Receiving your Social Security Disability Insurance (SSDI) award letter can be rewarding. However, that relief tends to be short-lived when you notice your private long-term disability (LTD) check suddenly shrinks.
If you are feeling blindsided, you are not alone. This shift occurs due to a standard feature of Employee Retirement Income Security Act (ERISA) plans known as the offset.
How the offset rule works
Most ERISA-governed policies offered by employers aim to replace a portion of your income, which is usually 60%. However, this depends entirely on your specific plan’s summary plan description.
The insurance company views SSDI as an alternative source of that same income. Under the terms of your policy, they can subtract your SSDI monthly amount from your LTD benefit. If your LTD was $3,000 and you receive $1,200 in SSDI, your private insurer will likely reduce its payment to $1,800.
Why a back-pay trap exists
Aside from the reduced LTD amount, you also face a lump sum offset. Since SSDI approvals can take months or years, the SSA often sends you a check for back-dated benefits. Under your ERISA plan, the insurance company typically has a legal claim to that lump sum.
They consider the money they paid you while you were waiting for SSDI benefits to be an advance. While insurers typically demand immediate repayment, your legal obligation may be limited if the funds have already been spent on basic necessities before the demand emerged.
Seeking clarification on computations
Federal law governs the validity of these offsets and the insurer’s right to reimbursement, preempting most Louisiana state insurance laws. However, navigating the math alone can be confusing. Consulting an experienced ERISA attorney can help verify your insurer’s calculations and ensure they are not overreaching.