In a previous post–ERISA: Trap or Oasis–I mentioned two articles which had discussed some of the roadblocks to a plaintiff’s recovery under ERISA. Brian Scheiderer in his blawg, LiveFree, at this post and this post discusses the subject as well. Brian aptly points out that the main obstacle to recovery under ERISA is the arbitrary and capricious standard or abuse of discretion standard which is applied when a claim for wrongful denial of benefits is brought under ERISA. In other words, when an ERISA plan fiduciary decides that a participant is not entitled to certain benefits under a plan, if the participant sues, the plan fiduciary’s decision will only be overturned if it was arbitrary and capricious. (This can be good for plans and ERISA plan fiduciaries, but bad for plaintiffs.)
I guess this discussion would be lacking if I did not mention that in order for a plan to obtain this standard of review, the plan must, under the U.S. Supreme Court landmark case of Firestone Tire and Rubber Co. v. Bruch, contain language providing the plan fiduciary with discretionary authority to determine eligibility for benefits or to construe the terms of the plan documents. If the plan document does not contain such language, then the case will proceed under a de novo standard, which means that plaintiff will have a greater chance of recovery.
Please note that, in cases of a strong conflict of interest, such as under the case of Lang v. Long-Term Disability Plan of Sponsor Applied Remote Technology, Inc. courts have sometimes applied the de novo standard even where the plan contains the necessary language. Also, as to a plan administrator’s factual determinations, BNA reports that there is a wide split in the federal circuits over whether Firestone requires a de novo or an abuse-of-discretion standard of review.
Note to ERISA Plan fiduciaries: Most plans now include this “Firestone” language giving discretionary authority to determine eligibility for benefits or to construe the terms of the plan documents. However, all plans subject to ERISA should be reviewed to make sure that they include this language and the language should also be included in the summary plan description as well.
(By the way, Brian had one of the greatest posts ever here. (IMHO) Yes, I definitely think that lawyers can be ministers.)