In a recent case (Heimeshoff v. Hartford Life & Accident Ins. Co.134 S. Ct. 604 (2013)), the US Supreme Court upheld a contactual limitations period inserted into an ERISA disability plan barring a lawsuit for benefits under the plan. As explained in further detail here, the ERISA plan included a three-year limitations period, running from the date of proof of loss. The Supreme Court ruled the limitations period was enforceable, even though it began to run before the participant’s cause of action accrued and was shorter than the limitations period that would have applied under ERISA (which generally looks to applicable state law).
Although the case involved a broad-based employee disability plan, it has important implications for executive retirement and severance plans (which are also generally governed by ERISA) as well. Disputes under these types of plans can sometimes arise, for example in the context of an employee termination that is less than amicable. If an employee feels he or she has been denied a benefit, the employee’s only recourse is to sue under ERISA. But before the employee can sue, he or she must exhaust his or her remedies under the administrative claims procedure set forth in the plan. Under many states’ laws, the limitations period for bringing a suit under ERISA would not start to run until the claim has been finally denied in the claims process — and might run for as long as six years after that point. However, on the basis ofHeimeshoff, an employer may be able to limit the exposure to ERISA suits by inserting a shorter limitations period directly into the plan document.
Of course, a contractual limitations period must still be “reasonable” — and what is reasonable may depend on the facts and circumstances. Still, in the wake of Heimeshoff, adding a contractual limitations period to existing and new ERISA-based plans for executives would seem to be an easy decision for many employers.