Cross-Plan Offsetting in the Crosshairs

Cross-Plan Offsetting in the Crosshairs

A federal district court in New Jersey has issued an important decision for sponsors of plans subject to ERISA. The case in question, Lutz Surgical Partners PLLC, et al v. Aetna Inc., et al, deals with the issue of cross-plan offsetting. In this case, the federal Court determined that Aetna’s cross-plan offsetting was a violation of plan fiduciary duties under ERISA §404(a) and a violation of prohibited transactions under ERISA §406(b)(2).

Cross-plan offsetting

Cross-plan offsetting occurs when a third-party administrator (TPA) believes it has overpaid a healthcare provider for services rendered to participants under a particular ERISA plan. The TPA requests repayment from the provider, and if the provider does not grant repayment, the TPA unilaterally decides to withhold payment to the same healthcare provider for services rendered under a separate and distinct plan.

ERISA section 404(a) – Fiduciary duty of exclusive benefit

ERISA fiduciaries must discharge their duties with respect to a plan solely in the interest of the participants and beneficiaries and ... for the exclusive purpose of... providing benefits to participants and their beneficiaries.” The Court in Lutz v. Aetna determined that

“[W]hile undertaking the offsetting, Aetna is discharging its duty of benefit payment under Plan B, which should be done for the exclusive purpose of serving the interests of the Plan B participants and beneficiaries. However, such an offsetting serves another purpose unrelated to Plan B, i.e., recovering overpayments made under Plan A. Therefore, Aetna's practice of cross-plan offsetting violates Section 404(a).”

ERISA section 406(b)(2) – Prohibited transactions

ERISA section 406(b)(2) prohibits plan fiduciaries from acting in “any transaction involving the plan on behalf of a party... whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries.” This is a “per se prohibition of a transfer between two funds where the trustees are identical but the participants and beneficiaries are not.” The federal Court in Lutz v. Aetna stated that

“Here, Aetna, as an ERISA plan administrator, acts as the fiduciary for both Plan A and Plan B, whose participants and beneficiaries are not identical. By “failing to pay a benefit owed to a beneficiary under one plan in order to recover money for the benefit of another plan,” the practice of cross-plan offsetting “may constitute a transfer of money from one plan to another.”

Other Court Opinions on Cross-Plan Offsetting

The Lutz decision is not the first to deal with the issue of cross-plan offsetting, but it is the biggest decision to date finding offsetting is a violation of ERISA. In a 2019 decision in the Eighth Circuit Court of Appeals, the Court didn’t go so far as to find that UnitedHealth Group was in violation of ERISA, but did state that the practice of cross-plan offsetting was not contemplated in the agreement and governing plan instrument. See our prior Benefit Beat article on the Eighth Circuit case.

Advice for Plan Sponsors

Certainly this won’t be the last of litigation regarding cross-plan offsetting. Therefore, sponsors of plans subject to ERISA will want to address this issue with their third-party administrators.


The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations. This information is provided as general guidance and may be affected by changes in law or regulation. This information is not intended to replace or substitute for accounting or other professional advice. You must consult your own attorney or tax advisor for assistance in specific situations. This information is provided as-is, with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.

Cross-Plan Offsetting in the Crosshairs https://www.cbiz.com/LinkClick.aspx?fileticket=1hob53ktcD0%3d&portalid=0A federal court has ruled cross-plan offsetting is an ERISA prohibited transaction and a violation of fiduciary duty.2021-06-30T19:00:00-05:00A federal court has ruled cross-plan offsetting is an ERISAprohibited transaction and a violation of fiduciary duty.Regulatory, Compliance, & LegislativeEmployee Benefits ComplianceNo