I have blogged on this matter before, but another recent case out of the influential federal district court for the Southern District of New York reinforces and confirms my suggestion from that prior blog entry. In Quigley v. Citigroup Supplemental Plan, 51 EBC 1065 (S.D.N.Y. 2011), the court held that 47 former employees must exhaust their administrative remedies before they can pursue their action/litigation alleging that their employer had short-paid their benefits under a supplemental executive retirement plan.
The supplemental plan document and SPD included comprehensive administrative claim procedures requiring participants to (i) file initial claims with a plan administrative committee, (ii) appeal any adverse benefit determinations to the committee, and (iii) exhaust their administrative remedies before seeking judicial relief. There are two reasons we/plan sponsors want to make plan participants go through the claim procedures before filing a lawsuit. First, claim procedures are much less expensive than litigation. Second, most courts will apply a favorable standard of review to a plan administrator’s decision reached as part of the claims process. That is, the court will only overturn the plan administrator’s decision if it was arbitrary and capricious. Companies should make sure that any plans they maintain that are (even arguably) subject to ERISA have claims procedures (and the so-called Firestone language).