circuit courts are divided. The majority hold that the lien provision is enforceable because the funds were “specifically identifiable,” albeit no longer in Montanile’s possession. At least two circuits, however, disagree stating that a lien against nonexistent funds is not enforceable and insisting that a “strict tracing” should be required in similar cases going forward to determine that the funds in question are in the plan member’s actual or constructive possession.

Where Is It Now?

It is with the Supreme Court now for a final determination, which is expected in the coming months.

What Could This Mean?

If the Plan’s position is upheld, then other plans with reimbursement provision in their plan document will likely be able to enforce them. For plan members, it means reimbursement may be required, even if the funds are gone. Additionally, this could result in the scope to extend to other parties, beyond the plan member, who held or controlled the funds in question.

If Montanile’s position is upheld, plans will need to act far more quickly and institute more aggressive internal detection systems to identify and recover reimbursable events before the funds are expended by the plan member.

Based on the current status of a similar lawsuit, Pharmacia Corporation Supplemental Pension Plan v. Weldon, the final determination of this case will likely set a precedent for any over-payments made by pension and health plans, regardless of the cause.


The facts of the case as described above were summarized from the following sources:

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