The Interaction of LaRue, Bruch, and MetLife v. Glenn
The Supreme Court seems to have an increasing interest in addressing some of the long-standing remedial and procedural issues under ERISA. It recently decided one case, LaRue v. DeWolff, and there was a BNA blog and several comments about that. I agree with much of what was written on the blog, but I take issue with an interpretation of either ERISA or the Supreme Court's decision that would undercut the application of the benefit disputes/claims administrative process to issues that emanate from the combination of plan provisions and apparent administrative errors (such as found in LaRue). Although a failure to follow plan provisions can indeed be a fiduciary breach because of the requirement of Section 404(a)(1)(D) that fiduciaries operate the plan in accordance with governing documents (something that obviously a fiduciary must do). However, taken to its extreme, that would mean that every benefit miscalculation claim could be turned into a fiduciary breach, raise a 502(a)(2) claim, and undercut the exhaustion requirement for 502(a)(1)(B) claims. The better interpretation is to require exhaustion in LaRue and similar matters unless the participant can show futility. Once the matter has been through the administrative claim process, if the participant is still unhappy because the claim has been denied in whole or part, then he/she can proceed to litigation and presumably raise both 502(a)(1)(B) and 502(a)(2), although defendants may challenge the latter claim. Now, the issue is what should the court's standard of review be. That leads to another case the Supreme Court is currently considering, MetLife v. Glenn.
In that case, the Court will evaluate and determine what the standard should be in situations where the administrator (who is deciding the claim and/or appeal) is both the decision maker and will pay for any benefit. That would be particularly relevant regarding insured welfare plans where the insurance company makes all the decisions as well as self-insured welfare plans and presumably qualified plans where the sponsor/administrator decides the claim and appeal, makes some or all of the contributions and would be fully or partially liable if the claim was granted. The Solicitor of Labor has filed an amicus brief in the MetLife case arguing that a conflict of an administrator should be weighed as a factor in determining the reasonableness of a benefit determination. The Solicitor argues that all the circumstances should be weighed in considering how much, if any, deference should be given to the administrator's denial of the benefit claim. In this particular case, the Solicitor concludes that MetLife did abuse its discretion and argues that the Sixth Circuit's decision in plaintiff's favor should be upheld. Forgetting the merits of the particular case, the effective standard for evaluating abuse or arbitrary and capricious conduct seems to make sense and certainly offers key procedural and substantive protections for participants. It also underscores why it makes sense under a remedial statute such as ERISA for LaRue type claims to first go through the administrative processes before pursuing litigation. If an administrative denial is based on a sound, objective process, then deference makes sense. If not, the Solicitor's argument and the Sixth Circuit's decision in MetLife reflect the expected procedural result of limiting deference.
Now some have argued that it is meaningless for LaRue type claims to have to exhaust administrative remedies because ultimately there is no one to fund the benefit regarding a claim for loss under a 401(k) plan. But that is not really the case. Assuming the sponsor administers the claim and appeal process, any favorable decision will be funded by the sponsor. Assuming some outside person or entity administers the process, the sponsor would still be required to fund the lost benefit (if the participant is upheld) in accordance with the administrator's determination of what the plan provides or requires (which should effectively bind the sponsor). If the participant's claim is denied, then a court will ultimately determine the scope of review (i.e. the application of deference or not) and whether the participant's claim is upheld.
The courts are already clogged with a myriad of litigation on countless subjects. It makes no sense to turn every benefit denial or administrative error immediately into a federal lawsuit without, at least, attempting to pursue participant rights through the administrative review process. If that process is not administered in an objective and responsible manner, then it should be reformed and its decisions will not be upheld by courts until it is. Undoubtedly, plan sponsors want participants to have to exhaust any administrative processes before pursuing litigation. Perhaps, sometimes this desire is motivated by a true intent to resolve the matter in what it considers to be a fair and responsible way consistent with plan documents, etc. And, perhaps, in other situations, this desire is to construct a better litigation defense. However, regardless of its motivation, if its process is not fair and responsible, its decisions are not likely to be accorded deference. On the other hand, presumably, plaintiffs' counsel would prefer not to have to pursue the claim and appeal process because, if it is administered as it should be and denies the claim, then courts will normally give deference to its decisions. And, quite frankly, that is as it should be under the ERISA scheme and years worth of court decisions post Bruch v. Firestone. LaRue should not be used to effectively or indirectly overrule Bruch.
Now we have Glenn, and we see that the Court did not overrule Bruch. Instead, the Court reaffirmed Bruch and held the 6th Circuit's decision up in Glenn as an example for other courts to follow in future 502(a)(1)(B) cases.
The holding in Glenn might translate into something like this: if the plan document grants discretionary authority to the plan administrator, the trial court will review that decision to determine whether the plan administator abused its discretion, and, on appeal, the court of appeals, in its discretion, will reivew the discretionary decision of the trial court. Let each decision maker act on its own discretion.
Now we will have to await Amschwand v. Spherion for more information concerning how LaRue will develop. Bruch is reaffirmed by Glenn, with no hint that LaRue has anything to do with either of them.
I agee more with Ron and with Scott about how a case should be viewed when the claim is that benefits due under the plan are lower than they should be because some fiduciary erred in following an investment direction (LaRue) or notifying a participant of steps that remain to be taken to satisfy a condition of elegibility (Amschwnand). In my view, a 502(a)(1)(B) claim for benefits due is analogous to a claim for breach of contract; a 502(a)(2) claim (LaRue) or 502(a)(3) claim (Amschwand or, for that matter, Howe v Varity) is analgous to a claim for professinol negligence or deceit--that is, a tort claim. In may be instructive that ERISA allows state courts to exercise concurrent jurisdiciton over 502(a)(1)(B) claims, wich are claims that a contractual obligation, to pay benefits has been violated,but federal courts retain exclusive jurisdiction over 502(a)(2) and 502(a)(3) claims, which are claims that a statutory obligation or, in other words, legal obligation, has been violated.
Freedom of contract doctrines of general contract law give some rather weak support for the theory that a plan sponsor can grant a discretionary authority to an administrator to determine whether a participant has satisfied the conidtions of elegibility to obtain a benefit; Burch and now Glenn rest on that rather weak authority. However, ERISA prohibits plans from exculpating fiduciaries for breach of fiduciary obligatoins, such as professional negligence or deceit. Bruch and Glenn therefore cannot be authority for any propostion that courts must defer to a fiduciary's descretionary determiniation that it did not violate any statutory (legal) obliagation, even if courts must to defer to discretionary authority that (certain) contractual obligations have not been violated.
If I were representing a particpant in a situtation like LaRue or Amschwand, I would of consider the following course: advise the participant to exhaust the contractual claims in the reivew procedure; in Answchwand, I would have talked about waiver and equitable estoppel as grounds for excusing performance of the omitted condition, and also the equitable document concerning consturctions in avoidance of forfeiture; that were unsuccessful then I would plead both the contract and the tort claims as separate claims in the complaint. I do not see why a partipant should be put the the course of pursuing successive actions on one set of facts. From the court's point of view, I would question whether a participant should be permitted to bring a second, fidicuary claim if the first, benefits due, claim did not afford complete relief.
Posted by: Les Baker | June 27, 2008 at 07:15 PM
Actually, no. That's not my position. When the claims process is used to fairly resolve claims, I'm all for it. When it is used to create a barrier to fairly resolving claims, I'm agin' it. While I appreciate that your clients employ the former, you have to see the world from this side of the fence before you go assuming that all plans operate that way.
Posted by: Ron Dean | April 23, 2008 at 12:07 PM
They don't need to file a federal or any other case if the matter is resolved threough the claim and review process. I understand the DOL view and generally agree that the situation of funding the benefit and deciding the claim at least creates an appearance of conflict and should be weighed in determining how much credence should be given the administrator's determination. Your solution is to sue on every claim, which seems unnecessary and wasteful. Some presumably can be resolved to the satisfaction of the participant through the claim and review process. And nothing stops a participant from seeking legal advice in the process. I personally have seen many matters resolved in favor of participants in the claim and review process. Apparently, that is not your experience.
Posted by: scott macey | April 21, 2008 at 03:37 PM
Rube Goldberg would be awed by your process.
P.S. It's already a federal case, whether as a benefits or a breach case. All you're arguing for is to put a few more hurdles in the path of participants, the huge majority of whom have no idea how they're supposed to get from A to B -- or, in your scenario, from A to LL.
P.P.S. The DOL's MetLife brief in fact said, in answer to the first certified question, that the dual-role administrator does indeed have an automatic conflict worth weighing.
Posted by: Ron Dean | April 09, 2008 at 01:43 PM
A short (probably inadequate from their perspective) reply to Ron and John. Assuming a LaRue type administrative error, the plan has been violated by the administrator's failure to implement participant directions. Such may or may not constitute a fiduciary breach. If the plan processes pursued first, then either the participant's claim will be upheld or denied. If upheld and the amount of lost value is contributed to the plan, then the participant has no further concern. If denied or if accepted but not funded, then the participant can sue. If accepted, but not funded, then such would constitute a new fiduciary breach so a participant could clearly sue under (a)(2). If denied and the process was fair and reasonable and not subject to a conflict, then generally it should stand and maybe that is the right result. Not every participant's claim is valid or entitled to recompense. What a participant should be guaranteed is a fair and objective claim and review process and hopefully a decision from the reviewer and/or the courts that is fair and reasonable and presumably upholds situations where the participant should prevail.
The plan sponsor is not the guarantor of a typical 401(k) plan, but responsible plan sponsors as the employer of the participants want them to be treated fairly, objectively and in accordance with the plan terms and will try to assure such. Many employers pursue third party administrative corrections on behalf of participants.
Even the Department of Labor, in its MetLife amicus brief, does not assume that employers will act in a self-interested way to the participant's detriment. Moreover, pursuing the plan claim and review process first in most LaRue type situations may result in many more participants prevailing because many participants will not be able to find counsel to pursue an individual benefit or fiduciary claim in litigation.
Let's first give the ERISA processes a chance to work before making a federal case out of every error.
Posted by: Scott Macey | April 09, 2008 at 09:22 AM
Until the Supreme Court decides Glenn, we can't know whether it will overrule Bruch or will it will instead develop and clarify the Bruch doctrine without overruling it, but we must expect that it will address the questions it raised the Rush HMO decision, and the question whether plan sponsors have a reasonable reliance interest to balance against participants' interest in a reform of the doctrine in a their favor. Either way, the Court is unlikely to leave open an argument that LaRue did something indirectly that Glenn decision will not do directly.
Posted by: Les Baker | April 08, 2008 at 07:31 PM
I understand that many of you advising plans spend a great deal of time trying to be fair in resolving benefit claims. That you fool yourselves into believing you can be fair is not surprising -- we all like to think that about ourselves. But we know it isn't true. Even given the best of motivations, as the 11th Cir. has noted, consciously or unconsciously, we're going to be biased.
There will be no "flood" of litigation if we let the unbiased Judge review our work de novo. In de novo cases there's no flood, in state law insurance cases, there is no flood. If a plan is so sure that it got it right, then why be afraid of an impartial umpire? Suppose I run to first base, the umpire believes I'm out, but I make a weak but barely credible case that I was safe [the ump is not allowed to review the film because it's not part of the administrative record]. Do I get to be safe? Will I stop playing and take my ball home, will I stop offering benefit plans, if I don't get my way? No, but even if I did, who wants to play with someone so unwilling to be fair anyway.
In no other aspect of law in the last 200-something years has one side to a private dispute been allowed to call the balls and strikes. Why should it be different when we're dealing with peoples' financial futures?
Anyway, the reason for the hubbub during oral argument about the plan not being in the record is simple -- the plan probably says your benefit is "the amount in your account." Here, the account balance was $150K shy. He might be able to bring a benefits claim, but it's a sure loser.
Of course Plans want these cases to be benefit claims because of (a) the strong possibility that the claimant will mess up the administrative process, and (b) plans want the ability to call the balls and strikes.
It's just not fair, no one suggests it's fair, and the only reason for it -- "unless we're allowed to call the balls and strikes we're taking our benefits and going home" is not tenable in a just society.
Posted by: Ron Dean | April 08, 2008 at 02:48 PM
Scott -
Why do you assume that the plan sponsor would fund that kind of claim? In addition to the fundamental regulatory concept that DC plan benefits are determined by whatever is in the plan, most DC plan documents expressly provide that the assets actually in the trust are the sole source for payment of benefits. Employers would be surprised to hear that they, as plan sponsors, have contribution obligations that vary with the fiduciary conduct of others. They have some (often very limited) fiduciary duties, which sometimes draw them into responsibility for breaches by other fiduciaries, but that's far different from the plan sponsor-as-guarantor concept that you seem to be suggesting.
It was interesting that Justice Scalia seemed drawn to Justice Roberts' approach during the LaRue oral argument, but abandoned it by the time he had to decide which opinion to join.
John Purcell
Posted by: John Purcell | April 08, 2008 at 11:58 AM