{"id":109,"date":"2020-04-29T15:21:00","date_gmt":"2020-04-29T15:21:00","guid":{"rendered":"https:\/\/pensionjustice4you.net\/wpblog\/?p=109"},"modified":"2024-12-13T15:22:47","modified_gmt":"2024-12-13T15:22:47","slug":"its-high-time-to-do-away-with-the-arbitrary-and-capricious-standard-of-review-for-employee-benefit-claims","status":"publish","type":"post","link":"https:\/\/pensionjustice4you.net\/wpblog\/uncategorized\/its-high-time-to-do-away-with-the-arbitrary-and-capricious-standard-of-review-for-employee-benefit-claims\/","title":{"rendered":"It\u2019s High Time to Do-Away With the \u201cArbitrary and Capricious\u201d Standard of Review for Employee Benefit Claims"},"content":{"rendered":"\n

The Employee Retirement Security Act (ERISA) has long-required that employee benefit plans (e.g., pension and welfare plans) provide \u201ca full and fair review\u201d of any decision denying a participant\u2019s claim for benefits. ERISA \u00a7503, 29 U.S.C. \u00a71133. Accordingly, most employee benefit plans provide procedures for submitting a claim for benefits to the plan administrator and for requesting a review of any denial of the claim.<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

Often, the merits of a participant\u2019s claim will turn on the interpretation of disputed plan language. The plan administrator may have one interpretation, while the plan participant has another. In this situation, whose interpretation controls? Where the plan language is clear and unambiguous, courts will enforce the interpretation that is consistent with that language.<\/p>\n\n\n\n

But, when disputed plan language is unclear or ambiguous, the courts look to see whether the plan gives the plan administrator discretion to interpret the plan. If it does not, the courts will review the plan administrator\u2019s adverse benefits decision \u201cde novo.\u201d This means the court will review the disputed plan language afresh and anew and reach its own conclusion as to the proper interpretation.<\/p>\n\n\n\n

If, however, the plan gives the plan administrator discretion to interpret the plan, the courts will defer to the plan administrator\u2019s interpretation of the ambiguous plan language so long as it is reasonable. The courts refer to this highly deferential standard of review as the \u201carbitrary and capricious\u201d standard. Under that standard, courts must affirm a plan administrator\u2019s reasonable interpretation of disputed plan language even where the plan participant\u2019s interpretation is MORE reasonable.<\/em><\/p>\n\n\n\n

Obviously, the arbitrary and capricious standard of reviewing a plan administrator\u2019s adverse benefits decision works to the participant\u2019s disadvantage because, under that standard, the plan administrator\u2019s interpretation always controls unless it is downright unreasonable. This is contrary to ERISA\u2019s stated goal of protecting participants\u2019 interests in their employer-provided benefits. ERISA \u00a72, 29 U.S.C. \u00a71001. Indeed, no ERISA provision requires courts to apply an arbitrary and capricious standard of review.<\/p>\n\n\n\n

So, where did courts get the idea they must apply this highly deferential standard of review whenever the plan gives the plan administrator discretion to interpret the plan? Simply put: The United States Supreme Court\u2013in a case that is now over 30 years old. Firestone Tire & Rubber Co. V. Bruch, 489 U.S. 101 (1989). Here are the pertinent facts of that case.<\/p>\n\n\n\n

In 1980, Firestone sold five of its plants to Occidental Petroleum Company. Most of the approximately 500 employees at the plants were rehired by Occidental and continued in their same positions and at the same rate of pay. Six of the rehired employees sought severance benefits under Firestone\u2019s termination pay plan. Firestone, who was the administrator for the plan, denied their claims. So, the employees sued in federal district court. The district court ruled for Firestone, applying the arbitrary and capricious standard of review, but the Third Circuit Court of Appeals reversed, applying the de novo standard of review. The Supreme Court agreed to review the Third Circuit\u2019s ruling in order to resolve a conflict among the Courts of Appeals as to the applicable standard of review in cases based on the terms of an ERISA plan.<\/p>\n\n\n\n

As an initial matter, the Supreme Court noted that ERISA does not set out the appropriate standard of review for claims for benefits under the terms of an ERISA plan. But, the Court explained, ERISA \u201cabounds with the language and terminology of trust law\u201d and, under trust law, if a trustee is given the power to construe disputed or doubtful terms, the trustee\u2019s interpretation will not be disturbed if it is reasonable. Because Firestone\u2019s termination pay plan did not give the plan administrator (Firestone) discretion to interpret its provisions, the Court held that the de novo standard of review applied to the employees\u2019 claims. The Court added that this trust law de novo review was consistent with the judicial interpretation of employee benefit plans before ERISA was enacted when the plan did not give the plan administrator discretion to construe uncertain terms.<\/p>\n\n\n\n

Following the Supreme Court\u2019s decision in Firestone, nearly all ERISA-governed pension and welfare plans expressly provide, or have been amended to provide, plan administrators with discretion to interpret the plan. Consequently, if there is any litigation based on the terms of the plan, the court must apply the arbitrary and capricious standard of review. This clearly puts ERISA claimants at a disadvantage in at least three ways.<\/p>\n\n\n\n

First, they may have difficulty finding competent legal counsel to represent them on a contingency basis because their claim will be deemed more risky than if the de novo standard of review applied.<\/p>\n\n\n\n

Second, the court will not review the claim afresh and anew as it would under the de novo standard.<\/p>\n\n\n\n

Third, even if the court believes the ERISA claimant\u2019s interpretation is MORE reasonable than the plan administrator\u2019s reasonable interpretation, the court will affirm the plan administrator\u2019s adverse benefits decision.<\/p>\n\n\n\n

The arbitrary and capricious standard of review also invites fuzzy drafting of plan provisions. As noted, if the plan language is clear and unambiguous, the court will enforce the interpretation that is consistent with that language. However, if the plan language is a bit murky, the plan administrator may argue for a different, seemingly reasonable, interpretation knowing the arbitrary and capricious standard of review will apply in any ensuing litigation. That interpretation is likely to be unfavorable to the ERISA claimant; otherwise, there would be no need for a lawsuit.<\/p>\n\n\n\n

Clearly, it is time to do-away with the arbitrary and capricious standard of review for ERISA-governed employee benefit claims. Congress could easily make that happen by adding the following language to the end of ERISA \u00a7502(a)(1)(B) [the remedial statute for claims for benefits under the terms of an ERISA plan]:<\/p>\n\n\n\n

\u201cand any administrative decision considered by the court under this subparagraph shall be reviewed de novo.\u201d  <\/code><\/pre>\n\n\n\n
That\u2019s it. Sixteen simple words added to ERISA\u2019s remedial statute that would give ERISA claimants a fairer or more equal shot at obtaining a favorable ruling from the court on their benefits claim. No major legislation or tax dollars required!<\/p>\n\n\n\n
[To read more pension and retirement posts written by me, please go to my\u00a0Pension Justice 4 You<\/a>\u00a0Facebook page, and click on the Like and Following tabs near the top (just below the picture) to receive automatic notifications when there is a new post. If you need help with a pension problem or issue, please contact me, Eva Cantarella, at 248-335-5000 or\u00a0pensionhelp4you@gmail.com<\/a>\u00a0or\u00a0ecantarella@hertzschram.com<\/a>]<\/p>\n","protected":false},"excerpt":{"rendered":"
The Employee Retirement Security Act (ERISA) has long-required that employee benefit plans (e.g., pension and welfare plans) provide \u201ca full and fair review\u201d of any decision denying a participant\u2019s claim for benefits. ERISA \u00a7503, 29 U.S.C. \u00a71133. Accordingly, most employee benefit plans provide procedures for submitting a claim for benefits to the plan administrator and for requesting a review of any denial of the claim. Often, the merits of a participant\u2019s claim will turn on the interpretation of disputed plan…<\/p>\n
 Read More  Read More<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-109","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/pensionjustice4you.net\/wpblog\/wp-json\/wp\/v2\/posts\/109","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/pensionjustice4you.net\/wpblog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/pensionjustice4you.net\/wpblog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/pensionjustice4you.net\/wpblog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/pensionjustice4you.net\/wpblog\/wp-json\/wp\/v2\/comments?post=109"}],"version-history":[{"count":1,"href":"https:\/\/pensionjustice4you.net\/wpblog\/wp-json\/wp\/v2\/posts\/109\/revisions"}],"predecessor-version":[{"id":111,"href":"https:\/\/pensionjustice4you.net\/wpblog\/wp-json\/wp\/v2\/posts\/109\/revisions\/111"}],"wp:attachment":[{"href":"https:\/\/pensionjustice4you.net\/wpblog\/wp-json\/wp\/v2\/media?parent=109"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/pensionjustice4you.net\/wpblog\/wp-json\/wp\/v2\/categories?post=109"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/pensionjustice4you.net\/wpblog\/wp-json\/wp\/v2\/tags?post=109"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}