Claims Procedures Decision
Based on the Supreme Court’s decisions in MetLife and LaRue, employers should consider making changes and acting proactively to implement strategies to help ensure that plan disputes are channeled through a committee and that the committee’s decisions receive deference from the courts.
Many corporate officers, employees and board members serve as ERISA fiduciaries. For a fiduciary accused of breaching its duties under ERISA, the stakes are high. ERISA Section 409 imposes personal liability on a fiduciary that breaches its duty. ERISA authorizes lawsuits against fiduciaries by participants, beneficiaries, the plan administrator, other fiduciaries ,and the U.S. Department of Labor. The federal courts have uniformly held that ERISA’s fiduciary duty is “the highest duty known to the law.”
The LaRue decision – The primary strategy for protecting employers and fiduciaries and to facilitate their proper exercise of fiduciary duties in light of the LaRue decision is simply to draft benefit plan documents, summary plan descriptions and other participant communications to direct the largest number and broadest category of possible disputes into the plan’s claims procedures.
Based on guidance from the LaRue decision and other case law (and experience), we suggest that employers and plan fiduciaries consider the following:
1. Update language in the plan and SPD to clarify that all claims for benefits, including claims related to alleged administrative errors, must be filed according to the claims procedures of the plan and ERISA.
2. Add language explicitly requiring that a participant exhaust all remedies under the plan’s claims procedures before the participant can file a lawsuit.
3. Add a “statute of limitations” to the plan documents, participant benefit statements, and other employee communications (along with contact information on notice of errors) for participants’ claims related to administrative errors.
ERISA contains no statute of limitations with respect to benefit claims. Courts’ usual practice is to borrow the limitations period of the most closely analogous state or federal statute. However, where the plan specifies a limitations period that is shorter than the statutory period, most courts will enforce it, if the limitation is reasonable.
4. Review plan investment and administrative contracts to confirm they do not limit the liability of external plan fiduciaries and service providers (such as through indemnification or exculpation provisions). The appropriate parties, and not the plan, should bear the risk of loss for their mistakes, where feasible.
5. Be certain that the Firestone grant of discretion language in the plan and SPD is as clear and broad as it can be.
The MetLife case – Employers and fiduciaries should establish procedures, create a claims review committee and draft benefit plan documents and SPDs to create the greatest likelihood that, if the committee’s decision is challenged in court, the court will apply a deferential standard of review to the decision. These steps also should help the fiduciary create best practices to facilitate proper exercise of its fiduciary duties.
Employers and fiduciaries, including plan administrators, can take steps to reduce the appearance of conflict – individuals responsible for deciding claims should be separated from those responsible for financial decisions of the employer, during the claims review process, detailed records should be kept to reflect that any conflict had no bearing on the ultimate outcome; and those who decide claims should have an incentive to resolve the claim accurately and disregard whether the outcomes favor the claimants or the employer.
Based on guidance from MetLife, we suggest that employers and plan fiduciaries consider the following:
1. The company and/or administrator should take active steps to reduce potential bias and to promote accuracy, for example, by walling off claims administrators from those interested in firm finances, or by imposing management checks that penalize inaccurate decision-making irrespective of whom the inaccuracy benefits.
2. Consider creating separate committees for plan investments, plan administration and benefit claims, or at least consider having a subcommittee for this purpose excluding those with potentially conflicting interests or duties.
3. Wall off claims administrators from those interested in company finances and benefit plan finances and investments.
4. Consider outsourcing claims reviews and/or appeals. If an employer or committee does this, the plan and not the employer should hire the outsourced provider directly.
5. Those who review the claim also should make the decision on the claim.
6. Create detailed procedures and practices designed to result in accurate decision-making based on objective measures.
7. The employer should put in place a review process to check whether fiduciaries and/or administrators are abiding by the procedures. Third-party administrators who fail to abide by agreed procedures should be responsible for their failures.
8. Accurately record all decisions by the claims administrators. The administrator should list all factors that it used or considered in the decision-making process. These records should be reviewed periodically to ensure that decision policies are consistently being followed.
9. Review the plan documents and SPDs from top to bottom to improve or clarify the definitions of key terms and the eligibility for and amount of benefits provided.
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