Supreme Court Provides Guidance About When Conflict of Interest Justifies Closer Scrutiny of Employee Benefit Plan Claims DecisionsCynthia Stamer
June 20, 2008 — 1,907 views
In a June 19, 2008 decision, the United States Supreme Court provided helpful guidance to administrators, insurers and employers sponsoring and administering employee benefit plans regulated by the Employee Retirement Income Security Act (ERISA) about the circumstances under which a plan administrator's decision will qualify for this helpful deferential review when the plan administrator bears responsibility both to administer and to pay claims. As the availability of deferential review can substantially impact the ability of plan administrators to successfully defend claims decisions against litigation brought by disappointed claimants and the cost of that defense, plan administrators and employers and insurers that sponsor and fund such plans should review their existing plan design and administrative procedures in light of guidance provided by Glenn and other existing judicial precedent to position their plan administrator's decisions to qualify for judicial deference in the event of a law suit.
n Metropolitan Life Insurance Co. v. Glenn, the Supreme Court ruled that courts reviewing claims decisions made by an employer or insurer acting as the plan administrator of an employee benefit plan less deferentially despite the inclusion in the plan document of discretionary authority to make claims decisions if the claims fiduciary also is responsible for funding the payment of claims under the plan.
According to the Glenn opinion, where the plan administrator making the claims decision also is responsible for funding claims paid under the plan, the administrator acts under a conflict of interest that under certain circumstances may justify less deferential review than otherwise would apply in the absence of this conflict of interest. According to Glenn, however, the mere existence of this conflict of interest does not automatically disqualify the plan administrator's decision for any deference by a reviewing court. Rather, the existence of this conflict of interest is merely a factor that the reviewing court may consider when deciding whether less deferential review is justified. According to the Supreme Court’s decision, the extent to which the conflict of interest justifies closer scrutiny of the claims decision depends upon the facts and circumstances. In Glenn, the Court also provided insights about types of evidence supports or undermines the ability of plan administrator’s to qualify for deference where a conflict of interest exists. The Court’s decision makes clear that depending on the evidence produced, the Supreme Court indicated that a court reviewing the plan administrator's decision could appropriately decide no reduction in deference should apply or that the facts justify less deferential review. Consequently, plan administrators and employers and insurers sponsoring or administering ERISA covered employee benefit plans where the plan administrator has dual responsibilities should take steps to design and administer the plan so as to promote the ability of the plan administrator's decisions to qualify for judicial deference in the event of a law suit.
As part of these efforts, plan sponsors should continue to ensure that plan documents incorporate the necessary grants of discretion that the Supreme Court previously ruled in Firestone v. Bruch must exist before the courts can consider applying deferential deferential, rather than de novo review to a plan administrator’s decisions. The Glenn decision provides helpful guidance about steps that plan sponsors and fiduciaries can take to help position claims decisions to take advantage of these discretionary grants.
Cynthia Marcotte Stamer, is nationally and internationally recognized for her work assisting businesses, governments, and other entities to develop creative strategies for dealing with employee benefit and related human resources, insurance, health care and finance concerns. Ms. Stamer helps businesses design, administer and defend cost-effective employee benefit other human resources programs, policies and procedures to meet their budgetary and other business objectives.