The US Supreme Court has been busy regarding ERISA matters. Following its recent decision in LaRue v. DeWolff, Boberg & Associates, Inc., 128 S. Ct. 1020 (2008), which related to claims under Section 502(a)(2) for fiduciary breaches that impair the value of a participant’s individual account, (see the March 2008 Executive Compensation, Benefits and Employment Law Focus,) the Court decided Metropolitan Life Insurance Co. v. Glenn, 128 S. Ct. 2343 (2008).
In addition, Kennedy v. Plan Administrator for DuPont Savings and Investment Plan is pending and two additional cases may be accepted by the Court. These new developments are discussed below.
Metropolitan Life Insurance Co. v. Glenn, 128 S. Ct. 2343 (2008)
MetLife was decided on June 19. In MetLife, an employee was denied long-term disability benefits. Previously, in Firestone Tire & Rubber Co. v. Bruch, 489 US 101 (1989), the Court had held that, where a plan provided that the plan administrator had the discretion to determine benefits, a court should review the administrator’s decision under the arbitrary-and-capricious standard. Essentially, review of the administrator’s decision was to be limited to whether there was an abuse of discretion. However, an administrator could have a conflict of interest; for example, where a decision by the administrator to deny a claim could financially benefit the administrator.
Firestone left open the question of how much an administrator’s conflict of interest should affect the level of a court’s deference to the administrator’s decision. After Firestone, the lower courts went in different directions on this question, ranging from engaging in a slippery-slope analysis, where there would be less deference, to a de novo approach, where the Court would essentially ignore the administrator’s decision altogether. Under MetLife, the Court resolves that the standard continues to be the abuse-of-discretion standard. However, under MetLife, the degree and nature of any conflict of interest is taken into account as a factor in determining whether there has been an abuse of discretion. Thus, the basic governing rules appear to be clear, but the application of those rules may vary with the facts and circumstances of each case.
Hopefully, MetLife will turn out to be a welcome clarification of the Firestone case, even if it generates some new uncertainty. One key passage from the case may give a hint as to how lower courts will proceed. MetLife notes that a conflict may become less important to the analysis as active steps are taken to reduce potential bias and promote accuracy, for example, by walling off claims administrators from those interested in firm finances or by imposing management checks that penalize inaccurate decision-making regardless of who benefits. Employers, insurers and other outside administrators may wish to consider steps like these to try to increase the extent to which internal decision-making will be entitled to deference by the courts after MetLife. See also our quotes regarding MetLife in the BNA summary, at 35 BNA Pens. & Bens. Rep. 1501, 1503 (June 24, 2008), and our comments on the BNA Pension and Benefits Blog captioned, “A New Firestone Drill: MetLife v. Glenn” (June 19, 2008).
Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, 497 F.3d 426 (5th Cir. 2007)
Kennedy is presently on appeal to the Supreme Court. In Kennedy, an ex-spouse was a beneficiary under an ERISA plan. The ex-spouse had waived her rights to ERISA benefits in her divorce decree. The Fifth Circuit determined that such a waiver is ineffective, citing ERISA’s anti-alienation provision, which generally prohibits the assignment or alienation of ERISA benefits, since the decree did not satisfy the requirements for the exception to the general anti-alienation rule for qualified domestic relations orders (QDROs).
To qualify as a QDRO, a domestic relations order must, among other things, (i) identify all alternate payees, (ii) specify the particular plan affected; and (iii) describe the manner of calculating benefits. In the Kennedy case, a QDRO was never properly submitted and the beneficiary had never been changed on the plan’s records. On this record, the Fifth Circuit concluded that the ex-spouse remained the beneficiary under the plan.
Previously, in Boggs v. Boggs, 520 US 833 (1997), the Court explored ERISA’s preemptive effect in the context of purported testamentary transfers. Boggs confirmed ERISA’s preemptive effect and, as to benefits under an ERISA plan, invalidated a Lousiania state law allowing a nonparticipant spouse to transfer by testamentary instrument an interest in undistributed pension plan benefits. Since Boggs, some lower courts have been reluctant to defer to the arguably exclusive nature of the ERISA QDRO rules as a way to alter an ex-spouse’s rights regarding a former spouse’s pension benefits. In Kennedy, the Court is now to revisit the question of the extent to which the QDRO rules are the exclusive route through which an ex-spouse may be divested of his or her rights under an ERISA plan.
West v. AK Steel Corp., 484 F.3d 395 (6th Cir. 2007)
West involves the scope of the ERISA remedy provisions in which the Supreme Court has requested an amicus brief from the DOL. In West, a group of early retirees sued their employer for failing to use a specific calculation method (the “whipsaw” method) when computing lump-sum distributions under an ERISA pension plan. The retirees sued, making a claim under Section 502(a)(1)(B) of ERISA, which is the ERISA provision under which a participant can make a claim for benefits for violations of the “terms of the plan.”
There is some question as to whether a claim such as the one in West is indeed a claim for benefits that may be brought under Section 502(a)(1)(B). If the retirees’ claims were to be viewed as claims for a statutory violation (rather than claims arising under the terms of the plan), and if Section 502(a)(1)(B) were held not to authorize claims for statutory violations, the retirees could be left out of court. The Sixth Circuit, however, reached the merits and decided that the West employer was required to use the calculation method being asserted by the retirees, and held that the retirees could prevail in their resulting claim for benefits under Section 502(a)(1)(B).
The defendant employer in West has asked the Supreme Court to hear the case, arguing that there is a split in the circuits over whether Section 502(a)(1)(B) allows statutory-type claims such as those in West. The issue is potentially of great importance, as a narrow reading of Section 502(a)(1)(B) could effectively leave plaintiffs without a cause of action even where there has been a violation of one or more provisions of ERISA. The Supreme Court has asked the DOL to file an amicus brief and give its views of the matter. Thus, the Court may continue to evolve its thinking on ERISA’s scope, in the context of the thorny issues raised in the West case. It is noted, however, that the Court also had asked for a DOL amicus brief in Amschwand v. Spherion Corp., 505 F.3d 342 (5th Cir. 2007) (generally holding that benefits cannot be recovered under ERISA’s “equitable” relief provisions where an employer’s error causes certain insurance benefits to fail to become payable); but see Miller v. Rite Aid Corp., 504 F.3d 1102 (9th Cir. 2007) (arguably indicating that a state-law claim for full benefits could possibly survive ERISA’s preemptive effect, if the employer’s error were somehow to lead to the characterization of the claimant as a nonparticipant in the underlying plan); and yet ultimately decided not to take the case despite the DOL’s request that it do so.