E&O Claims Scenario: Dangers of Interpreting Retirement Plan Benefits

Sharpen Your Skills With Our E&O Claim Scenarios

We believe that insurance professionals can improve the service that their clients receive by sharpening their professional skills by looking over case studies and scenarios that have led to E&O claims.

Facts

A client had served ten (10) years in the U.S. military before an honorable discharge.  Subsequently, he went to work as a federal employee for over twenty (20+) years.  The client came to agent seeking advice on retirement planning.

The client was entitled to certain benefits under the Federal Employment Retirement System (“FERS”).  These included an early retirement option with a Social Security Retirement Supplement (“SSRS”), which limits benefits after thirty (30) years of federal service, for the purposes of supplementing the FERS annuity until an employee reaches social security age (62).

The client allegedly relied upon the agent’s representation that his military service time would count towards the SSRS, and that he would also be able to work elsewhere during retirement.  While technically the client’s military service time would count for purposes of “retirement,” the SSRS benefits would not be calculated in the same fashion.  FERS also imposes an annual cap on earnings of $17,000.

Based upon the representations of the agent, the client retired early and received lower SSRS benefits than expected. Those benefits were further reduced because the client’s post-retirement earnings exceeded the cap.

Lessons Learned

• It is critical to ensure that agents only give advice/guidance on products they are thoroughly familiar with. Particularly with federal programs, there is a substantial amount of nuance, which could easily lead to confusion.  Agents should be careful not to offer advice on any product they are not familiar with.  They should instead confer with subject matter experts as necessary, or refer the client to the appropriate issuer of the product/investment/plan for details as to the specifics of same.
• Under certain state laws, an agent’s representations may override written materials regarding benefits. Thus, an agent must be careful with any verbal/written advice that could potentially be construed as conflicting with written materials/disclosures.  If there are questions as to applicability of certain benefits/options, advice should be sought through the agency and/or legal counsel.  An agent should be forthright with a client and admit that there are certain areas that are not within his or her expertise.
• An agent should err on the side of caution, getting more disclosures executed than may be required by law. A detailed record of the type of advice that was given/received can help defend a situation where a client asserts they were given conflicting advice with written materials.  Requests should be made to have the client confirm receipt of such written materials.

 

DISCLAIMER:

This material is provided for informational purposes only and should not be construed as legal advice. The information contained herein does not necessarily represent Aspen’s views, and reflects the opinion of the authors in light of market, regulatory and other conditions which may change over time.  Aspen does not undertake a duty to update this information.