The Friday Five: Five Current ERISA Litigation Highlights - June 2018
This month’s Friday Five covers cases that explore a variety of situations where courts consider what level of deference, if any, they must provide in reviewing decisions made by ERISA fiduciaries.
The Saul Ewing Arnstein & Lehr Employee Benefits/ERISA Litigation Team
1. Can a plan fiduciary breach its duty based on the options it makes available to participants within a plan? In a much watched case out of Chicago, a federal judge ruled that several 403(b) plan participants, purporting to act on behalf of a class, in two ERISA defined contribution plans offered by Northwestern University failed to state a claim based on the plans’ choice of available investments and related expenses. The plaintiffs alleged that the defendants breached their fiduciary duty to plan participants by offering too many investment options under the plans and agreeing to fees that were not the lowest available in the industry. Calling the plaintiffs’ view of plan fiduciaries "paternalistic," Judge Jorge Alonso determined that the plaintiffs failed to state a viable claim, granted the defendants' motion to dismiss in its entirety, threw out all of the plaintiffs’ claims, and denied the plaintiffs’ attempt to file a second amended complaint. Divane v. Northwestern Univ., No. 16-C-8157, slip op. at 1 (N.D. Ill. May 25, 2018).
2. How clear must a plan's language be in giving the administrator discretionary authority in order for decisions of the administrator to be reviewed under the arbitrary and capricious standard? The plaintiff retired from his job as a carpenter in 2007 and began receiving monthly pension and medical benefits for himself and his wife. The plan provided "severe restrictions" on post-retirement work, and the plan terminated the plaintiff’s medical benefits after it determined that he was working in retirement in violation of the plan’s restrictions. The district court upheld the plan’s decision. On review, the Third Circuit analyzed whether the plan’s decision should be reviewed under a de novo standard, or whether the decision was subject to review under the arbitrary and capricious standard. The plan provided that "[a]ny determination, interpretation, or construction by the Board of Administration is final, conclusive and binding on all parties... to the maximum deference permitted by law." The Third Circuit held in ruling that the arbitrary and capricious standard applies that "while there are certainly phrases and formulations that present a close call, this is not one of them." Bickhart v. Carpenters Health & Welfare Fund of Philadelphia & Vicinity, No. 17-2834, 2018 WL 2095484 (3rd Cir. May 7, 2018).
3. Under a de novo standard of review, will an administrator’s decision to terminate benefits after 14 years still be affirmed? The plaintiff sought review of the defendant’s decision to terminate her LTD benefits after receiving those benefits for approximately 14 years. The parties agreed that the plan did not grant the defendant discretion in awarding or denying coverage, so the appropriate standard of review was de novo. Even applying the de novo standard, the court determined that the plaintiff failed to establish that she could not perform any gainful occupation as was required by the terms of the policy. Dorris v. Unum Life Ins. Co. of Am., No. 16-CV-508-SMY-DGW, 2018 WL 1993186 (S.D. Ill. Apr. 27, 2018).
4. Can a plan cut off post-employment claims through a separation agreement and release? The plaintiff was a participant in an ERISA LTD benefit plan, and signed a separation agreement and general release with his employer under which he was paid a lump sum to release all claims against certain released parties. After the plaintiff brought suit seeking LTD benefits under the plan, Prudential filed a counterclaim alleging that it was a “plan fiduciary” and “insurer” under the separation agreement and thus entitled to declaratory relief, injunctive relief and attorneys’ fees under the separation agreement. The plaintiff moved to dismiss the counterclaim for failure to state a claim. The court denied the motion to dismiss the counterclaim, ruling that Prudential is a third-party beneficiary under the agreement. Thomas v. Prudential Ins. Co. of Am., No. 17-4522, 2018 WL 2118020 (E.D. Pa. May 8, 2018).
5. How long is too long before a claims administrator loses deferential treatment for failing to follow ERISA procedural requirements? The plaintiff filed suit following a claims administrator’s decision denying his LTD benefit claim. The plaintiff complained that the administrator took 231 days to decide his appeal, while ERISA provided that such decisions are to be made in 45 days, with the possibility of one 45-day extension. The court ruled that the claims administrator’s repeated delay and tolling warranted a deemed exhaustion determination and further held that the administrator’s violation of ERISA’s procedural requirements precluded application of discretionary review. Johnston v. Aetna Life Ins. Co. No. 17-20996-CIV, slip op. at 19-30 (S.D. Fla. March 1, 2018).