c. Different Interpretations of Firestone v. Brunch
There have been three separate interpretations of the Brunch decision. 16 Employee Rel. L.J. 403. These three interpretations are: the “strict” interpretation, the “flexible arbitrary and capricious” interpretation, and the “shift the burden to the employer” interpretation. Id. Under the “strict” approach, a court examines the plain language of the benefit plan, and then applies a de novo or abuse of discretion standard of review depending on whether the administrator was given discretion to interpret the plan. According to the “flexible arbitrary and capricious” interpretation, a court analyzes all of the facts, and if the court believes that the trustee is operating under a conflict of interest, the standard of review will slide to become more stringent. Finally, courts applying the “shift the burden to the employer” interpretation hold that when a trustee and administrator are the same and that entity is a profit-seeking unit, a conflict of interest is always present, therefore the employer has the burden to show that the denial is appropriate.
The “strict” interpretation is alive and well in the Second, Third, Fourth, and Tenth Circuits. In these jurisdictions, the degree of discretion granted to the administrator in the plan language is determinative of the standard of review to be applied in a District Court. 31 Washburn L.J. 280. In fact, broad, generic grants of discretion are enough to trigger a differential review. Pratt v. Petroleum Prod. Mngmt. Employee Sav. Plan, 920 F.2d 651 (10th Cir. 1990). A differential review can be seen when broad discretion is given to an administrator to interpret the plan and it’s terms, and the appellate court honors that discretion. Pratt, a case from the Tenth Circuit, demonstrated a “strict” interpretation of the Brunch opinion. In Pratt, a former employee brought an ERISA claim against the employer’s benefit plan. The plaintiff alleged that he was terminated due to a reduction in work force, and that he was entitled to a distribution of his vested interest in an Employee Contribution Account. The ERISA governed employee benefit plan expressly gave the plan administrator discretionary authority to interpret the plan and it’s terms.
The court determined that the language used in the plan did give the administrator discretion and the ability to interpret the benefit plan. Id at 657. The court then held that even though the administrator could interpret the plan, he had done so arbitrarily and capriciously, and therefore the plaintiff was due his benefits. Id. In Pratt, the court stated that they would uphold the administrator decision to deny the benefits, unless the decision was determined to be “(1) arbitrary and capricious, (2) not supported by substantial evidence, or (3) erroneous on a question of law.” Id. Since the court would have enforced the administrators decision, but for the above three determinations, the court strictly applied the Brunch opinion.
Very similar to the “strict” approach is the “flexible arbitrary and capricious” interpretation. The “flexible” approach has been enforced in the Fifth, Sixth, Seventh and Eighth Circuits, and is merely a extension of the “strict” interpretation. Again, the “flexible” interpretation allows the court to apply the “strict” interpretation, but slides to a more stringent standard of judicial review whenever a plan administrator or fiduciary is shown to be under some type of conflict of interest. Further, the standard becomes stricter and stricter, the larger the apparent conflict of interest is shown to be. The Fifth, Sixth and Seventh Circuits all allow a very broad and/or generic grant of discretionary power, in order to trigger a differential review. See Batchelor v. Int’l Board of Elec. Workers, 877 F.2d 441 (5th Cir. 1989), Davis v. Kentucky Financial Co., 887 F.2d 689 (6th 1989), Lister v. Stark, 942 F.2d 1183 (7th 1991). However, the Eight Circuit seems to require a much more carefully drafted grant of discretion, in order for the administrator to be able to use his/her discretion to interpret and construe plan terms and provisions. Jacobs v. Picklands Mather & Co., 886 F.2d 182 (8th Cir 1989).
In Jacobs, former employees sued to recover benefits under an ERISA governed plan. The court found that since the plan did not specifically grant the administrator discretion to construe plan terms or to determine eligibility for benefits, the court had to review the actions as if the administrator was granted no discretion. As a result, the court granted a de novo review. The Eighth Circuit required an explicitly tailored grant of discretionary power to the administrator to construe ambiguous plan language before the court will apply a differential review. Id. at 656. As seen in Jacobs, a generic, non-explicit provision that gives a trustee final authority to determine “all matters of eligibility for the payment of claims,” is not specific enough to avoid a de novo review.
Another case out of the Eighth Circuit demonstrates the “flexible” approach in comparison to the “strict” interpretation. In Woo v. Deluxe Corp., a former employee sued his employer and plan administrator seeking review of a denial of both long and short-term disability benefits. On appeal, the Eighth Circuit held that less differential than de novo standard of review applied to the administrator’s denial of disability benefits, and when an ERISA plan administrator is operating under a conflict of interest, the sliding scale standard of review applies. Woo v. Deluxe Corp., 144 F.3d 1157 (8th Cir. 1998). Under this “sliding scale” or “flexible” approach, the court will continue to review for an abuse of discretion but will decrease the deference given to an administrator in proportion to the seriousness of the conflict. Id. The court stated that Woo was “required to present evidence which demonstrated that: (1) a palpable conflict of interest or serious procedural irregularity existed, which (2) caused a serious breach of the plan administrator’s fiduciary duty to the claimant.” Id. at 1160. Further, the court related that Woo needed only to show that the conflict had “some connection to the substantive decision reached” in order to trigger the sliding scale. Id. Woo was able to demonstrate that the administrator was operating under a conflict of interest, so the court reviewed for an abuse of discretion and weighed the conflict of interest against the defendant.
The final interpretation of Brunch is the “shift the burden to the employer” interpretation. The “shift” approach seems to be followed in the Ninth and Eleventh Circuits. See Kunin v. Benefit Trust Life Ins. Co., 898 F.2d 1556 (11th Cir. 1990), and Newell v. Prudential Ins. Co. of America, 904 F.2d 644 (11th Cir. 1990). The “shift” interpretation generally holds that whenever a court determines that a conflict of interest is present by the administrator, the court will apply a de novo standard of review, unless the employer/administrator can show that the conflict of interest did not influence the decision to deny the claim. In Newell, the court had established a more stringent standard, which required the administrator to “prove that its interpretation of the plan provisions committed to its discretion was not tainted by self interest.” The administrator also had to show that he/she operated “exclusively in the interest of the plan participants and beneficiaries.” Id. at 651.
The “shift the burden” standard does not seem to follow the differential review that Brunch established because Brunch specifically held that a conflict of interest should only weigh against the deference given to the administrative decision, not completely erase the discretion the allocated to the plan administer. Even though I do believe that this standard does not follow the precedent Brunch set, I personally believe that this standard is the appropriate standard. This is the appropriate standard because the “shift the burden” approach is the only “interpretation” which recognizes that insurance companies or employer administrators are profit-generating entities. As profit-generating entities, these administrators make more money when claims are denied, therefore they have a significant incentive to deny questionable claims. Beneficiaries of these plans are not able to select the benefit plans available to them; therefore they should be given the benefit of the doubt. In order for the participant to receive the benefit of the doubt, courts must allow a closer review when it is apparent that a conflict of interest exists. In my opinion, the “shift the burden” interpretation this is the appropriate standard of review, and it should become the uniform rule throughout all Circuits.
IV. Standards that Still Vary from Circuit to Circuit
a. The Grant of Discretion
As demonstrated in Jacobs (8th Cir.) and Pratt (10th Cir.), the determination of whether or not the plan language actually conveys discretionary authority to an administrator, is still at the will of each Circuit. Many courts allow a broad statement giving the administrator the power to permit a differential review and to oversee the administration of the plan. See Pratt. Whereas, some courts require a carefully constructed grant of discretion to each element of the administrator’s review. See Jacobs. In Circuits that require specific grants of discretionary authority, like the Sixth Circuit, that grant of discretion should be tailored in line with the ruling in Walker v. Wal-Mart Stores, Inc., 159 F.3d 938 (6th Cir. 1998). Walker, held that a plan’s grant of discretion should read as follows:
“The PLAN herein expressly gives the ADMINISTRATIVE COMMITTEE discretionary authority to resolve all questions concerning the administration, interpretation or application of the PLAN, including without limitation, discretionary authority to determine eligibility for benefits or to construe the terms of the PLAN in conducting the review of the appeal…”
Id. at 939. If the plan drafters follow the formula set out in Walker, their grant of discretion should be upheld in all Circuits. This grant of discretion is specific enough to demonstrate the drafter’s intent and will clearly inform the beneficiary of the administrator’s discretion.
b. Which Plan to Enforce
Since the holding in Brunch benefit plan issuers and organizers have amended their plans to unquestionably “grant the plan administrator the authority to determine the eligibility for benefits and to construe the terms of the plan.” SC62 ALI-ABA 1 (1998). Therefore, the issue has become what clause should courts enforce? Under the original plan, the language might allow a de novo review. However, under the amended plan, the administrator clearly has discretion and the court will surely grant a differential review, making the administrators decision very difficult to overturn.
A recent Iowa case has considered just this issue. In Blessing v. Deere & Co., 985 F. Supp. 899 (S.D. Iowa 1997), the court was asked to decide if the original plan or an amended plan should control. The original plan provided for discretionary authority to the administration while the amended plan did not. The plaintiff argued that since the original plan was in effect when her husband, the actual plan participant, died, the original plan must control. Id. at 903. The defendant argued that the amended plan was in effect when the claim was made, therefore the amended plan must control. Id. at 903. In the end, the court held that the plan in effect when the claim was made is the controlling plan. Id at 903. Unfortunately, nowhere in the ERISA statute is this rule enumerated. This could be a issue for the courts for some time and the reasoning of both arguments seems to make reasonable sense especially in Blessing. The plaintiff’s argument in Blessing was particularly persuasive to me because the actual participant, the husband, was dead. Since the actual participant was dead, he no longer had any choice over whether to accept the amended benefit plan or to choose another. Further, the wife had no bargaining power to change the benefit plan because she had no value to the employer/provider. Therefore, she had no ability to negotiate for a better benefit plan. She was required to take the amended plan, which was probably already paid for, or find a new plan at her own expense. To me, this seems as if both parties had valid arguments, and the court could have ruled for either the plaintiff or the defendant.
V. Conclusion
It is clear that the current standard of review for ERISA appeals to U.S. District Court’s is the standard determined by the U.S. Supreme Court in Firestone Tire & Rubber v. Brunch. The Court specifically held that a U.S. District Court should give an action governed by ERISA, that had been appealed after the exhaustion of administrative remedies, a de novo review. Id. More specifically the court stated that the district court should review under a de novo standard, unless the plan explicitly confers to the plan administrator the power to interpret the plan and the plan’s terms. Id. If the plan provided the administrator with sufficient discretion, the court must only then review the administrator’s decision for an abuse of discretion. Id. This clearly gives the administrator independent authority to admit or deny claims made by plan’s participants. I truly believe this is a conflict of interest with potentially unjust results.
These results are potentially unjust considering the participant’s lack of bargaining power with benefit providers, the participant’s lack of understanding of the benefit plan and language, and the participant’s lack of understanding of the administrative appeal and litigation process. With all of these factors favoring the plan provider and hindering the plan beneficiary, it seems apparent to me that ERISA’s provisions should attempt to assist the beneficiary, not the administrator. Clearly, Congress enacted ERISA to “secure employee pensions and benefits for their future use by employees.” See 29 U.S.C. ? 1001. Extending from this proposition, it would seem that Congress would have intended a judicial review to support that purpose, and assist employee beneficiaries claiming their rightful benefits.
It remains to be scene whether the U.S. Supreme Court will rule on the question of what is the correct language necessary in order to provide the plan administrator with sufficient discretion to interpret the benefit plan and it’s terms. As previously discussed, the Appellate Circuits have different interpretations of what language is necessary for a plan administrator to have discretion to interpret the plan, and therefore avoid a de novo review. Obviously, this is a very important question because the question of administrator discretion determines if the court reviews for an abuse of discretion. This issue can make or break an appeal and needs to be made consistent in order to provide similar findings throughout the federal court system. For the courts to be consistent with the intent behind the ERISA statute, they must hold plan administrators to a high level of specificity in granting discretionary authority. Plan administrators must not be given generic grants of power, but instead specific discretion limited by the plain language of the plan. Again, the court must understand that plan beneficiaries are often unsophisticated and unfamiliar with the future implications of giving the administrator discretion. Therefore, administrators should be required to clearly state exactly how much discretion they have, and as to what extent their discretion will control the claims made by plan beneficiaries.
Through my limited experience working within ERISA’s laws, and reading case law discussing ERISA, I do not think that the true intention of ERISA is fulfilled when the law is construed to protect employers and administrators. Some argue that plan beneficiaries have the right to choose a plan and if they buy into a benefit plan which gives the administrator the power to interpret the plan and it’s terms, that is the beneficiary’s choice. I completely disagree. I contend that a vast majority of employee/beneficiaries never read the provisions of the plan, and would not understand the plan’s implications even if they had read the provisions. ERISA was intended to secure and protect an employee’s rights and benefits for the employee’s future use. Under the current standard of review, as strictly applied from the Brunch decision, the court system is not protecting the interest that ERISA was designed to safeguard.