# Petition — Lamb v. Connecticut General Life Insurance > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_2334%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1981 - **Citation:** 454 U.S. 836 ## Text Office- An Court, U.S. ee oe JUN 22 1981 — ůů—ů— LER. CLERA 80-2162 No. | IN THE Supreme Cuurt of the United States OCTOBER TERM, 1980 ANNELIESE B. LAMB, individually and on behalf of all other persons similarly situated, Petitioner, v. CONNECTICUT GENERAL LIFE INSURANCE COMPANY, Respondent. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT ROBERT H. JAFFE JAFFE & SCHLESINGER, P.A. 8 Mountain Avenue Springfield, New Jersey 07081 (201) 467-2246 Attorney for Petitioner BuRTON A. SCHWALB CHARLES R. DONNENFELD STEVEN SARFATTI SCHWALB, DONNENFELD, BRAY & SILBERT A Professional Corporation 1333 New Hampshire Avenue, N.W. Suite 350 Washington, D.C. 20036 (202) 857-0970 Of Counsel WILSON - EPES PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001 QUESTIONS PRESENTED 1. Whether a private group disability insurance policy which, after a worker’s permanent disability, reduces insurance payments from the insurer by the amount of increases in social security disability benefits effects an “assignment” or “transfer” of those benefit increases in violation of Section 207 of the Social Security Act, 42 U.S.C. § 407. 2. Whether a private group disability insurance policy which, after a worker’s permanent disability, reduces insurance payments by the amount of dependent children’s social security benefits received by the worker as repre- senative of his or her dependent children deprives those children of benefits guaranteed to them under Section 202 (d)1 of the Social Security Act, 42 U.S.C. § 402(d)1, and implementing regulations, 20 C.F.R. § 404.1601 et seq. (i) ii PARTIES TO THE PROCEEDINGS Plaintiff-Appellant-Petitioner is Anneliese B. Lamb. Defendant-Appellee-Respondent is Connecticut General Life Insurance Company. TABLE OF CONTENTS QUESTIONS PRESENTED PARTIES TO THE PROCEEDINGS STATEMENT OF JURISDICTION STATUTES AND REGULATIONS INVOLVED ........ STATEMENT OF THE CASE A. Introduction B. Proceedings Below C. Statement of Facts REASONS FOR GRANTING THE WRIT ............ 3 A. The Decision of the Third Circuit Raises Ques- tions of First Impression and Paramount Im- portance Concerning the Entitlement of Dis- abled Social Security Recipients and Their De- pendent Children to Legislated Benefits Under the Social Security Act 2 B. The Decision of the Third Circuit is Incompat- ible With Prior Decisions of This Court CONCLUSION APPENDICES: A. Opinion of the United States Court of Appeals for the Third Circuit (February 23, 1981) B. Opinion of the District Court (March 4, 1980) ; Order for Summary Judgment on Amended Complaint (March 5, 1980); Order Granting Summary Judgment and Granting Leave to File Amended Complaint (July 31, 1978); Transcript of Hearing on Defendant’s Motion for Summary Judgment (June 12, 1978) (iii) eo fF d ND — 11 la iv TABLE OF CONTENTS—Continued Page C. Judgment of the United States Court of Ap- peals for the Third Circuit (February 23, 1981) 58a D. Affidavit of Robert H. Jaffe (March 23, 1978) ; Plaintiff’s Interrogatories (September 1, 1977) and Defendant’s Answers (December 5, 1977) ; Group Long Term Disability Benefits Insur- ance Policy 59a E. Relevant Statutory Provisions and Regula- tions llla * TABLE OF AUTHORITIES Cases Page Barr. v. United States, 324 U.S. 83 (1945) 1 Califano v. Boles, 443 U.S. 282 (19799997 Califano v. Goldfarb, 430 U.S. 199 (1977) .............. Califano v. Jobst, 484 U.S. 47 (1977) ... .................. Califano v. Webster, 480 U.S. 313 (1977) Califano v. Yamasaki, 442 U.S. 682 (197999 Cook v. Commercial Casualty Insurance Co., 160 00 0 0 0 0 & F. 2d 490 (4th Cir. 1947) 13 duPont de-Bie v. Vredenburgh, 490 F.2d 1057 (4th Cir. 1974) 13 Eisenlohr v. Ehrich, 296 F. 816 (3d Cir. 1924), cert. denied, 265 U.S. 584 (19250) 12 Flemming v. Nestor, 363 U.S. 603 (1960) 8 Garvey v. Worchester Housing Authority, 629 F. 2d 691 (Ist Cir. 1980) 10 Hackensack Trust Co. v. Ackerman, 47 A.2d 832 ,, 12 Hisquierdo v. Hisquierdo, 439 U.S. 572 (1979). 11, 13, 14 Houston v. Ormes, 252 U.S. 469 (1970) .................. 15 Jiminez v. Weinberger, 417 U.S. 628 (1974) 8 Johnson v. Harder, 383 F. Supp. 174 (D.Conn. 1974), affirmed per curiam, 512 F.2d 1188 (2d Cir.), cert. denied, 423 U.S. 876 (1975) ............ 10 Martin v. National Surety Company, 300 U.S. 588 (1937) 15 Mathews v. De Castro, 429 U.S. 181 (1976) 8 Mathews v. Eldridge, 424 U.S. 319 (1976) 8 Mathews v. Lucas, 427 U.S. 495 (1976) 8 National Bank of Commerce v. Downie, 218 U.S. 854 (1910) 15 Norton v. Mathews, 427 U.S. 524 (1976) 8 Porter v. Aetna Casualty & Surety Co., 370 U.S. 659 (1962) 12 Philpott v. Essex County Welfare Board, 409 U.S. 418 (1973) 6, 13, 14 Richardson v. Belcher, 404 U.S. 78 (197177 8 Richardson v. Perales, 402 U.S. 389 (1971) ........ 8 Richardson v. Wright, 405 U.S. 208 (1972 8 Segal v. Rochelle, 382 U.S. 375 (1966) .................... 15 vi TABLE OF AUTHORITIES—Continued Page Stokeley Bros. & Co. v. Conklin, 26 A.2d 147 (N.J. Eq. 1942) 18 St. Paul Fire & Marine Insurance Co. v. Barry, 438 U.S. 531 (1978) 12 Weinberger v. Salfi, 422 U.S. 749 (1975) .............. 8 Weinberger v. Wiesenfield, 420 U.S. 686 (1975) 8 Wolters Village Management Co. v. Merchants & P National Bank, 223 F.2d 798 (5th Cir. 1955).. 18 Statutes and Regulations Federal Statutes een... 15 22 U.S.C. 5 1004 (e) 15 31 U.S.C. § 208 15 85 U.S.C. § 261 15 42 U.S.C. § 402(d)1 ..passim „„ ee passim 42 U.S.C. § 415 (i) 9 42 U.S.C. § 424 10 42 U.S. C. § 1478 15 45 U.S.C. § 281m 18, 15 Act of December 31, 1978, Pub. L. No. 98-288, 87 Stat. 948 5,9 Act of July 9, 1978, Pub. L. No. 98-66, 87 Stat. 158 5,9 Act of July 1, 1972, Pub. L. No. 92-886, 86 Stat. 406 5,9 State Statutes Cal. Ins. Code § 10127.1 (West Supp. 1981) .......... 14 Conn. Gen. Stat. Ann. § 88-1741 (Supp. 1980) 14 Ga. Code Ann. § 56-3409b (Supp. 1980) 14 Hawaii Rev. Stat. § 481-521(c) (1976) ꝗ 14 Ill. Ann. Stat. ch. 73, § 976.1 (Smith-Hurd Supp. 1980) 14 vii TABLE OF AUTHORITIES—Continued Page Md. Code Ann. Art. 48A §§ 240H, 447G (1979). 14 Minn. Stat. Ann. § 62A. 18 (Supp. 1981) ............... 14 Pa. Stat. Ann. tit. 40, § 754.1 (Purdon Supp. 1980) 14 S. D. Comp. Laws Ann. § 58-18-11.1 (1978) .......... 14 Federal Regulations 20 C.F.R. § 404.1608 10 Miscellaneous S. Rep. No. 404, 89th Cong., Ist Sess. ...................... 11 H.R. Rep. No. 1215, 92nd Cong., 2nd Sess. (1972).. 9 H.R. Rep. No. 627, 98rd Cong., Ist Sess. (1973) 9 118 Cong. Rec. 28286 et seg. (1972) 9 119 Cong. Rec. 36952 et seg. (1973) 9 Department of Health and Human Services, Social Security Administration, Social Security Bul- letin (April, 1981) 7 Social Security Administration Office of Manage- ment and Administration, The Year in Review, The Administration of Social Security Programs 1977 (July, 1978) 7 IN THE Supreme Court of the United States OCTOBER TERM, 1980 No. ANNELIESE B. LAMB, individually and on behalf of all other persons similarly situated, . Petitioner, CONNECTICUT GENERAL LIFE INSURANCE COMPANY, Respondent. PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT OPINIONS BELOW The opinion of the Third Circuit is reported at 643 F.2d 108 (8d Cir. 1981) (advanced sheet) and is re- produced at App. la. The opinion of the District Court granting summary judgment on the amended complaint is not officially reported; the opinion and final judgment are reproduced at App. lla and 50a, respectively. No written opinion was filed by the District Court in grant- ing defendant’s motion for summary judgment on the original complaint. The Court’s oral ruling and order granting summary judgment with leave to file an amended complaint are reproduced at App. 51a and 53a, respectively. STATEMENT OF JURISDICTION The judgment of the United States Court of Appeals for the Third Circuit was entered on February 23, 1981. Within 90 days of that date, on May 22, 1981, Circuit Justice Brennan extended to June 23, 1981 the time in which to file this petition for a writ of certiorari. The jurisdiction of this Court is invoked pursuant to 28 U.S.C. § 1254(1). STATUTES AND REGULATIONS INVOLVED . This case involves the following statutes and regula- tions: 42 U.S.C. § 402 (d) 1 42 U.S.C. § 407 20 C.F.R. §§ 404.1601, 1603, 1605, 1607 These provisions are set forth at App. 111a. STATEMENT OF THE CASE A. Introduction This Petition seeks review of a judgment of the Third Circuit Court of Appeals allowing private disability in- surers to deduct Social Security disability benefits from insurance proceeds otherwise payable to disabled workers under contributory long-term disability insurance policies. The practical effects of these deductions is to deprive disabled policy beneficiaries of cost-of-living increases in primary disability benefits that would otherwise come to them under Section 207 of the Social Security Act (“SSA”), 42 U.S.C. § 407, and to deprive their de- pendent children of benefits provided for their use under 142 U.S.C. § 407 provides as follows: The right of any person to any future payment under this subchapter shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this subchapter shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the VC (Emphasis Section 202(d)1 of the statute, 42 U.S.C. § 402(d)1,? and implementing regulations. B. Proceedings Below On June 29, 1977, petitioner Lamb instituted suit in the United States District Court for the District of New Jersey seeking damages and injunctive relief against re- spondent Connecticut General Life Insurance Company. Petitioner, a permanently disabled worker, brought suit for* herself and as a test case for other disabled workers. Her complaint and amended complaint alleged that re- spondent’s practice of deducting federal benefits from insurance proceeds it was required to pay violated both state and federal law, including Sections 207 and 202 (d)1 of SSA. Respondent admitted the practice, but denied liability.“ Prior to the completion of discovery, respondent moved for summary judgment on the federal counts of the com- plaint. That motion was granted on July 31, 1978, with leave given to file an amended complaint. After the filing of the amendment, but still prior to the completion of discovery, respondent moved for summary judgment on the amended federal counts. On March 3, 1980, the District Court granted respondent’s motion for summary judgment on the federal claims and dismissed the pendent state law claims for lack of subject matter jurisdiction. The United States Court of Appeals for the Third Circuit affirmed in a decision issued February 23, 1981. 2 42 U.S.C. § 402 (d) 1 states in relevant part: Every child . . of an individual entitled to. . . disability in- surance benefits . . shall be entitled to a child's insurance benefit. The complaint also asserted three additional state law counts under pendent jurisdiction relating to misrepresentation in the sale of respondent’s policies and other misconduct actionable under state law. 4 C. Statement of Facts Prior to becoming permanently disabled in 1970, peti- tioner was employed as a hospital dietieian.“ In October, 1969, her employer purchased a long-term employee dis- ability policy from respondent. The policy became effec- tive upon the enrollment of a specified number of peti- tioner’s co-workers.’ The plan was voluntary and contri- butory, with employees paying 75 per cent of the pre- miums by payroll deduction.“ The premiums were calculated on the basis of the full amount of an em- ployee’s anticipated monthly income benefit. The insurer did not consider amounts that would be received from collateral sources such as Social Security or workmen’s compensation in calculating the premiums.’ The plan provided that, upon disability, the employee would receive income benefits of 70 per cent of monthly earnings, to a maximum of $1,500. The plan also pro- vided that monthly benefits would be reduced by “Other Income Benefits,” including: (1) any periodic cash payment provided on account of the Employee’s disability. . . (b) by the Federal Social Security Act, including benefits payable to the Employee’s dependents on account of the Em- ployee’s disability .. .; and (2) any Federal Old Age Benefits provided under the Federal Social Security Act. (App. at 92a.) App. at 12a; Lamb Deposition (December 12, 1978) at 6. 5 App. at 2a, 12a; Jenson Affidavit (March 2, 1978) at 2. * App. at 68a; Respondent’s Answer to Verified Class Action Complaint (September 2, 1977), at 8; Spina Deposition (Janu- ary 3, 1979) at 29. 7 App. at 64a. The facts developed in the trial court did not disclose the precise method by which the premiums were calculated by respondent since, as reflected in respondent’s interrogatory answers, relevant documentation maintained by respondent had been destroyed. App. at 72a. 5 Petitioner became eligible for insurance benefits be- cause of disability in January, 1971. App. at 3a. In addition, petitioner qualified for primary disability and dependent children’s benefits under the Social Security program. App. at 3a. In 1971, petitioner’s monthly Social Security benefits initially were $199.30 ($130.80 in primary disability benefits and $68.50 in dependent children’s benefits).* Since then, these federal benefits have been periodically increased under legislation de- signed to adjust Social Security benefits to the rising cost of living.“ By June 1980, petitioner’s total Social Security benefits had risen to $476.00. None of these benefits, however, has gone towards fulfilling the purpose intended by Congress. Instead, respondent has received the economic benefit of all in- creases in petitioner’s primary disability benefits as well as all benefits received by her on account or her de- pendent children. Because respondent has deducted these payments from petitioner’s insurance proceeds, peti- tioner’s total monthly income from these sources has remai d constant since 1971, while the benefits paid to her dir :tly by respondent have continuously declined.’ 8 Respondent’s Answer to First Amended Complaint (September 29, 1978), at J 19. E. g., Act of December 31, 1973, Pub. L. No. 93-233, 87 Stat. 948; Act of July 9, 1973, Pub. L. No. 93-66, 87 Stat. 153; Act of July 1, 1972, Pub. L. No. 92-336, 86 Stat. 406. 10 Pet. oner’s Social Security Act claims only contest the offset of post-disability increases in her disability benefits and of the benefits paid to her on account of her dependent children. Peti- tioner does not challenge respondent’s right to offset the dollar amount of primary disability benefits to which she became entitled upon first qualifying for Social Security—only the subsequent in- creases in those benefits. REASONS FOR GRANTING THE WRIT This Petition raises important questions of federal law which have not been, but should be, settled by this Court. Petitioner asserts that the first clause of Section 207 of SSA, 42 U.S.C. § 407, prohibits the transfer or assign- ment, at law or in equity, to an insurance company of the right of Social Security recipients to future increases in their primary disability benefits once they have quali- fied for benefits both under SSA and under private dis- ability insurance plans. Petitioner also asserts. that the public policy underlying Sections 207 and 202(d)1 of SSA, 42 U.S.C. §§ 407, 402 (d) 1, prohibits the deduction from disability insurance proceeds of Social Security child’s insurance benefits paid to disabled persons as representative payees of their dependent children. These issues are as novel and significant as those resolved by the Court in Philpott v. Essex County Wel- fare Board, 409 U.S. 418 (1978), which interpreted the second clause of Section 207 to prohibit creditors from reaching monies paid or payable, or rights existing, under SSA. Because no decision by this Court has heretofore interpreted the first clause of Section 207, this Petition provides an opportunity, nearly 50 years after SSA’s passage, for the Court to delineate the reach of the stat- ute’s spendthrift provisions—an interpretation which will affect literally millions of participants in group long term disability insurance plans. A, The Decision of the Third Circuit Raises Questions of First Impression and Paramount Importance Con- cerning the Entitlement of Disabled Social Security Recipients and Their Dependent Children to ee Benefits Under the Social Security Act The decision of the Third Circuit in this case denies to the disabled and their dependents the safety net of public benefits that Congress has jealously guarded 7 against encroachment over more than four decades of Social Security policy-making. The decision below inter- prets the Social Security Act in a manner that this Court has never previously countenanced and that endangers the economic well-being of a nationally significant class of Social Security beneficiaries." As an exercise in government administration, the So- cial Security program is of unparalleled scope. For example, in 1977, the year in which petitioner brought suit, approximately 150 million claims were filed and more than 34 million persons received benefits under the old-age, survivors and disability insurance program.” Nearly five million of these persons were disabled workers and dependents in current-payment status during 1977.“ The aggregate benefits paid to the disabled and their dependents during 1977 exceeded 10 billion dollars.“ As the Court has observed, “[gliven this magnitude, the number of times these SSA claims have reached this 11 Information developed before the District Court showed that as of June 1978, there were approximately 10,000 disabled persons insured by respondent in current-payment status and that there were approximately 12,000 other disabled insureds who were for- merly in payee status but who had reached the age of 65, died or whose insurance benefits otherwise were terminated. Lamb Af- fidavit (June 5, 1978), at 4. The record developed below also showed that some 498,000 workers were insured under respondent’s disability insurance policies. Id. While it is impossible to calculate the precise number of these persons and persons similarly situated insured by other carriers who may be affected by the disposition of this case, that number is national in scope. 12 Social Security Administration Office of Management and Administration, The Year in Review, The Administration of So- cial Security Programs 1977, at ii (July 1978). 18 Department of Health and Human Services, Social Security Administration, Social Security Bulletin, at 41 (April 1981). 14 Id. at 50. 10 Id. Court warrants little surprise.” Califano v. Boles, 443 U.S. 282, 283 (1979). Time and again, the Court has intervened to ensure that program beneficiaries receive the benefits to which they are entitled by law.““ These decisions reflect this Court’s special sensitivity to the congressional intent to afford protection to families against the economic hardships occasioned by old-age, death and disability. The Third Circuit’s decision breaks faith with the nation’s disabled workers and deprives them of the bene- fit of increases in Social Security payments which they depend on to maintain their life standard and which Congress has determined are necessary to cope with the increasing cost of living. According to the Third Circuit, 16 See, e.g., Califano v. Jobst, 484 U.S. 47 (1977) (termination of dependent child’s benefits upon his marriage); Califano v. Webster, 480 U.S. 318 (1977) (gender-based differences in benefit computation) ; Califano v. Goldfarb, 430 U.S. 199 (1977) (gender- based differences in defining dependent of deceased wage earner) ; Mathews v. De Castro, 429 U.S. 181 (1976) (denial of “wife's insurance benefits” to divorced women); Norton v. Mathews, 427 U.S. 524 (1976) (illegitimate children denied presumption of dependency); Mathews v. Lucas, 427 U.S. 495 (1976) (same); Weinberger v. Salfi, 422 U.S. 749 (1975) (duration-of-relationship requirements of receipt of mother’s or child’s insurance benefits) ; Weinberger v. Wiesenfeld, 420 U.S. 686 (1975) (gender-based de- nial of survivor’s benefits to widows) ; Jimenez v. Weinberger, 417 U.S. 628 (1974) (denial of disability insurance benefits to illegit- imate children born after date of wage earner’s disability) ; Rich- ardson v. Belcher, 404 U.S. 78 (1971) (reduction in Social Security benefits to reflect state workmen’s compensation benefits); Flem- ming v. Nestor, 368 U.S. 608 (1960) (termination of insurance benefits to aliens upon deportation). See also Califano v. Yamasaki, 442 U.S. 682 (1979) (necessity for oral hearing prior to recoup- ment in overpayment matters); Mathews v. Eldridge, 424 U.S. 819 (1976) (necessity for evidentiary hearing before termination of disability insurance benefits); Richardson v. Wright, 405 U.S. 208 (1972) (procedures used in suspending or terminating dis- ability benefits); Richardson v. Perales, 402 U.S. 389 (1971) (re- quirement of “substantial evidence” to support denial of benefits). these increases may effectively be appropriated by dis- ability insurance carriers to reduce insurance benefits otherwise payable by them to disabled recipients. Significant sums are involved. Since 1972, Congress has repeatedly legislated increases in the level of benefits due Social Security disability recipients.’ In 1972, bene- fits were adjusted upward by 20 percent. In 1973, Congress increased benefits payable in 1974 by 11 per cent. Further increases have resulted from application of the formula enacted by Congress to index benefits to the rising cost of living. Between 1971 and 1980, the petitioner alone became entitled to more than $10,000 in increased payments which were lost to her because of respondent’s practice of deducting these increases from her insurance proceeds. The Third Circuit acknowledged the “inequity” of this shift in economic benefits (App. 12a), but refused to apply the anti-assignment and transfer provisions of Sec- on 207 as the instrument for remedying it. Furthermore, the decision below impairs Congress’ in- tent in legislating Social Security benefits for the use and benefit of dependent children of disabled workers. Sec- tion 202(d)1 of SSA, 42 U.S.C. § 402(d)1, provides that „el very child... of an individual entitled to... dis- ability insurance benefits . . shall be entitled to a child’s 17 The legislative history of these measures makes clear Congress’ intent that legislated increases in program benefits go to maintain the living standard of program beneficiaries against escalations in the cost of living. See, e. ., H.R. Rep. No. 627, 93rd Cong., Ist Sess. 3-5, 23-25 (1973); H.R. Rep. No. 1215, 92nd Cong., 2nd Sess. 21 (1972); 119 Cong. Rec. 36952 et seg. (1973); 118 Cong. Rec. 23286 et seq. (1972). 18 Act of July 1, 1972, Pub. L. No. 92-336, 86 Stat. 406. 19 Act of December 31, 1973, Pub. L. No. 93-233, 87 Stat. 948; Act of July 9, 1973, Pub. L. No. 93-66, 87 Stat. 153. 2 42 U.S.C. § 415(i). 10 insurance benefit.” Implementing regulations provide that dependent children’s benefits are received “only for the use and benefit of such [dependent] beneficiary” (20 C. F. R. § 404.1603), and are “to be conserved for the child, most often to pay for education.” Garvey v. Worchester Housing Authority, 629 F.2d 691, 692 (1st Cir. 1980). Under the Third Circuit’s view, however, the economic benefit of these payments is misdirected to private insurers.” In this regard, the decision below conflicts with the rationale of Johnson v. Harder, 383 F. Supp. 174 (D. Conn. 1974), affirmed per curiam, 512 F.2d 1188 (2d Cir.), cert. denied, 423 U.S. 876 (1975). In that case, state welfare officials relied on a state regulation to offset against plaintiff’s welfare payments Social Security benefits received by plaintiff for the “use and benefit” of her dependent children. The court enjoined enforcement of the regulation on the ground that the Social Security Act and regulations prohibited the application of plain- tiff’s dependent’s benefits to reduce welfare payments to which she was otherwise entitled. The same reasoning calls into question the deduction of petitioner’s depend- ents’ benefits here. In denying petitioner the benefit of her Social Security entitlements, the court below echoed the familiar refrain that if Congress had intended to prohibit the reduction of Social Security benefits by private disability insurance carriers, it could have so provided. Actually Congress did strike the balance in favor of program recipients. Section 224a of SSA, 42 U.S.C. 424a, carves out an 21 In reaching this result, the Third Circuit misread Garvey, failing to recognize that the holding in that case represented only an exception to the general rule prohibiting the deduction of dependent children benefits from other public and private insurance benefits payable to permanently disabled persons, which exception was based on a countervailing federal policy reflected in HUD regulations covering the same subject matter. 11 exception for the deduction of worker’s compensation benefits from Social Security disability payments. This provision was added to SSA in 1965 in order to prevent “excessive combined benefits.” S. Rep. No. 404, 89th Cong., Ist Sess. at 100. But workmen’s compensation awards are the only offset authorized under Section 224a. Reductions for private disability insurance and even monetary recoveries in civil tort suits are not permitted— even though workmen’s compensation programs are also financed privately and serve precisely the same function as other forms of disability insurance and tort damage suits. The intent of Section 224a is to allow disabled workers, except those receiving workmen’s compensation benefits, to realize the combined benefit of what they are due under Social Security and what they are entitled to under private disability insurance. Congress may, of course, find that the distinction it has drawn is undesirable. If so, it may engraft onto the statute additional exceptions allowing for the offset of other forms of disability in- surance. For the present, however, the offset of benefits accomplished by respondent in this case and sanctioned by the court below “promises to diminish that portion of the benefit Congress has said should go to the... worker alone, and threatens to penalize one whom Con- gress has sought to protect.” Hisquierdo v. Hisquierdo, 439 U.S. 572, 590 (1979). B. The Decision of the Third Circuit is Incompatible With Prior Decisions of This Court Wholly aside from the importance and novelty of the questions presented, the decision below merits considera- tion in this forum because it is incompatible with prior decisions of this Court interpreting the scope and opera- tion of 42 U.S.C. § 407 and similar anti-assignment stat- utes. Section 407 forbids assignment or transfer of 12 future Social Security benefits and the use of legal process to reach them. The purpose of the provision is “to protect funds granted by the Congress for the main- tenance and support of the beneficiaries thereof.” Porter v. Aetna Casualty & Surety Co., 370 U.S. 159, 162 (1962) (veterans’ benefits). The prohibition is unqualified and unambiguous. In the face of the statute’s absolute prohibition, the Third Circuit drew a distinction between what it termed “theoretical” assignments of Social Security benefits (which are permitted) and actual assignments (which are forbidden). App. at 7a. This distinction is not found in the statute and serves only to cloud legislative intent and to deflect federal policy away from the intended goal. The Third Circuit’s interpretation of Section 207 im- parts to the terms “assignment” and “transfer” a mean- ing that unduly restricts the statute. Such statutory terms are to be read in the light of customary under- standing at the time of enactment unless the contempo- raneous legislative discussion suggests a special meaning. St. Paul Fire & Marine Insurance Co. v. Barry, 438 U.S. 531, 545-46 (1978). The terms used in Section 207 were understood at the time Congress enacted SSA and pre- clude the diversion of program benefits sanctioned by the court below.” Indeed, the statute’s purpose of preventing 22 The assignment of petitioner’s Social Security benefits sanc- tioned below is “equitable” in nature. The express terms of Sec- tion 207 (“at law or in equity”) prohibit such assignments, which both the Third Circuit and New Jersey courts have defined as “the actual or constructive appropriation” of not only . . choses in action and of contingent interests and expectancies, but ‘also of things which have no present actual or potential existence, but rest in mere possibility. EKisenlohr v. Ehrich, 296 F. 816, 819-20 (3d Cir.) (quoting Story’s Equity Jurisprudence), cert. denied, 265 U.S. 584 (1927); Hackensack Trust Co. v. Ackerman, 47 A.2d 882, 838 (N.J. Eq. 1946) (equitable assignment evidenced 13 dissipation of benefits invites the broadest construction. And the Third Circuit should not have been misled by the absence of contemporaneous legislative discussion on the particular issue, because “if Congress has made a choice of language which fairly brings a given situation within a statute, it is unimportant that the particular application may not have been contemplated by the legis- lators.” Barr v. United States, 324 U.S. 83, 90 (1945). This Court recently confirmed the broad construction to be given Section 207 in Philpott v. Essex County Wel- fare Board, 409 U.S. 413 (1973). There, the Court found “(t]he language is all-inclusive,” and the prohibition “broad enough to include all claimants, including a State.” Id. at 415, 417. In answering a claim that the State be allowed to offset local benefits by the amount of the federal grant, the Court stated: We see no reason to base an implied exemption from 12107 on that ground. We see no reason why a state, performing its statutory duty to take care of the needy, should be in a preferred position as com- pared with any other creditor. (Id. at 416). This perspective was reinforced in Hisquierdo v. Hisquierdo, 439 U.S. 572 (1979), which involved parallel anti-assignment provisions in the Railroad Retirement Act, 45 U.S.C. § 231m.” There again, the Court cau- by “an assignment even though of a future interest, as in after acquired property); Stokeley Bros. & Co. v. Conklin, 26 A.2d 147, 152 (N. J. Eq. 1942) (“The fund need not be actually in being if it exists potentially”). See also duPont de-Bie v. Vredenburgh, 490 F.2d 1057, 1060 (4th Cir. 1974); Wolters Village Management Co. v. Merchants & P. Nat'l Bank, 223 F.2d 793, 798 (5th Cir. 1955) ; Cook v. Commercial Cas. Ins. Co., 160 F.2d 490, 493 (4th Cir. 1947). 28 In language similar to Section 207 of SSA, 45 U.S.C. § 231m provides in relevant part: Notwithstanding any other law of the United States or of any State, territory or the District of Columbia, no annuity 14 tioned against “discard[ing] the settled view that anti- assignment statutes have substantive meaning.” Id. at 586. The Court found that these provisions were de- signed not only to “ensur[e] that the benefits actually reach the beneficiary,” but also to keep “the vagaries of state law from disrupting the national scheme, and guar- ante[e] a national uniformity that enhances the effec- tiveness of congressional policy.” Id. at 584. Contrary to this Court’s teaching in Philpott and Hisquierdo, the decision below places the parochial in- terests of state contract law above national policy, and undermines Section 207’s guarantee that program benefits reach their intended beneficiaries unencumbered by the claims of third parties. The Third Circuit’s decision also undermines the goal of national uniformity referred to in Hisquierdo. At present, in some jurisdictions, state legislation restricts the deduction of program payments that disability carriers can make from the insurance benefits due disabled workers,“ so that disabled recipients receive the full economic benefit of their Social Security entitlements. In other jurisdictions, however, the benefit or supplemental annuity shall be assignable, . . . nor shall the payment thereof be anticipated. The two statutes also share the same goal of “‘mak[ing] it sure that the annuitant gets the pension.“ 439 U.S. at 576 n.7. Moreover, the Railroad Retirement Act “was amended several times to make it conform more closely to the existing Social Security Act.” Id. at 574 n.3. Other similarities between the two statutes were noted by the Court. Id. at 575 n.6, 584. * F. g., Cal. Ins. Code § 10127.1 (West Supp. 1981); Conn. Gen. Stat. Ann. § 38-1741; (Supp. 1980); Ga. Code Ann. § 56-3409b (Supp. 1980); Hawaii Rev. Stat. f 431-521 (e) (Supp. 1979); Ill. Ann. Stat. ch. 73, § 967.1 (Smith-Hurd Supp. 1980) ; Md. Code Ann. art. 48a §§ 240H, 477G (1979); Minn. Stat. Ann. § 62A.18 (Supp. 1981); Pa. Stat. Ann. tit. 40, f 754.1 (Purdon Supp. 1980); 8.D. Comp. Laws Ann. § 58-18-11.1 (1978). 15 of these payments inures to private insurers. The deci- sion below preserves this patchwork system of distribut- ing federal benefits. Finally, the Third Circuit’s holding in this case de- tracts from this Court’s decisions interpreting analogous anti-assignment statutes to void, as between private parties, the voluntary transfer of claims against the government.“ These cases read the anti-assignment pro- visions as invalidating such transfers, except where the government has paid the claim or, for other reasons, is no longer substantially interested in the matter. Segal v. Rochelle, supra, 382 U.S. at 384; Martin v. National Surety Co., supra, 300 U.S. at 594-97. The transfer and assignment sanctioned in this case involves claims to benefits which remain periodically payable to petitioner over time, and which the government pays under a pro- gram designed expressly to protect petitioner and her dependents from the hardship entailed by her disability. In summary, neither the language and policy of SSA, nor the prior decisions of this Court, support the Third Circuit’s judgment that private insurers may deduct Social Security disability benefit increases and dependent children’s benefits from the proceeds owed to Social Secu- rity recipients under private disability insurance policies. This Court should review the decision below in order to 26 Section 207 of SSA is one of a number of federal statutes that regulate the assignment of federally conferred benefits. E. g., 16 U.S. C. §590h(g) (conservation benefits); 22 U.S.C. § 1004(c) (foreign service officer retirement benefits); 31 U.S.C. § 203 (claims against United States); 35 U.S.C. §261 (patents); 42 U.S.C. §1473 (farm loans); 45 U.S.C. 5 23im (railroad retirement benefits). . 20 Segal v. Rochelle, 382 U.S. 875 (1966); Martin v. Nat’l Surety Co., 300 U.S. 588 (1937); Houston v. Ormes, 252 U.S. 469 (1920); Nat'l Bank of Commerce v. Downie, 218 U.S. 345 (1910). 16 ensure that the economic benefit of these Social Security entitlements reaches their intended beneficiaries.*" 27 Seen in context, this petition presents for review the latest in a related trilogy 6f decisions by the Third Circuit denying pen- sion and disability insurance benefits to the retired and permanently disabled. The first two of these decisions, Alessi v. Raybestos- Manhattan, Inc., 616 F.2d 1288 (8d Cir. 1980), probable juris- diction noted, No. 79-1948 (U.S. November 8, 1980), affirmed, 49 U.S.L.W. 4508 (1981); Buczynski v. General Motors Corporation, 616 F.2d 1288 (8d Cir. 1980), cert. granted, No. 80-198 (U.S. November 3, 1980), affirmed, 49 U.S.L.W. 4508 (1981) [hereinafter cited as “Alessi-Buczynski’’], recently affirmed by this Court, sanc- tioned under ERISA the practice of private employers in reducing vested pension benefits owed to retired workers under federally regulated pension plans by the amount of subsequent workmen’s compensation awards. Review of the decision below is appropriate because the Court’s decision in the first two cases in the series leaves uncertain the legality of the related practice upheld in the case at bar. This Court’s analysis in Alessi-Buczynski contrasts with that used by the Court below to validate the integration of Social Secu- rity benefits and insurance proceeds. Alessi-Buczynski involved statutory provisions which neither expressly precluded nor au- thorized the integration of workmen’s compensation benefits and vested pension benefits. In interpreting ERISA to validate the offset of such benefits, the Court had explicit Congressional ap- proval of the practice of integrating pension benefits and retirees’ collateral sources of income. 49 U.S.L.W. at 4506. The Court also relied on IRS rulings, which predated passage of ERISA and which Congress knew permitted the integration of pension benefits and workmen’s compensation awards. Id. at 4507. The absence of evidence of legislative intent of the type that governed in Alessi-Buczynski leaves uncertain the analogous practice of inte- grating federal and private disability benefits. 17 CONCLUSION For the foregoing reasons, this Petition for a Writ of Certiorari should be granted. Respectfully submitted, ROBERT H. JAFFE JAFFE & SCHLESINGER, P. A. 8 Mountain Avenue Springfield, New Jersey 07081 (201) 467-2246 Attorney for Petitioner BURTON A. SCHWALB CHARLES R. DONNENFELD STEVEN SARFATTI SCHWALB, DONNENFELD, BRAY & SILBERT A Professional Corporation 1888 New Hampshire Avenue, N.W. Suite 850 Washington, D.C. 20086 (202) 857-0970 Of Counsel APPENDICES la APPENDIX A UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT No. 80-1528 ANNELIESE B. LAMB, individually and on behalf of all other persons similarly situated, A v. CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Corporation of the State of Connecticut ON APPEAL FROM THE UNITED STATES DISTRICT COURT For THE DISTRICT OF NEW JERSEY C.A. No. 77-1290 Argued December 4, 1980 Before: ADAMS, GARTH and SLOVITER, Circuit Judges (Filed February 23, 1981) RosBerT H. JAFFE, P. A. (Argued) Springfield, New Jersey 07081 Attorney for Appellant RoBERT H. JAFFE Howarb G. SCHLESINGER On the Brief McCarter & English Newark, New Jersey 07102 EUGENE M. HARING (Argued) Of Counsel RICHARD M. EITTREIM Davin R. Korr On the Brief Attorneys for Appellee 2a OPINION OF THE COURT ADAMS, Circuit Judge. This appeal presents two related questions: first, whether Section 207 of the Social Security Act, 42 U.S.C. § 407 (1976), prohibits the defendant, Connecticut Gen- eral Life Insurance Company [CGLIC], from offsetting Social Security disability benefit increases received by the disabled plaintiff, Annaliese Lamb, against the benefits payable to the plaintiff under the terms of a group dis- ability insurance policy; and second, whether the public policy expressed in Section 202 of the Social Security Act, 42 U.S.C. § 402 (1976), forbids the additional off- set against Lamb’s disability insurance benefits of Social Security benefits payable to her dependents. We conclude that neither of these offsets is unlawful under the Social Security Act, and therefore affirm the district court’s grant of summary judgment to the defendant. I. In 1969, Lamb’s employer, Overlook Hospital, pur- chased a group long-term disability policy from CGLIC that covered certain enrolled employees, including Lamb. The policy provided covered employees who became dis- abled with a monthly income payment equal to 70% of the monthly income they had earned while employed. Payments under the plan were reduced by “Other In- come Benefits” payable to the disabled employee, includ- ing Social Security disability benefits, so that the total of insurance payments and “Other Income Benefits” al- ways equalled 70% of the employee’s previous monthly earnings.“ 1 The insurance policy between Overlook and CGLIC, and the Cer- tificate of Insurance received by Lamb, contained the following pertinent provisions: [Footnote continued on page 3a] 3a Lamb became permanently disabled within the mean- ing of the CGLIC plan in January, 1971. On June 30, 1971 she was found to be eligible for Social Security dis- ability benefits for both herself and her dependents. Consequently, CGLIC adjusted her monthly income bene- fits to reflect the Social Security benefits that she received for herself and her dependents. Thereafter, as Social Security benefits have increased to keep pace with the cost of living, CGLIC has reduced by an equivalent amount the Monthly Income Benefits it pays to Lamb. The result is that to date Lamb receives the same gross amount each month that she received in 1971. Objecting to the way in which the CGLIC plan pre- vented her total income from rising with inflation, Lamb filed suit against CGLIC, charging that the insurance company fraudulently induced her to join the group plan through misrepresentations in the information it supplied to Lamb and the other employees. In addition, Lamb complained that the offset of Social Security disability benefit increases against the policy payments violated 42 1 [Continued ] The amount of Monthly Income otherwise payable for any monthly period will be reduced by the amount of all Other Income Benefits .. for the same monthly period. * * * Other Income Benefits include: (1) any periodic cash payments provided on account of em- ployee’s disability ; * * * (b) by the Federal Social Security Act, including benefits payable to the employee's dependents on account of the employee’s disability ; The employer could have selected another plan that did not offset Social Security benefits in this fashion. Because CGLIC considered “Other Income Benefits“ in its actuarial calculations, however, the premium under this other option would have been significantly higher. 4a U.S.C. § 407, which interdicts assignment, transfer, ex- ecution or other legal attachment of future Social Secu- rity benefits. Lamb also alleged that the reduction of CGLIC benefits in proportion to the amount of Social Security payments she received for her dependents under 42 U.S.C. § 402 violated the public policy underlying that section. Finally, she asserted claims for statutory penal- ties under the Welfare & Pension Plan Disclosure Act (WPPDA), 29 U.S.C. § 50 et seq., and the Employment Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq. The district court recognized that neither WPPDA nor ERISA applies to this disability plan, and dismissed the final allegation asserted by Lamb. It also granted summary judgment to the defendant on the question of illegal offsets. Determining that the fraud counts were state law claims, and that he had discretion not to exer- cise pendent jurisdiction after disposing of all federal law claims, the district judge dismissed these counts with- out prejudice to the right of the plaintiff to bring an action in state court relating to the fraud claims. On this appeal, only the summary judgment award against Lamb on the offset counts is before this Court. II. Lamb first contends that the Social Security Act, 42 U.S.C. § 407 (1976),? prohibits CGLIC, as a matter of law, from deducting any increase in Social Security bene- fits payable to her from the amount paid to her under the insurance policy. 2 42 U.S.C. § 407, reads, in pertinent part: The right of any person to any future social security pay- ment... shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this title shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law. (Emphasis added). 5a In so arguing, Lamb concedes that § 407 does not bar a “frozen” offset of Social Security benefits against amounts payable under private contracts. A frozen offset is one that is permanently fixed at the level of the recipi- ent’s initial Social Security benefits. Both state and fed- eral law supports the validity of frozen offsets. See Hurd v. Illinois Bell Telephone Co., 136 F. Supp. 125, 142 (N.D. III. 1955), aff'd, 234 F.2d 942 (7th Cir. 1956), cert. denied, 352 U.S. 918 (1956); Killebrew v. Abbott Laboratories, 352 So.2d 332, 336 (La. Ct. App. 1977), aff'd, 359 So.2d 1275, 1278 (La. Sup.Ct. 1978) ; Williams v. Insurance Company of North America, 150 Mont. 492, 434 P.2d 395, 397 (1967); Voss v. Mutual of Omaha Insurance Co., 469 S.W.2d 602, 604 (Tex. Ct. Civ. App. 1971). Cf. Buczyinski v. General Motors Corp., 616 F.2d 1238 (3d Cir. 1980), cert. granted, 49 U.S.L.W. 3322 (Nov. 4, 1980) (No. 80-193). In Buczyinski, we held that anti-forfeiture language in ERISA, 29 U.S.C. § 1058(a), did not prohibit offsetting against pension benefits the amount of a pensioner received under a New Jersey Workers Compensation statute. Having conceded the validity of a frozen offset, how- ever, Lamb maintains that an “unfrozen” offset, which decreases insurance payments as Social Security benefits are increased, violates the prohibition against assign- ment of future Social Security benefits, 42 U.S.C. § 407. She maintains that, since CGLIC reduces her insurance benefits whenever Social Security benefits are increased, it is CGLIC that enjoys the increases in Social Security benefits enacted by Congress, and not her. This, she asserts, is contrary to the intent of Congress. Philpott v. Essex County Welfare Board, 409 U.S. 413 (1973) and Hisquierdo v. Hisquierdo, 439 U.S. 572 (1979), cited by appellant, do not support her argu- ment. Both cases involved the transfer of Social Security payments to a third person through legal process. Here, 6a Lamb’s legal right to receive her Social Security pay- ments and the increases is uncontested. She continues to receive those benefits, and has, in fact, at all times received combined benefits from the insurance policy and Social Security in excess of what she would re- ceive from the Social Security program alone. Thus, neither Philpott nor Hisquierdo control the question of the validity, under sections 402 and 407, of an unfrozen offset. In recent years, there have been a number of state and federal legislative determinations to prohibit unfrozen offsets under various benefit programs, because such off- sets deprive insured individuals of any real benefit from the cost of living increases in Social Security mandated by Congress. For example, unfrozen offsets against qualified pension plans are forbidden under ERISA, see 26 U.S.C. § 401(a) (15), as well as under the Railroad Retirement Act, see 29 U.S.C. 5 1056 (b). In addition, many states have adopted statutes or regulations dealing with the integration of Social Security benefits and health and accident policies that pay disability benefits.“ New Jersey, however, has not yet prohibited unfrozen offsets. Congress, in 1978, considered 8.3017, which would have prohibited unfrozen offsets of Social Security bene- fits. Congress has not yet passed the bill, however, and, in the absence of a legislative mandate to the contrary, it does not appear that an unfrozen offset violates the letter or spirit of the Social Security Act. This conclusion is supported by Hurd v. Illinois Bell Telephone Co., 136 F. Supp. 125 (N. D. III. 1955) aff'd 224 F. 2d 942 (7th Cir. 1956). In Hurd, the employer offset one-half of a worker's federal old-age insurance benefits against the amount of pensions paid to retired See Dist. Ct. Op., Appendix B; App. at 637a for a compilation of the statutes and regulations of some jurisdictions. 7a employees. The effect of this unfrozen offset arrange- ment was that while the total benefits received from both Social Security and the pension inereased with any Social Security benefit increase, a participant realized the benefit of only one-half of the federal increase. The district court concluded that the shift in the economic benefit of a Social Security increase from the recipient to the company did not constitute a “transfer” prohibited by § 407 of the Act. Reasoning that § 407 was directed at traditional types of assignments, whereby a recipient re- linquished a portion of the federal benefits, the court found the fact that the workers received their full Social Security allotment to be dispositive. As the district court noted, § 407 “was never intended to freeze a worker’s private pension at a particular level. It was concerned only with guaranteeing that the worker would actually receive for his own use the amount due him under the Social Security Act.” 136 F. Supp. at 142. Finally, the court cited legislative history which indicated that Congress anticipated that private companies would in- tegrate Social Security benefits with the amounts paid under private insurance programs. The reasoning of the district court in Hurd appears to have considerable force. Here, the fact is that Lamb receives her full entitlement from the Social Security program. She has not transferred any portion of her federal benefits to the insurance company. Since § 407 does not address itself to the level of benefits that a pri- vate insurance program must pay to augment federal programs, we cannot say that the CGLIC insurance con- tract runs afoul of the anti-transfer provision of the Social Security Act. Although it may appear inequitable that CGLIC is, in a theoretical sense, receiving the benefit of cost-of- living increases under the Social Security Act by dimin- ishing the amounts it pays, Congress, rather than the 8a courts, should attend to this problem. Lamb may also seek to attack the harsh affect of the insurance contract by asserting state law claims founded on misrepresenta- tion or unconscionability of the contract. Federal law, however, currently does not prohibit unfrozen offsets against Social Security benefits that do not impact the level of funds the insured receives from the federal government. III The insurance policy offsets not only Lamb’s own Social Security benefits, but also the Social Security benefits she receives for the support of her dependents. Lamb argues that this latter provision violates the policy underlying the section of Social Security Act providing disability benefits to dependent children, 42 U.S.C. § 402 (d) (1).* To support her position, Lamb relies primarily upon Coughlin v. CGLIC, 330 A.2d 159 (Del. Super. 1974). In Coughlin, the court held, as a matter of state law, that the language of the disability insurance policy did not require the offset of payments made to the plaintiff’s children against the benefits payable to plaintiffs under the policy. Because Coughlin did not involve federal law, however, it has no bearing on Lamb’s argument, which is predicated on the Social Security Act. The district court held that the offset of payments received by Lamb’s dependents on accounts of her dis- ability does not transgress the policy undergirding the Social Security Act, 42 U.S.C. § 402. There is nothing in § 402 (d) (1) to suggest that it prevents an employer from bargaining for an insurance contract to cover its employees that offsets Social Security benefits received 4 42 U.S.C. f 402(d) (1) provides, in part: Every child . . of an individual entitled to. . disability in- surance benefits . shall be entitled to a child’s insurance benefit. 9a for the support of dependents against the disability pay- ments to be made under the policy. Similar to § 407, § 402(d) (1) is not addressed to the level of payment that must be maintained by a private insurance company. Thus, we cannot disagree with the conclusion of the dis- trict court. Support for the conclusion reached by the district court may be found in Dowell v. Aetna Life Insurance Co., 468 F.2d 802 (4th Cir. 1972), cert. denied, 410 US. 931 (1973), as well as in the recent decision of the First Circuit in Garvey v. Worchester Housing Authority, 629 F.2d 691 (1st Cir. 1980). In Dowell, the court upheld the validity of a contract offsetting Social Security dis- ability benefits made to the plaintiff’s wife and children against contractual disability insurance benefits paid to the plaintiff. 468 F.2d at 804-05. In Garvey, a nation- wide class of residents of public housing sought declara- tory and injunctive relief to prevent the Department of Housing and Urban Development from considering the Social Security benefits of minors as family income, for the purpose of computing rent levels for such public hous- ing. The court affirmed the validity of HUD’s practice of including minors’ benefits when computing family in- come. These cases demonstrate that total family income, including dependents’ Social Security allotments, rather than just individual income, may be considered when calculating benefit levels under public or private support programs. For the foregoing reasons, we find that the terms of the Social Security Act prohibit neither of the offsets au- thorized by the CGLIC group disability plan. Although the Social Security Act as is now stands mandates this conclusion, the result appears somewhat incompatible with the overall intent of Congress in voting to augment the level of benefits. The purpose behind these cost of living increases is to alleviate the harsh impact of infla- tion on the elderly and the disabled. Yet, by virtue of the 10a CGLIC policy, Lamb’s income has remained fixed de- spite a dramatic rise in the cost of living since 1971. Lamb’s predicament evokes sympathy. But courts are constrained to apply the law as adopted by the legis- lature, within the limits set by the Constitution, and Congress has not yet acted to ban unfrozen offsets of so- cial security benefits. It is the province of Congress, rather than the courts, to change existing law when so- cial or economic conditions demand adaptation. Accord- ingly, we can only urge Congress to devote prompt attention to the unfortunate impact on disabled Social Security recipients of insurance arrangements such as the CGLIC disability plan. The judgment of the district court will be affirmed. A True Copy: Teste: Clerk of the United States Court of Appeals for the Third Circuit lla APPENDIX B Opinion Filed March 4, 1980 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY Civil 77-1290 ANNELIESE B. LAMB, vs. CONNECTICUT GENERAL LIFE INSURANCE Co., Defendant. Plaintiff, Appearances: Hebert H. Jaffe, Esq. (Springfield) for plaintiff Eugene M. Haring, Esq. (McCarter & English, Esqs., Newark) for defendant OPINION BIUNNO, District Judge. This case comes before the court on defendant’s motion for summary judgment addressed to the Amended Com- plaint, and plaintiff’s cross-motion for partial summary judgment in her favor on the Third Count of the Amended Complaint. For reasons to be stated, defend- ant’s motion will be granted in part, i.e., insofar as the Amended Complaint attempts to advance federal claims (to be described) ; and as to any subsumed State claims, the remainder of the Amended Complaint will be dis- missed for lack of jurisdiction under F.R.Civ.P.12(h) (3) on the court’s own motion. Plaintiff’s cross-motion for partial summary judgment on Count 3 will be denied.’ 1The judgment in favor of defendant is on the merits of its motion and is with prejudice. The dismissal of the State law claims is for lack of jurisdiction, is not on the merits, and plain- tiff is free to press such claims in any State court of competent 12a The nature of the claim, as well as the applicable law, requires a review of the factual background and the steps taken in the case. It appears not to be in dispute that plaintiff Lamb was employed as a dietician at Overlook Hospital in New Jersey at a time when Overlook negotiated with Con- necticut General Life Insurance Co. (CGLIC) a proposed group policy to provide benefits for long-term disability to those employees who wished to participate.“ Overlook distributed literature about the proposal to its employees, and meetings were held at which Overlook personnel ex- plained the proposal. Each employee was also provided jurisdiction. Since nothing remains to be decided here, the judg- ment is final. In neither the original nor the amended complaint is there a claim of diversity jurisdiction, although pendent jurisdiction is asserted. There being no basis for any federal claim, the court exercises its discretion to dismiss the pendent state claims. 2The discovery record shows without dispute that Overlook, through an insurance broker, negotiated with CGLIC to resolve the selection of various types of coverage, benefits and terms of the group policy. Overlook then proposed the arrangement to the employees in the group, who numbered 93, and of which 70 de- cided to participate. No evidence was adduced to show that CGLIC ever dealt with any Overlook participant before the policy was written. The majority rule is that the group policyholder acts for itself and on behalf of the members of the group; it is not the agent of the insurance carrier. New Jersey adheres to the majority rule. Mariotti v. Metropolitan, ete., (22 N. J. L. 360 (E & A, 1939); Boseman v. CGLIC, 301 U.S. 196 (1937). See, also, Keane v. Aetna Life Ins. Co., 22 N. J. Super. 296 (App., 1952) where suit was against both the insurer and the employer, the latter having failed to pay premiums and to notify the employee of the termination of coverage or of a potential right to convert his group coverage to individual. Because of certain fact issues, a summary judgment below was set aside and no later report indicates the final outcome. See, also, New Jersey State Bar Examination, February 28, 1980, Question 3. 13a with a sheet indicating the premium contribution and the level of benefits as calculated at that time, and each em- ployee was provided with a form on which to indicate the desire to participate. Lamb, and enough other employees having indicated a desire to participate, the group policy was written by CGLIC and issued to Overlook, while certificates of coverage were issued to participating employees.“ Thereafter, and while covered, Lamb became disabled as defined by the contract, and applied for benefits, which were approved after the conti vet waiting period. In this same period, it appears that Lamb also ap- plied for disability benefits under the Social Security Act and that she was found to have an impairment qualifying as a “disability” as defined by law, and the statutory benefits were granted.“ The CGLIC contract expressly provided for an “offset” for benefits from collateral sources. The amount of the monthly income benefits begins as 70% of the employee’s monthly “Basic Earnings” (i. e., the rate of pay excluding overtime, bonus or additional compensation based on the normal work week of not more than 40 hours), subject to a ceiling of $1,500. per month in benefits. The monthly The record shows, including discussion at argument of the motions, that the certificate was as explicit as the master policy in the respects at issue. *No record was made of the certificate of award of Social Security disability benefits, or of agency notices to remove a de- pendent child who became disqualified by age, or other like changes. However, none of these data are disputed. After the waiting pe- riod on the claim, the first check sent on June 15, 1971 was for a lump sum going back to the first date when payment was due, and the accompanying letter made clear that this would be adjusted when the exact amounts of the offset were known. Additional pay- ment was sent June .80, 1971, to adjust, and then monthly thereafter. 14a income benefits are adjusted, this being a reduction by the amount of “Other Income Benefits”, a defined term, except that in any event minimum benefits of $50. per month will be paid regardless of the offset otherwise applicable. “Other Income Benefits” is defined as including any periodic cash payments “provided on account of the em- ployee’s disability”, under five specific subdivisions, as well as payments of Federal Old Age Benefits provided under the Federal Social Security Act. [emphasis added] The five categories of collateral source payments pro- vided on account of the employee’s disability are: (a) under any group insurance coverage; (b) by the Federal Social Security Act, including benefits payable to the insured’s dependents on ac- count of the employee’s disability; (c) by any state or federal government disability or retirement plan; (d) under any pension plan with respect to which the employer contributes or makes payroll deduc- tions; (e) under or on account of any workmen’s com- pensation or similar law; any one or more of which became payable on or after the commencement of the disability for which the This offset is limited to federal disability benefits paid to dependents on account of” the disability of the covered individual. While the statutory provisions are quite complex, it is clear that certain dependents may be entitled to disability benefits due to their own disability through the social security coverage of the worker. Among these there is provision for such benefits to an unmarried child, 18 or over, who was severely disabled before age 22 and who continues to be disabled. The record is clear that no benefits “on account of” a dependent child’s own dis- ability is involved here. 15a “Monthly Income” benefit is provided under the group policy. Lamb’s benefits under the group policy, calculated at 70% of her “basic earnings”, were adjusted by deducting the amount provided each month by the Social Security Administration as primary benefits and as dependent’s benefits, on account of Lamb’s disability, and there is no dispute that CGLIC has regularly paid, and is paying, the difference. Also, from time to time, the Congress has increased these benefits payable on account of Lamb’s disability, and the adjustment has been made by a reduc- tion or offset against the 70% level by the increased amounts so provided by that collateral source. The court notes, in passing, that so far as the group policy is concerned, the point will sooner or later be reached, as to each dependent child, when federal benefits will be reduced. As that occurs, the amount of the offset will be reduced and the net or adjusted monthly amount payable by CGLIC will inerease.“ Also, it is noted in passing that under explicit provi- sion of the Social Security Act, the Congress reserved authority to reduce or eliminate benefits, and may Wr the entire Act." Judicial notice is also taken that in the current session, both Houses have passed a bill that, if enacted, would * Exhibit P-9 marked at Lamb’s deposition de bene esse of December 12, 1978, indicates that the dependent child “Chris” was terminated by Social Security in March, 1976. While no list of names or ages was provided, the other children either have been or will be terminated by Social Security as they reach age 18 (or age 22 if full time students) and the CGLIC payment will increase accordingly. 7 See 42 U.S.C. § 1804, referred to by the Supreme Court in Hisquierdo, ootnote 6. It expressed the same view as to the Railroad Retirement Act. 16a reduce the amounts payable as disability benefits under the Social Security Act to eligible claimants who become disabled hereafter. Senate amendments differ from the House bill, and it will need to go to conference. What, if anything, will be passed and enacted is naturally un- predictable at this time. See H.R. 3236 and legislative history thereof. In any event, the claim is cast in several forms, each of which is aimed at the offset or integration provision in the group policy: * 1. no offset for disability benefits may be made be- cause of a provision in the Social Security Act fore- closing assignments, executions, and the like; 2. benefits provided as dependency benefits may not be offset because they belong to the dependents and not to Lamb; 8. increases in benefits to provide cost-of-living ad- justments may not be offset because to do so would defeat the Congressional intent to moderate the im- pact of inflation. The original complaint as filed claimed jurisdiction for the First Count under 28 USC § 1337 (civil actions arising under any Act of Congress regulating commerce) or 28 USC § 1331 (federal question). The federal ques- tions were said to arise under the Social Security Act, 42 USC § 301, et seq., and under the Welfare and Pension Plan Disclosure Act of 1958, 29 USC § 301, et seq. The claim asserted was one of conversion and unjust enrich- At the argument of the motions, plaintiff recognized that there was no bar to offset, at least as to federal law, so long as the offset were “frozen”. Thus, the real issue narrows down to offsets of social security increases. See Tr. 2/26/79 (filed, 4/16/79), p. 38 1.283 to p. 40, 1.11. However, the opinion reviews all three theories or claims. 17a ment by reason of deducting, from the contract benefit amount as initially integrated with Social Security dis- ability benefits at the level then established, later in- creases in those Social Security disability benefits. Jurisdiction was also asserted for the Second Count under ERISA, 29 USC § 1182, as a civil action by a participant or beneficiary against an administrator or fiduciary of an employee welfare benefit plan when in- junctive relief is sought in addition to the monetary claim for benefits. This count was advanced on the theory that if full integration with social security—as contrasted with “frozen” integration—was allowable initially, then when ERISA was enacted September 2, 1974, the offset became “frozen” at the level then existing, and later in- creases could not be integrated or offset. The original complaint was the subject of a motion for summary judgment which was granted in favor of de- fendant and against plaintiff on a showing that both the group policy and certificate, which dated back to late 1969, contained clear and express language for full inte- gration with Social Security on an “unfrozen” basis, i.e., that the contract provided for payment of excess over and above whatever the Social Security disability benefits amounted to, up to a combined total equal to 70% of basic earnings when Lamb became eligible for policy benefits, and that no public policy was contravened there- by. There was also an undisputed showing that the group insurance policy was terminated in early 1972, more than two years before ERISA was enacted, and that ERISA had no application to the case.“ The premium rate was raised in 1971, after the disabling event to Lamb, and Overlook chose to cancel the policy as of January 9, 1972, after Lamb was in payee status. See Tr. 2/26/79, p.33, 1.8 to 17; Exh. D-1 at Lamb deposition of 12/12/78. The record is silent on the question whether Overlook replaced the terminated policy with another one, as a means for providing benefits under 18a The motion for summary judgment was granted with leave to file an amended complaint, and in due course that was done. A motion for summary judgment directed to the entire amended complaint was filed by defendant, and a cross-motion for summary judgment on the Third Count of the Amended Complaint was filed by plaintiff. One of the issues argued on these motions was whether the ruling on the original complaint is res judicata on the amended complaint. Because the court is of the opinion that the motions are best addressed afresh, with- out confining its analysis and ruling in any way, the res judicata j ct is not dealt with here. A careful analysis of all the claims asserted, and all the undisputed facts gathered and presented through dis- covery and by affidavit, shows that there is no federal claim of any kind, and that if there be any claim at all, it is a state claim over which this court has no jurisdic- tion. Thus, the disposition on the pending motions is that summary judgment will be entered in favor of defendant and against plaintiff on all claims grounded on federal law, and insofar as any claim is asserted under state law, the complaint will be dismissed for lack of jurisdiction. This disposition leaves plaintiff free to advance whatever state law claim she may have in a state court of com- petent jurisdiction since the ruling on this aspect of the case is not on the merits. Two aspects of federal law on which the claim is grounded are clearly inapplicable. These are discussed separately. its “Plan”. The point is not significant, however, because Lamb was already in payee status when the policy was terminated, and at that time ERISA had not been enacted. Whether or not ERISA governs any later “Plan” of Overlook is irrelevant to Lamb’s claims here. 19a The first involves the Welfare and Pension Plans Dis- closure Act, enacted August 28, 1958 and amended March 20, 1962 (WPPDA), 29 USC § 301-309. This law was repealed by The Employee Retirement Security Act (ERISA), enacted September 2, 1974, in the following language: “The Welfare and Pension Plans Disclosure Act is repealed except that such Act shall continue to apply to any conduct and events which occurred before the effective date of this part.” ERISA, Title I, Subtitle B, Part I, § 111 (a) (1), 29 USC § 1031 (a) (1); and the effective date of “this part“ was January 1, 1975, 29 USC § 1031 (b) (1). The Disclosure Act (WPPDA), was just that and no more. It was not a regulatory statute but a disclosure statute, and by design endeavored to leave regulatory responsibility to the States. Neither it nor any other combination of federal laws preempted employee welfare or pension plans. See, Malone v. White Motor Corp., 435 US. 497 (1978). As is well-known, with the anticipated enactment of ERISA, many employee welfare and pension plans were terminated and new ones put in force, or the earlier plans were amended, to comply with ERISA. The Minne- sota statute involved in Malone was eventually ruled in- valid as violating the Contract Clause, U.S. Const. Art. I., sec. 10, cl. 1, White v. Malone, 599 F.2d 283 (CA 8, 10 There are special provisions for a different effective date depending on factors not applicable here, none of which would reach back to 1972 when the policy was cancelled, or to 1971 when Lamb went on payee status, nor beyond December 31, 1974. As discussed later, the Overlook “plan”, for which the CGLIC policy was obtained to provide disability benefits, was never covered by WPPDA at all, thus making the extension provision entirely inapplicable. 1979) as the result of the decision in Allied, etc. v. Spannus, 438 U.S.234 (1978). The only private civil claim created by WPPDA is found in 29 USC § 308 (b) and (e). These provisions subject the administrator of a plan who fails or refuses to make publication of a description of the plan or an annual report, within 30 days of a request therefor by a participant or beneficiary of the plan, to possible liability in the amount of $50. a day from the date of the failure or refusal. The requesting person may sue in any court of competent jurisdiction. The administrator may be liable in that amount “in the court’s discretion”, and the court may also allow a reasonable attorney’s fee in its discretion. Such a claim was regarded as a claim for compensation, and not for a forfeiture, fine or penalty, in Hales v. Winn-Dixie Stores, 500 F.2d 836 (CA 4, 1974). The compensation, allowance of which is discretionary, is for failure or refusal to disclose and has no relation to a claim for benefits, which is what is involved here. The second obstacle to any reliance on WPPDA is that the administrator“ of the plan involved was Overlook Hospital, the employer, not CGLIC, the insurer issuing the policy to the employer as the method for providing the benefits. This is clear from the facts not in dispute, which show that the employer, Overlook, applied for the group policy, and presented to its own employees the opportunity to participate. The policy was issued to Overlook. Overlook, as the employer, gathered the em- ployees’ contributions by payroll deduction, added its own contribution, and remitted the premiums to CGLIC. Under the statutory definition, Overlook was both the “employer” (29 USC § 302(4)) and the “administrator” (29 USC § 304 (b)). It was responsible for the ultimate control, disposition or management of the money received or contributed, to wit, the employee payroll deductions and its own contribution, the total of which it was obliged 21a to remit as premiums paid to CGLIC. See Wirtz v. Gulf Oil Corp., 239 F.2d 483 (D. Pa., 1965); Hales v. Winn- Diæie Stores, 500 F. 2d 836 (CA 4, 1974). The third and ultimately fatal obstacle to a elaim of any kind under WPPDA is that although Overlook’s plan or program to provide a disability benefits arrangement to its employees, is an “employee welfare benefit plan”, as defined by 29 USC § 302(1), the coverage section, 29 USC § 303 (a), expressly excludes from WPPDA an em- ployee welfare benefit plan if “such plan is administered by . . . organizations de- scribed in section Is] 501 (e) (3). . . of [the In- ternal Revenue] Code [of 1954]”. 29 USC § 303 (b) (3). A stipulation furnished by the parties establishes that Overlook Hospital was a section 501 (e) (3) organization and its name continues to appear in the “Cumulative List“, issued by the Internal Revenue Service. Thus, this employee welfare benefit plan was never covered by WPPDA, that law never applied to it, and its continuance in force as to any conduct and events occurring before the effective date of Title I, Subtitle B, Part I of ERISA, has no application whatever to this case. So far as ERISA itself is concerned, its enactment was on September 2, 1974, by which time the group policy in this case had long been terminated, Lamb was no longer an employee of Overlook and so does not come within either ERISA or any later plan which may have been put into effect by Overlook after the termination of the CGLIC group policy. It must be realized that policies of “group” insurance are written for many kinds of groups other than those coming within an employee welfare benefit plan, or an employee pension benefit plan, whether under WPPDA or ERISA. Employees of an employer, or employees 22a who are members of an employee organization (such as a labor union) are but one of many kinds of “groups”. Commonly, these groups are composed of persons who are members of some kind of organization without any relation to employee status. There are associations of retired persons. Their members are groups. There are holders of all kinds of credit cards. Such holders are groups. There are borrowers on mortgage or personal loans. Such borrowers, in respect to their common lend- ing institutions, are groups. There are trade associa- tions. Their members are groups. There are professional organizations, national, state, regional and local. Their members are groups. All of these groups may negotiate group policies of all kinds with one or another insurer and offer participa- tion to the members of the group. Throughout any year there is hardly a member of any “group” who does not receive in the mail some kind of application for group insurance, whether it be life, accident and health, dis- ability, travel, hospital and medical, or the like. None of these forms of group insurance as such, of whatever kind, have any relation to WPPDA or ERISA. They represent a method for providing insurance which, in many cases, can be obtained at rates below those for individual policies. This is not always the case because in some instances, where experience rating is applied to the group, the group premium for a member may be higher than it would be for an individual policy. This occurs most commonly with hospital, medical or dental plans, and least of all with group life, based on what is generally known.” 11 Another valuable feature of group insurance offerings, re- gardless of the kind of coverage or risk, is that much or all of the applicant’s relevant prior history is usually waived, thus making the applicant eligible in cases where he might not be for an individual policy. The degree of waiver will usually vary with the size of the population considered for underwriting pur- poses, and with the size and characteristics of the group. 23a The group policy written by CGLIC to Overlook for the benefit of those of its employees who chose to partic- ipate, is of the same kind as the countless other group insurance policies written over the years which are not within the scope of WPPDA or ERISA, both of which cover only those plans defined by statute, some of which may have a group insurance policy of some kind as a method for providing the benefits called for by the plan. It is worth noting, too, that welfare benefit plans and pension benefit plans are separately defined by WPPDA and carry different requirements. A “welfare benefit plan” is one established to provide medical, surgical, hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment. 29 USC § 302 (1). A “pension benefit plan”, on the other hand, is one established to provide retirement benefits, including a profit-sharing plan which provides benefits at or after retirement. Either kind of plan may provide the benefits through the purchase of insurance or otherwise. A pension plan may also provide benefits through the purchase of an annuity. The statute says so. The disability group policy involved here would be a method of providing welfare benefits if the plan estab- lished by Overlook were covered by WPPDA. For a “welfare benefit” plan, if it were covered, Overlook would be obliged to publish (1) a description of the 12 The variety of “plans” is very broad. Aside from WPPDA's initial division into “welfare” or “pension” plans, which merely recognized historical development (and which is continued under ERISA), there are many other variations. Some of these are discussed in the legislative history of WPPDA cited in Appendix A, as well as the countless arrangements for groups not within either WPPDA or ERISA. 24a plan, and (2) an annual financial report. 29 USC §§ 304 (a); 305; 306; 307. Where benefits for a plan are pro- vided by an insurance carrier, or by a service or other organization, the information to be supplied in the an- nual report of the administrator differs, depending on whether the plan is a “welfare” or a “pension” plan.“ For a welfare plan, the annual report is to include the information specified by 29 USC § 306 (d). For a pension plan, the information in the annual report is specified by 29 USC § 306 (d) (2). The detail required for pension plans includes actuarial assumptions, while that for welfare plans does not. This distinction is noted because much is made in the pleadings, discovery and argument about actuarial as- sumptions underlying the premium, but even if there were a plan covered by WPPDA, which there is not, that information is not called for in the case of a welfare plan, but only for a pension plan. Having employed the term in another subdivision of the same section, Con- gress can hardly be assumed to have intended that it apply to both kinds of plan. So far as the Amended Complaint is concerned, it claims jurisdiction under 28 USC § 1887 (civil actions arising out of any Act regulating commerce), by virtue of alleged violation of WPPDA and ERISA. Jurisdiction is also claimed by virtue of the Federal Declaratory Judgments Act, 28 USC §§ 2201 and 2202 and F. R. Civ. P.57, but it has long been settled that these are not 18 Various amendments and supplements to WPPDA were made in 1962. One of these was to require bonding of the “administra- tor” etc. of the “plan”. 29 USC § 808d. Also, 18 USC § 1954 was added. The record is silent on the question whether Overlook com- plied with the bonding requirement or obtained an exemption from the Secretary of Labor. Of course, if the “plan” was not covered by WPPDA, these requirements would not apply. 25a jurisdictional statutes or rules. Pendent jurisdiction is also claimed, if appropriate.“ As in the case of the original complaint, a copy of the amended complaint was served on the Secretary of Labor and the Secretary of the Treasury under § 502 (h) of ERISA, 29 USC § 1182(h) but neither has intervened. The first count of the Amended Complaint, although alleging fraud and concealment on the part of CGLIC on the theory that materials distributed by Overlook to describe the principal terms of the proposed group cover- age (added to existing life insurance, pension and an- nuity programs, major medical and Blue Cross/Blue Shield coverage) did not spell out that the deductions from integration with other sources specified would in- clude the totals received therefrom including any future increases. Since a system of full integration contravenes no federal law, this count is a state law claim.” The second count asserts the same claim on the as- sumption that if there was no malicious, fraudulent, wilful and deliberate course of conduct or scheme, then the alleged statements and omissions constitute the tort of negligent misrepresentation. This, too, is a state law claim. The third count focuses on the deductions of allowances under Social Security for Lamb’s dependents on account The amended complaint is permeated with allegations of “prin- ciples of federal common law.” So far as the State law claims are concerned, a federal common law was developed on the basis of Swift v. Tyson, 41 U.S. 1 (1842) but that era ended with Erie R. v. Tompkins, 304 U.S. 64 (1987). 1% Where the Internal Revenue Code is not complied with, there may be federal tax consequences, of course. But those conse- quences do not influence the private claims asserted here and can- not change the policy terms. See, e. g., Rothlein v. Armour & Co., 377 F. Supp. 506, at p. 512, item [10]. 26a of her disability. It is neither alleged nor suggested that any dependent of Lamb is himself or herself dis- abled within the meaning of the Act so as to be entitled to benefits, through Lamb’s status as a covered person, for the dependent’s own disability.“ On this count, the claim is that by 42 USC § 402(d) (1) the dependent benefits belong to the dependents (though paid to Lamb) and may not be assigned by Lamb. This claim involves a federal issue to that extent. The fourth count focuses on the theory that 42 USC § 407 forbids transfer or assignment of any “future payments”, as well as executing any levy, attachment, garnishment or other legal process, etc., as to any amounts payable. This provision is said to allow integra- tion by deducting primary benefits of Lamb's (but not dependency benefits) in the amount of the benefits to which Lamb was entitled after the contractual 6-month waiting period, but not to allow integration of increases thereafter granted under So¢ial Security. The ensuing allegations assert that this bar is a matter of public policy under WPPDA and ERISA, and to that extent involves a federal issue, though it is intermingled with plainly state law claims. The fifth count asserts a claim of $100 per day for the alleged failure of CGLIC to furnish information, allegedly required to be furnished by it under WPPDA, 29 USC § 306 (d), and under ERISA, 29 USC § 1023 (e), the request having been made September 1, 1977. The claim is said to be authorized to be brought in this court under both statutes, 29 USC § 306 (b) and (e) (WPPDA) and §1182(c) and (e) (ERISA), against the “administrator” of a plan governed by those statutes. The $100 per day rate, it is observed, is set by 10 See footnote 5, supra. 27a ERISA, but was $50. per day under WPPDA. It is further claimed that 29 USC § 308 b (WPPDA) re- quired the administrator to retain specified records for not less than 5 years, and that by 29 USC § 1027 (ERISA) this period was enlarged to 6 years. The information sought was the computer program employed in 1969 to calculate the premium on this group policy, and CGLIC replied that it had been destroyed. This, too, is a federal issue. * All five counts of the Amended Complaint are as- serted not only on behalf of Lamb, but also on behalf of all others similarly situated. The putative class (par. 32 of the first count) is identified as: “All persons since October, 1969 who are now or have been beneficiaries of the CGLIC Group Dis- ability Plan sold by defendant CGLIC through em- ployers or employee organizations and represented to provide long-term disability benefits in lieu of or as supplemental to employee welfare benefit plans and who after having been disabled and therefore qualified to receive monthly income benefits under said Plan, have had such benefits reduced by the amount of increases in social security disability benefits payable to them and their dependents pur- suant to amendments to or administrative action under the Federal Social Security Act for the pur- pose of offsetting cost of living increases.” It is alleged that there are some 10,000 persons now in payee status under one or another CGLIC group disability policy, and that there were 12,000 persons in such status after September, 1972, who have since been 17 At argument, it was recognized that the Fifth Count could stand since Overlook, not CGLIC, was the “administrator” the “plan”. See Tr. 2/26/79, p.54, 1.19 to p.56, 1.17. 2 28a terminated due to death, reaching the age of 65 or for other reasons. In view of the disposition here that Lamb has no federal claim, and that there is no jurisdiction here over whatever State Law claims she may have, there is no need to deal with the class action aspect.” As noted above, the attempt to state federal claims depends on the applicability of the Social Security Act, WPPDA or ERISA, or several of them. The section of the Social Security Act relied on, 42 USC §407, does not apply. That section does two things: 18 Lamb has no claim cognizable here, and so has no standing to represent some kind of class similarly situated. Sosna v. Iowa, 419 U.S. 393 (1975); Kaufman v. Dreyfuss Fund, 434 F.2d 727, at p.784 (CA 8, 1970), cert. den., 407 U.S. 974 (1971). Beyond that, Lamb has made no attempt to define a rational class. At argument, reference was made to data about all lines of CGLIC group policies, regardless of similarity or difference. See Tr., 2/26/79, p.7,1.16 to p.9,1.20. As shown by Appendix B, some States have regulated the subject, but most have not. Should the class be limited to New Jersey policies? Also, Lamb was an em- ployee of an employer whose plan was not covered by WPPDA; should this be another parameter of the class? The master policy was terminated in early 1972; should this be another condition? These and other features make it unrealistic to think of a putative class as large as Lamb defines it. The implication is that Lamb wants to reach out and define a class not “similarly situated”, but so broad as to convert a judicial proceeding to adjudicate a claim into something quite different and which it is the function of legislatures and administrative agencies to consider and deal with. The court notes that 8.3017 was introduced in the Congress as the “ERISA Improvements Act of 1978”, dealing expressly with employee welfare benefit plans and the matter of “frozen” versus “unfrozen” integration of disability “plans” with Social Security. The Congress has not passed the bill, and the court cannot be asked to do so in its stead. Even if it could, the change could not be retroactive. 29a 1. It forbids assignment or transfer of “any future payments” under the subchapter; 2. It declares that none of the moneys paid or pay- able, or rights under the subchapter, are to be sub- ject to execution, levy, attachment, garnishment, or other legal process or to the operation of any bank- ruptcy or insolvency law. The policy terms here do not amount to an assign- ment or transfer of any future payments for social security benefits. The contract binds CGLIC to pay the difference between the benefits under the Social Security Act, payable “on account of” Lamb’s disability, and 70% of her basic monthly earnings at disability, (i.e., $790 per month), with a guaranty of $50. per month in any event. If the section forbidding assignment or offset applied at all, it would apply of necessity to the entire social security benefit, and not merely to increases from time to time, as alleged in the fourth count. It would com- pletely bar any policy provision for integration with social security. Hence, so long as no law forbids the making of a contract to pay the difference between the social security benefits, whatever they may be, and some other larger number, or a minimum amount in any event, the social security law does not stand in the way. Such a contract, to pay something more than the Social Security ‘enefit, can hardly be called a transfer or as- signment merely because the amount to be paid will vary with the social security benefit level, subject always to the minimum. Lamb ignores the fact that the tests for disability under the policy and under the social security law are different. Under the policy, if the participant is disabled so that he is completely prevented from performing the duties of his occupation or employment, benefits will be 30a paid for up to 24 months of continuous disability after the 6 month waiting period. This is not the test for disability benefits under social security. Under the Act, the term “disability” means “(A) inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be ex- pected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.” 29 USC § 423 (d) (1) (A). (Emphasis added) Thus, an individual impaired from engaging in his usual occupation or employment, but capable of engaging in some other substantial gainful activity which can be performed in view of education and work experience, and for which jobs are available in the region, will be ineligible for any disability benefit under social security, but would be entitled to payment of full benefits, with- out deduction, under the CGLIC policy for 24 months after the waiting period. After the 24 months of payments under the more generous test specified by the policy, the payments terminate unless the employee is so disabled that he is completely prevented from engaging in any occupation or employment for which he is qualified, or may reason- ably become qualified, based on his training, education and experience. In that event the payments continue so long as the disability exists, up to age 65. Although worded differently, the policy test after the 24 month benefit period appears to be essentially the same as the social security test in underlying meaning. The “freeze” provision in the Internal Revenue Code, and the regulations thereunder, 26 USC §411(a) and 26 C.F.R. § 1.411 (a) (4), discussed at greater length in Appendix A hereto, are addressed to the non-forfeitability 8la feature of pension plans and only affect their status as being “qualified” or not for income tax treatment. They are unrelated to “welfare” plans. The second part of 42 USC § 407, above, is obviously not applicable since there is no kind of process to take away any part of the social security benefits. They reach Lamb in full and are in no way affected. This disposes of any claims grounded on the Social Security Act. The first discussion above shows that the Overlook plan was never covered by WPPDA because of Overlook’s status under 26 USC § 501(c) (3), and the group policy involved was terminated in early 1972, so that ERISA has no application. It is also quite clear that the attempt to allege that CGLIC was the “administrator” of a WPPDA plan has no foundation at all. The legislative history, as well as the language of the Act and the decisions, make it obvi- ous that the “administrator” was Overlook, and that the benefits of the disability aspect of the welfare plan were merely provided by insurance issued by CGLIC. This being so, any request for information should have been addressed to Overlook, the employer/administrator rather than to CGLIC, and so the claim for $100 a day damages cannot stand. Beyond that, the request was in 1977 for a 1969 computer program, well beyond the 5 year reten- tion period of WPPDA and the 6 year retention period of ERISA, aside from the misdirection of the request. None of the facts being in dispute on these matters, CGLIC is entitled as a matter of law to summary judg- ment on all federal aspects of the amended complaint, and Lamb is not entitled to summary judgment on Count 3. 82a What remains, if anything, would be state law claims. The allegations of fraud, or of negligent misinformation, have no federal law foundation. Having chosen erroneously to have labelled CGLIC as the “administrator”, Lamb’s original and amended com- plaints are mostly silent about Overlook, the actual ad- ministrator. Overlook’s letter, at the front of Exh. A to the amended complaint, makes reference to what must have been both a welfare plan and a pension plan, al- though neither would be covered by WPPDA due to Overlook’s status. The letter is addressed to “exempt” salary employees, a term clarified by other documents as referring to employees exempt from the Fair Labor Standards Act, 29 USC § 201, et seq. The exemption provision, 29 USC §213(a) exempts (among others) any employee employed in a bona fide executive, admin- istrative or professional capacity. In a hospital such as Overlook, Lamb (as a dietician) would be in this exempt class along with executive and administrative people and professionals such as staff nurses, salaried physicians and the like. The documents on discovery show that there were 93 of these in all in the group. The letter goes on to refer to already existing fea- tures. One was composed of “pension and annuity pro- grams”. All the rest are benefits of a kind coming within the definition of a “welfare” benefit plan, as did the newly offered disability coverage. Both WPPDA and ERISA contemplate that there be a “plan” which, in the context of the undisputed facts here, would have been an Overlook plan, of which the proposed disability coverage would have been an added feature. Discovery has produced no “plan” on the part of Overlook, nor any indication that any plan was “pub- lished”, as called for by 29 USC § 307(a) or filed with the Secretary of Labor as required by 29 USC § 307(b). Had it been, it should have been found. Its non- 83a existence in any formal document is doubtless due to the fact that any such plan was not covered by WPPDA because of Overlook’s status, and consequently inappli- cable provisions were simply not complied with.“ Informal though Overlook’s “plan” may have been, Lamb’s complaint that the policy provisious involved were not fully explained in the advance brochure handed out by Overlook and discussed by its personnel is really a claim against Overlook, not against CGLIC. Nothing submitted even remotely suggests that the policy written by CGLIC was any different than had been requested by Overlook, acting as plan administrator on behalf of the group of exempt employees. Overlook would be an indispensable party to a suit asserting such a claim, and even if CGLIC were to be a proper party, the lack of diversity between Lamb and Overlook precludes juris- diction in this court under 28 USC § 1332. Since all that remains undecided are potential state law claims against Overlook at least, and possibly against CGLIC, that remainder will be dismissed for lack of jurisdiction on the court’s initiative pursuant to F.R.Civ.P. 12 (h) (3). 1 The Overlook application to CGLIC, Exh. p-17 of the Gros- heider deposition, discloses that the Overlook “plan” at that time provided life and major medical benefits through a policy with Provident Life and Accident of Tennessee, and hospital and medi- cal coverage through a group contract with Blue Cross/Blue Shield. To take an example, suppose an employer announces a bonus plan to allow a salesman generating $X of sales to have the Cadillac of his choice from a local GM dealer. Suppose A qualifies, goes to the dealer, and is told that the employer only arranged to pay for a Buick. Can the salesman sue the dealer for a Cadillac, or is that claim one that can only be made against the employer? 20 To summarize, the claim that the Social Security law itself bars the offset or full integration of the benefits payable to the claimant and dependents “on account of” the claimant’s disability is simply unsupported. Hurd v. Illinois, 136 F.Supp. 125 (D.IIL, 1955), af d., 234 F.2d 942 (CA7, 1956), cert. denied as Seybold v. Western Electric, 352 US 918 (1956), reh. den., 352 US 942 84a The state law nature of remaining claims is under- scored by the fact that some states have, by statute or regulation, dealt with the subject of integration and offset as a matter of their authority to specify what provisions may or may not be included in one or another kind of policy issued in each state. This is a recognized function of the states and involves local law, not federal law. A list of the references located by the court is attached as Appendix B, and it discloses that New Jersey has not placed any restriction on integration provisions in insurance policies. /s/ Vincent P. Biunno, U.S. D. J. March 3, 1980 Original to Clerk xe: Robert H. Jaffe, Esq. Eugene M. Haring, Esq. (1957) deals with the point directly since neither WPPDA nor ERISA existed at that time. The situation here is the same be- cause neither Act applies to this case. As the trial court observed in Hurd, the legislative history shows that the Social Security law was not intended to bar offset against amounts payable under private arrangements, see 136 F.Supp. at 142-144. See, also, Dowell v. Aetna, etc., 468 F.2d 802 (CA 4, 1972). Coughlin v. CGLIC, 880 A.2d 159 (Del Super.1974) is plaintiff’s main support for the claim that the dependents’ benefits cannot be taken into the calculation. However, that case turned on a construction of the contract according to State law, and not on federal law. The reference to 42 USC 402(d)(1) was solely for the purpose of supporting the construction of the policy, and not to suggest that it barred offset or integration for dependents’ benefits. In fact, the Delaware court refers to Dowell, but distin- guishes it on the ground that the language and construction were different. Cases in the category of Philpott v. Essex, etc. Board, 409 U.S. 418 (1973) do not apply because they involve the use of some kind of “process” to enforce a claim against the social security benefits themselves. These cases do not involve the situation here, which is concerned with a formula in which specified collateral source benefits are a variable used to decide how much should be paid under the policy in addition to the collateral source benefits. But see Western Electric v. Traphagen, 166 N.J. Super. 418 (App. 1979), an ERISA case, where garnishment of a former husband’s pension was allowed to satisfy an alimony obligation. Hisquie[rjdo v. Hisquie[rjdo, —— U.S. ——, 59 L. Ed. 2d 1 (1979) does not apply. The question there was whether a husband’s inchoate interest or expectation to possible pension benefits under the Railroad Retirement Act (and which he would enjoy if he lived to retirement) could be taken into account under California’s community property law. It was in this connection that the court observed that the potential benefits, like those under Social Se- curity, are not contractual and that the Congress can go so far as to repeal the entire Act. Nor does it make any difference, as the court sees it, that Over- look paid 25% of the premium and participants paid 75% [.] CGLIC contracted for a single premium, and whether one or the other paid it all, or whether it was divided, was a matter between them to resolve. In fact, since Overlook is a § 501 (e) (3) organization, it presumably files no income tax return and receives no deduction for its share of the premium as a profit-making employer would. Clearest of all, however, is that Lamb’s dealing was only with Overlook. If Overlook bought a contract that provided less than it undertook to do under its “plan”, Lamb’s real state claims are claims against Overlook, not CGLIC, and she cannot sue Overlook in this court on state claims. See, too, Jaffess v. HEW, 393 F. Supp. 626 (D.N.Y., 1975) where a war veteran entitled to a non-service connected disability pension under 38 USC § 521 was obliged to report to the VA the fact and amount of a Social Security award for disability benefits so that they would be offset with the military pension. The col- lateral sources so integrated are very broad, and where the pen- sioner is married and has children, their collateral sources are included. See 38 USC § 503. 36a APPENDIX A HISTORY OF EMPLOYEE WELFARE AND PENSION PLANS The now widely used employee welfare and pension benefit plans, supplemented by self-employed (Keogh) retirement plans and individual retirement accounts (IRAs) have an interesting general history which it has been necessary to explore in connection with this case, and which provides context and l to the analysis for the rulings made. Before World War II, there was no general or wide- spread pattern for any kind of private plan. With the wage and price controls in force during the War, the practice developed of negotiating for deferred compensa- tion through the medium of one or another kind of pension or retirement plan. It must be remembered that during the war period, income tax rates ran as high as 90%, and there was hardly an industry that was not heavily engaged in defense production under government contracts commonly on the basis of “cost-plus”. Since the fringe benefit expense for an employee plan was recognized as cost, the combination of circumstances made it quite natural, and in the common interest of both employers and employees, to establish welfare and pension plan arrangements as fringe benefits in lieu of wage increases, which were severely limited by law. This general background is referred to in Senate Re- port No. 1440, to accompany S. 2888, and in House Re- port No. 2283, to accompany H.R. 13507, which, after Conference Report No. 2656, to accompany 8.2888, even- tually became the Welfare and Pension Plan Disclosure Act of 1958 (WPPDA), 29 USC § 301, et seq., now repealed. Similar historical background is also found in the extensive committee and conference reports in connection 37a with the enactment of the Employee Retirement Income Security Act of 1974 (ERISA), 29 USC § 1001, et seq., plus various sections of 5 USC, 26 USC, and 42 USC. The development of various plans as fringe benefits during the war years had been preceded by two pro- grams, one public and one private, which had originated during the Depression years. The public program was the Social Security Act, 42 USC, which began as a sys- tem to provide old age benefits after retirement, although its scope has since been broadened in a number of ways. The private program was the Blue Cross hospital service plan, later enlarged to include surgical benefits through the related Blue Shield program, and a degree of non- surgical medical service through Rider J. The Social Security old-age retirement plan was struc- tured essentially like a pension plan, with contributions (in the form of Social Security taxes) assessed equally between the employer and the employee. Unemployment compensation plans, structured somewhat along the lines of Social Security were also developed, and later on long-term disability benefits were added to the Social Security program, as well as supplemental income ben- fits later on measured on a “needs” basis. Except for the supplemental income program, the format of Social Security benefits (whether for old age retirement or disability) was such that the level of benefits was related to formulas (sometimes complex) based on the level of taxable earnings and duration of employment as a covered worker, but without regard to the assets or investment income of the beneficiary. The same was true of Blue Cross/Blue Shield, except that since these were “service” plans dependent on the willingness of participating hospitals and physicians to render specified services at rates and fees set by the Plans, there has always been a partial means test in that if the subscriber’s earnings exceeded a specified 38a level, a higher rate or fee could be charged, with the Plan paying the specified sum and the subscriber being responsible for the difference. From the start, all of these programs carried with them some number of tax consequences under the In- ternal Revenue Code. Thus, the Social Security con- tribution levied on the employer is an allowable deduc- tion to the employer as a business expense under I.R.C. § 162. The same is true of payments made by an em- ployer as part of or all the cost of hospital, medical or other welfare protection for employees. And, on the other side of the tax implications, the contributions of an employer to accident and health plans for compensation (through insurance or otherwise) to his employees for personal injuries or sickness (whether work related or not), are excluded from the gross income of the employee, 26 USC § 106. In the case of pension plans, as distinguished from welfare plans, a wide variety of systems developed over the years. In a sense the simplest plan was a plan by which the employer undertook by contract to pay a stated amount per period after retirement, the amount being measured by years of service and level of compensation, or some such formula. These simple plans were not funded in any way. Instead, when an employee retired the employer merely made payments periodically as agreed, out of current revenues. Another form consisted of plans for which the employer made installment pay- ments during employment toward the purchase of an annuity contract which, at retirement, would have ac- cumulated a value sufficient to satisfy the periodic retire- ment payments. Another form was to establish a trust, either with a financial institution as trustee, or with labor and management representatives as trustees. The latter form was (and probably still is) the most common for multi-employer plans in the construction trades, where employees commonly do work for a variety of employers to whom he is assigned by the construction trades union to which he belongs. To a lesser degree, some plans were based on profit sharing, stock options, and the like. No doubt there are other varieties. The earliest kind of federal legislation dealing with any kind of plan consisted of provisions of the Internal Revenue Code, and of these the earliest that dealt with plans in a specific and comprehensive way are found in the 1954 Code, 26 USC § 401 et seq., establishing the concept of “qualified” pension plans. The term “quali- fied” is a shorthand adjective for a variety of conse- quences under the Internal Revenue Code. The initial objective, as enacted in 1954, was to deny the tax bene- fits of having a “qualified” status if the terms of the plan “discriminated in favor of employees who are of- ficers, shareholders or highly compensated, and if it were possible, under the terms of the plan, to divert the corpus or income to purposes other than for the benefit of the employees or other beneficiaries before all liabilities to them had been fully satisfied. This key section, 26 USC § 401, has been amended a number of times and today presents a formidable text. See Pub. L. 87-792, §2 (Oct. 10, 1962) ; Pub. L. 87-863, § 2(a), (Oct. 23, 1962); Pub. L. 88-272, § 219 (a) (Feb. 26, 1974); Pub. L. 89-97, 106 (d) (July 30, 1965) ; Pub. L. 89-809 §§ 204 (b) (1), 204 (e) L,] 205 (a) (Nov. 18, 1966); Pub. L. 91-691, § 1 (a) (Jan. 12, 1971); Pub. L. 93-406, §§ 1012 (b), 1016 (a) (2), 1021, 1022 (a) to (d), 1022 (f), 1023, 2001 (e) to (e) (4), 2001 ch) (1), 2004 (a) (1) (Sept. 2, 1974); Pub. L. 94-267, §1 (e) (1) and (2) (Apr. 15, 1976); Pub. L. 94-455, §§ 803 (b) (2), 1505 (b), 1901 (a) (56), 1906 (b) (13) (A) (Oct. 4, 1976); Pub. L. 95-600, §§ 135 (a), 141 (f) (3), 143 (a) l,] 152 (a) (Nov. 6, 1978). Yet, the above themes predominate even today despite sophisti- cated refinements and added coverage to deal with plans 40a for self-employed individuals, owner/employees and the like. What is significant about these sections of the Internal Revenue Code, 26 USC § 401, et seq., is that they deal with pension plans for retirement benefits, and not with welfare plans as defined either by WPPDA or ERISA. There seems to be but one provision, §401(h) which mentions benefits for sickness, accident, hospitalization, and medical expenses, which are among the recognized purposes of welfare benefit plans rather than pension benefit plans. However, this provision does no more than state that the inclusion of such benefits to retired em- ployees, spouses and dependents will not prevent the plan from being “qualified” as a pension plan so long as (1) the benefits are subordinate to the retirement benefits; (2) a separate account is established for such benefits; (3) the employer contributions to the separate account are reasonable and ascertainable; (4) the corpus or in- come of the separate account cannot be diverted to any purpose other than to provide those benefits; and (5) when all liabilities for the benefits have been satisfied, any balance in the separate account must be returned to the employer. Thus, 26 USC 5 401 (h) clearly does not deal with a “welfare plan” as defined by both WPPDA and ERISA. WPPDA of 1958 was evidently the first federal stat- ute purporting to deal with welfare and pension plans, and it dealt with them only in the relationship of em- ployer/employee. The WPPDA text itself, as well as the explicit statements in the committee reports are clear that the Act made no attempt to regulate welfare or pension plans in any way, and dealt only with employee oriented plans to the extent of establishing a mechanism for reporting and disclosure. This is confirmed by the 4la Supreme Court ruling in Malone v. White Motor Corp., 435 U.S. 497 (1978). The committee reports on WPPDA made clear that the Congress was aware of the indirect regulation al- ready afforded by the Internal Revenue Code, and the final bill omitted any provisions for criminal penalties, on the theory that 18 USC § 1001 provided adequate cov- erage. See next to last paragraph of Conference Report No. 2656, Aug. 15, 1958, to accompany S. 2888. Four years later, Pub. L. 87-420, §17(e) (March 20, 1962), enacted what is now codified as 18 USC § 1954 to make criminal the offer, solicitation or acceptance of any thing of value because of, or to influence, any ac- tion, decision or other duty in connection with an em- ployee welfare or pension benefit plan as defined by WPPDA (since amended to refer to the definitions of ERISA). The history of ERISA is extensive and bulky. The Act as passed was the distillation of many bills, as re- flected in the committee and conference reports men- tioned above, and it shows that, unlike WPPDA, the object of ERISA was mainly regulatory, and the focus was centered on pension plans rather than welfare plans. As introduced and discussed, the bill would have merely amended and supplemented WPPDA, as to welfare plans, and the rest dealt with problems unique to pensions. These features deal with funding, eligibility and vest- ing, non-forfeitability, fiduciary responsibility, prohibited transactions, and the like. One important feature, not included in the Act as passed, dealt with portability and would have established a centrally administered fund through which accrued and vested shares in one plan could be exchanged for an equivalent or superior share in another plan when changing jobs. Provision was in- cluded for insurance, like FDIC and SIPC, in case of the financial failure of a plan, but only for pension plans, not for welfare plans. > 42a In the end, WPPDA was not amended and supple- mented, but was repealed. Administrative aspects were divided between the Department of Labor and the Treas- ury Department. The general provisions, as well as those dealing with reporting and disclosure, fiduciary respon- sibility and administration and enforcement, apply to both welfare and pension plans. The parts dealing with participation and vesting do not apply to employee wel- fare benefit plans by express language of § 201 and § 301. The amendments to the Internal Revenue Code, by the addition to Title 26 of 58 410-415 deal only with pension plans and not with welfare plans. The same is true of the amendments to 26 USC § 401, and by the addition of 26 USC 88 6057, 6058 and 6059. The addition of § 1131 to 42 USC, imposing duties on the Secretary of HEW deals only with pension plans, and not with wel- fare plans. The addition of 7676 to Title 26, to au- thorize declaratory judgments in the Tax Court, is limited to retirement plans in the form of (1) a pension, profit- sharing, or stock bonus plan; (2) an annuity plan de- scribed by § 403(a), and (3) a bond purchase plan de- scribed in § 405 (a). All are pension plans; none is a welfare plan. The provisions in respect to the Pension Benefit Guar- anty Corporation (ERISA 55 4001-4068), also apply only to pension plans and not to welfare plans. Other criminal statutes which had been enacted by supplement to WPPDA, such as 18 USC § 664 (em- bezzlement or conversion from employee benefit funds) and 18 USC § 1027 (making any knowingly false state- ment in any document required by the Act), were amended to substitute references to ERISA rather than to WPPDA, and apply to both welfare and pension plans, as does 18 USC § 1954 (kickbacks). These criminal statutes roughly parallel analogous statutes dealing with federally insured banks, such as 43a 18 USC 8 656 (embezzlement or misapplication by a bank officer) [;] 18 USC 5 1005 (false entries in bank records) ; 18 USC § 1014 (false statements in loan ap- plications) and 18 USC § 215 (kickbacks on loans, etc.). From this history and analysis, it is plain that from the entire universe of welfare and retirement plans, the Congress has chosen to legislate to encourage some of them by favorable tax treatment in the Internal Reve- nue Code, and, in the case of those employee oriented plans covered by WPPDA, acted between 1958 and 1975 to require certain reporting and disclosure but did not regulate, and since 1975, by ERISA, has undertaken to regulate, such plans to the ex“ ent that they are pension plans. Except as included in one or another of these federal statutes, the Congress has not enacted any law dealing with other kinds of plans in the universe of plans, whether constructed on an individual basis or by groups other than those composed of employees of an employer or groups of employers or of employees. Natural persons thus remain free of federai law of this kind to establish individual, family and group plans or programs to deal with all the countless risks that life in a complex society entails. They may design all manner of savings plans, from the simple bank account at interest on through term certificates, T-bill certificates, on to sophisticated investment portfolios of debt and equity securities. They may invest in land or other property. They may buy insurance of all kinds, whether of an indemnity or investment nature, including protec- tion against the risks of fire, lightning and extended cov- erage risks; burglary, theft and mysterious disappear- ance; homeowners’ and automobile or water vessel or aircraft liability; hospital and medical expense policies, including major medical and disability benefits whether caused by accident or sickness; life insurance in all its 44a variations, from term to endowment; and annuities. This list does not exhaust all the available choices freely avail- able on a voluntary basis, which may play a part in es- tablish. g individual or group programs for providing security against risks. Yet, except in peripheral ways, such as through the SEC, and through regulating interest rates and terms of various kinds of deposits in banking institutions, fed- eral law does not attempt any direct regulation of that part of the field. So much as has been dealt with, mainly in the Internal Revenue Code, WPPDA and ERISA, has been confined to matters of special tax treatment, to reporting and disclosure, and to rather strict regulation of plans that are employer/employee oriented, except for the very recent developments, mostly with tax conse- quences, of HR-10 or Keogh Plans and IRA’s in an effort to provide means to those outside the traditional labor/ management sphere to achieve some measure of equal tax treatment in respect to pensions and retirement. So far as the regulation goes, its major aim is to es- tablish minimum standards for eligibility and vesting, and to require suitable funding to minimize the risk that there will be insufficient funds to provide the bene- fits specified by the plan. By and large the Congress has not made the establishment of any plan mandatory, nor has it attempted to specify what the particular bene- fits are to be. Thus, there is nothing illegal or forbidden about estab- lishing a plan that would otherwise fall within ERISA, for example, but that fails to qualify with its require- ments. The only consequence of such a course of action is that by failing to qualify, the tax benefits otherwise available will be denied. If someone wishes to follow that course he is free to do so. ERISA itself makes it explicit that the participation and funding provisions 45a of an employee pension benefit plan, 29 USC § 1051 through 1061, do not cover (among others) . an unfunded plan maintained by an employer primarily to provide deferred compensation for a select group of management or highly com- pensated employees (29 USC § 1051 (2)); . a plan of a labor organization described in 26 USC § 501(c) (5) which has no provision for em- ployer contributions after September 2, 1974 (29 USC § 1501 (4)); . agreements for payments to a retired partner or a deceased partner’s successor in interest (i.e., a widow) under 26 USC § 736 (29 USC § 1051 (5)); Han excess benefit plan, which is one providing benefits in excess of the limitations specified by 26 USC § 415 for a “qualified” plan (29 USC § 1015(7)). For these, and for all other plans not directly regu- lated by federal law, the party involved is free to “write his own ticket”, subject only to compliance with ap- plicable State law, and with the consequence that one or another tax benefit will not be available. Insofar as one or another plan may involve the use of an insurance policy, it must be kept in mind that for most of the history of insurance systems in this country, the law was that it did not constitute commerce and was not within the reach of Congress. See Paul v. Virginia, 8 Wall. 168, 19 L. Ed. 357 (1869). It was not until 75 years later, in U.S. v. Southeastern Underwriter Ass’n, 322 U.S. 533, 88 L. Ed. 1440 (1944), that the Supreme Court, by a vote of 4 to 3, explained Paul v. Virginia as focused on the validity of state statutes, and not on the issue, not squarely presented before, whether the Sherman Anti-Trust Act was intended to and could 4 [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_2334%3A1. Public record. Not legal advice.