My Journal of Pension Benefits Article on Operational Competence after Amara
For years, in speeches and articles, I have preached the gospel of what I have come to call “defensive plan building,” which is the process of systemically building out plan documents, procedures and operations in manners that will limit the likelihood of a plan sponsor or fiduciary being sued while increasing the likelihood that, if sued, they will win the case in the end. Over the past couple of years, doctrinal shifts related to remedies available to participants under ERISA have made defensive plan building even more important, for at least two reasons. First, these shifts have expanded the range of potential liabilities and exposure in offering, and running, a benefit plan. Second, these developments have, to a significant degree, given rise to an increased focus in ERISA litigation on the actual facts concerning the plan’s activities, as the lynchpin of the liability determination. The combination of expanding liability risks with an increased focus on plan actions makes it more important than ever to focus on the steps of defensive plan building, including by focusing on operational competence in running a benefit plan.
I discussed this concept in much greater detail in my recent article in the Journal of Pension Benefits, “Looking Closely at Operational Competence: ERISA Litigation Moves Away from Doctrine and Towards a Careful Review of Plan Performance.” The article discusses how the last several years of ERISA litigation, including in particular the Supreme Court’s recent activism in this realm, has created this phenomenon. You can find a much more fully realized presentation of these points in the article.
Notes on The John Marshall Law Review's Special Edition on "The Past, Present, and Future of Supreme Court Jurisprudence on ERISA"
Here’s a neat special edition of the John Marshall Law Review, covering Supreme Court Jurisprudence in advance of an employee benefits symposium at the law school. Several of the articles in particular jump out at me as a practitioner as being right on point with key issues playing out in the courtroom; I think it is notable in this regard, and possibly causally related, that several of the authors are practicing lawyers who focus on ERISA litigation.
One article addresses fiduciary obligations with regards to holding employer stock in a plan, or what the rest of us commonly refer to, by shorthand, as the Moench presumption. As I discussed in this post, the courts are in the process of working out the application of these obligations and the presumption under the real time circumstances of actual cases. Another focuses on the development and application of equitable remedies after Amara, and one other speaks to the role of SPDs after Amara. The two are linked, in that the communications contained in SPDs are central to the prosecution of the types of equitable relief claims opened up by Amara. And finally, one other article addresses the restricted scope of remedies available to plan participants as a result of the Supreme Court’s historically narrow reading of ERISA remedies in conjunction with its historically broad reading of ERISA preemption. Interestingly, and as I have written elsewhere, the expansion of equitable remedies by means of surcharge and other types of relief recognized by the Court in Amara is likely to serve as a curative to that problem, by creating an avenue to use the equitable relief prong of ERISA to provide relief to participants in circumstances in which, previously, the combination of ERISA’s limited list of remedies with its broad preemptive effect would have precluded relief being granted to the participant.
Adam and John on the Obligations of Reasonableness and the Problems with SPDs, Respectively
Well, geez, I am embarrassed by the awkward silence in this space over the past couple of weeks. I was out of the country on business for a bit, and digging out ever since. Not that I ever lost sight of the ball, though, as I kept jotting down stories and developments that I wanted to pass along in a blog post. I am going to do that right now, clearing my desk of two of them.
In the first one, I had wanted to pass along this excellent and thought provoking post from Adam Pozek’s Pozek on Pensions, in which he discusses the regulatory changes being developed by the Department of Labor related to who is a fiduciary and what information has to be disclosed to and by fiduciaries. Adam makes the point that what should not be lost in these developments, and in the controversies the changes engender – see here, for instance – is that they do not change the actual obligations of plan fiduciaries to act reasonably and conduct appropriate investigation; those obligations have always been there and continue to be there. The only thing that is changing is what information is available as part of that obligation and how it may impact a fiduciary’s compliance with that obligation. I have discussed before that the disclosure of further information through this regulatory structure will almost certainly shift the nature of fiduciary liability and litigation, and affect how such claims are structured and how they are defended. They don’t, however, change the fundamental, underlying legal obligation of fiduciaries, a point Adam drives home in his post and which, perhaps implicitly, he is reminding us of as we get lost in the details of these regulatory changes.
The second item I had wanted to highlight was this blog, by John Lowell of Cassidy Retirement Group, titled – in a walking, talking exemplar of transparency - Benefits and Compensation with John Lowell. John’s experience shines through in his posts, which are detailed, thought provoking and frankly, compared to much of what one finds on blogs, highly original. For my purposes, and for any of the rest of us waiting for the Supreme Court to rule in Amara, I particularly liked his real world discussion of the problem of misleading and inaccurate summary plan descriptions, which you can find here.
Misleading Summary Plan Descriptions and the Supreme Court
I have been keeping my eye out for an article on the CIGNA Corp. v. Amara case before the Supreme Court - argued a little over a week ago - that focuses more on the practical realities of the case for plan sponsors and participants, rather than on the “inside baseball” analysis of the lawyers and their arguments, which were all the rage in the immediate aftermath of the argument before the high court. I think I finally found it here, in this piece from CFO.com. I have to say that my view of the case, the arguments, and the analysis about it floating around out there have me perpetually in an “on the one hand, on the other hand” mindset about the case, which of course - as someone paid by people to give them definitive advice on which they can actually act - makes me think of Harry Truman’s famous line that he wanted a one-armed economic advisor, because when asked for his opinion he wouldn’t be able to tell the president on the one hand this, and on the other hand that.
As the CFO article points out, the central practical question here is the impact of potentially misleading or, more innocuously, simply incorrect summary plan descriptions, ones that do not accurately state the terms of a plan itself. As the CFO article points out, allowing the SPD to govern or at least alter the benefits by operation of its variance from the actual plan terms - something which in this instance could cost the plan sponsor $70 million or so - can result in a large, unfunded expense and a benefit plan of a scale a company never intended to offer. That really isn’t and was never the point of ERISA, which was to encourage companies to offer benefit plans; whacking them for mistakes, particularly if innocent, isn’t really consistent with that, nor is it likely to encourage companies to offer benefit plans. On the other hand, just off the top of my head, I have at least two or three cases sitting on my desk right now that revolve around inaccurate or misleading SPDs or other information provided to plan participants, ones that simply did not conform with the governing plan documents themselves. It seems to me that, particularly with plan terms as significant as the ones at issue in Cigna, there really is no reason why an emphasis should not have been put in the first place on making sure that the relevant plan term was communicated accurately and succinctly in the SPD. And that of course brings us all the way around again to one of the obsessive focuses of this blog - that the best way to avoid liability, lawsuits and litigation costs is an obsessive focus on compliance and operational competency in the day to day running of a plan. More - in my experience - than in any other area of the law, when it comes to ERISA governed benefit plans, an ounce of prevention is worth a pound of cure.
You Say Potato, I Say Potahto: When Plan Documents and SPDs Speak Inconsistently
Bravo. In the context of discussing the Supreme Court’s grant of cert to a case presenting the question of how to resolve conflicts between plan terms and summary plan descriptions, the authors of this client alert, Lisa Brogan and Joseph LaFramboise at Baker & McKenzie, provide, in only four pages, a succinct yet comprehensive overview of the standards applied across the country to this issue. Conflict between plan terms and the terms as described in summary plan descriptions is one of the more frequent issues that arise in benefit litigation under ERISA, raising questions about the level of talent and effort being committed to plan compliance by many companies, since the best defense to cases involving conflicts of this nature is to avoid them in the first place by ensuring that the description in both documents of the substantive benefit terms match up. That said though, as the case of the billion dollar scrivener’s error suggests, some issues are going to arise no matter how much time, effort and compliance dollars are lavished on a plan’s documentation and operations. Either way, though, this client advisory nicely sums up exactly where we are in each circuit right now when it comes to adjudicating these types of conflicts.
Some More Thoughts on the Primacy of the ERISA Plan Document
Permalink | Judge Gertner of the United States District Court for the District of Massachusetts has an interesting, if brief, ruling that is just out granting a motion to dismiss a severance pay claim under an ERISA governed plan. What caught my eye about it relates back to this post I wrote a few weeks ago, in which I pointed out the need, in litigation planning and counseling concerning ERISA plans, to resist putting undue emphasis on representations that are inconsistent with the actual terms of a plan, because the courts are likely to ignore such statements and to instead simply enforce what is written in the plan documents. The court’s opinion is another example of the trend in the case law in this direction. Although the court was not delving too deeply into this particular issue, the court noted that “in more recent cases, the First Circuit has held that courts should not look beyond the express terms of an ERISA-regulated plan unless the disputed term is ambiguous,” and that “[i]n ERISA cases . . . the central issue must always be what the plan promised . . . and whether the plan delivered." As I said before, any litigation strategy for an ERISA benefits case has to start with the terms of the plan, and not with extrinsic statements or evidence related to the plan’s terms or interpretation. The case is Walsh v. Bank of America Corporate Severance Program.
Promises, Promises . . .
Permalink | Rob Hoskins over at the always interesting ERISABoard has an interesting story about a Second Circuit decision that essentially says “too bad” to a plan participant’s waiver/estoppel theory seeking benefits. The story is consistent with what seems to be a trend in which courts frequently fall back to the terms of the actual plan to decide a dispute, and seem unwilling to allow extrinsic, often but not always verbal, representations to participants to vary or even trump the written terms of the plan documents themselves. My own practice when it comes to participants who have been told one thing by a company representative and want to litigate the benefits they are entitled to as a result is to generally say that, yes, we can make that argument, but we will be a lot better off relying on the plan terms themselves and not on any sort of representation that might be to the contrary. It’s a platitude, to a certain extent, I know, but if you start from that premise, you will more often than not get the right strategy when mapping out litigation in cases in which representations were made that may have been contrary to the plan terms. To paraphrase that old handyman saw of “measure twice, cut once,” the way to think about these types of problems is plan terms first, estoppel claims second.
Summary Plan Descriptions and Discovery in ERISA Cases: the Latest from the First Circuit
Permalink | The First Circuit issued an opinion in the case of Morales-Alejandro v. Medical Card System on Wednesday. The case, which involved a challenge to a denial of long term disability benefits, is noteworthy for two aspects. The first is that the case reaffirms this circuit’s reluctance to allow discovery beyond production of the administrative record in denial of benefits cases prosecuted under ERISA. The court pointed out that, in this circuit anyway, “ERISA cases are generally decided on the administrative record without discovery, and some very good reason is needed to overcome the presumption that the record on review is limited to the record before the administrator."
The second issue of note is that the court addressed the role of summary plan descriptions in ERISA plans and related litigation, and described the role they should play in a litigated dispute over benefits. In particular, the court declared:
ERISA imposes an important requirement on plan administrators and insurers to communicate accurately with plan participants and beneficiaries. See Bard, 471 F.3d at 244-45. Part of the communication requirement is that the SPD provide certain information "written in a manner calculated to be understood by the average plan participant, and shall be sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan." 29 U.S.C. § 1022(a). Section 1022(b) specifies the information to be included in the summary. When the terms, language, or provisions of the SPD conflict with the plan, the language that the claimant reasonably relied on in making and proving his claim will govern the claim process. Bard, 471 F.3d at 245. The burden is on the claimant to show reasonable reliance and resulting prejudice. Id.
Health Savings Accounts, Summary Plan Descriptions and Other Things
Permalink | A few short notes of interest from a weekend of reading:
• Jerry Kalish has nice things to say about (and agrees with) my recent post concerning the Second Circuit’s decision - correct in my view - precluding summary plan descriptions from trumping the actual plan terms.
• I don’t know quite what to say about this article from yesterday’s Boston Globe about town retirement boards and their travel expenses, other than to note that if you don’t want to face exposure as a fiduciary, this type of conduct probably isn’t the way to go about it.
• And finally, WorkPlace Prof collected this information about whether health savings accounts constitute employee benefit plans governed by ERISA. He cites a report to the effect that they do not. Of particular interest, the post points out that employer contributions to the accounts will not necessarily transform them into ERISA governed plans, because employer contributions alone do not in and of themselves render a plan an ERISA governed plan. I have discussed before the totality of factual circumstances that are to be considered in the First Circuit to determine whether a benefit is an ERISA governed plan, and the fact that the source of funding alone is not determinative.
Summary Plan Descriptions and Grants of Discretion
Permalink | Here is an interesting post concerning a recent decision from the Second Circuit on the impact - there is apparently none in that circuit, given this post and the Second Circuit decision, Tocker v. Phillip Morris Companies, discussed in the post - of an administrator reserving discretion in determining claims for benefits only in the plan documents and not in the summary plan description itself.
Now I don’t necessarily agree with the writer of the post, who feels that if a participant cannot locate in the summary plan description the magical Firestone language that reserves discretion to the administrator, then de novo and not arbitrary and capricious review should apply. The writer’s view is that the summary exists to educate the participant, and the participant ought to be able to rely on it and find the reservation of discretion there, or else not have it applied against him or her. Personally, I favor a more realpolitik view of the world when it comes to establishing litigation rules, based on how we can expect people in the real world to act. Most participants, frankly, unless they have been educated about Firestone, discretionary language and standard of reviews by some other source, will have no idea what the Firestone language means or its effect, even if they find it in the summary plan description; for those who have been or choose to educate themselves sufficiently to understand that issue under the employee benefit plans provided by their employers, they will likewise understand that there are other sources of documents that they need to examine that govern the plan. The Second Circuit ruling in Tocker seems to fit that understanding of the real world quite well.
And some of this goes back to a fundamental issue, of whether participants really understand - or even read - the summary plan description, or whether it is instead simply something that gets pulled out by a participant’s lawyer after a claim for benefits has been denied. The summaries exist because we need to mandate disclosure, and certainly the more the better - but I don’t think it is realistic to structure a legal rule and indeed an entire regime around the myth that participants actually do read them, rely on them and understand them. When we do that, we move into simply creating traps that make the administration of plans more difficult and create loopholes to be exploited in litigation; while this may be good for lawyers’ wallets, I think we are all better served by legal rules that fit comfortably with how non-lawyers actually conduct themselves in their day to day lives.
On a more practical and technical level, the Tocker opinion provides an excellent overview of the law governing summary plan descriptions, and the role of those documents in the ERISA regime, for those of you interested in more information on those subjects.