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9 Bus. L. Today 8 (1999-2000)
Balancing the Benefits: New Rulings Affect ERISA Claims

handle is hein.journals/busiltom9 and id is 350 raw text is: B P E .E By PETER M/. KELLY ust how hard is it for a retiree to question a company's benefits decision? Recent court cases may change the equation. The Employee Retirement Income Security Act of 1974 (ERISA) affords employee benefit plan participants ready access to court to challenge a plan's determination of their benefit rights. However, courts hearing such cases have traditionally presumed that bene- fit determinations made by plan fidu- ciaries are correct. Specifically, the ben- efit determinations of fiduciaries who are granted discretionary authority by an employee benefit plan are entitled to judicial deference similar to the def- erence normally afforded to adminis- trative law judges. Firestone Tire & Rub- ber Co. v. Bruci, 489 U.S. 101, 114-15 (1989). This is a powerful tactical advantage that plans and plan fiducia- ries would be well advised to zealously protect. Despite this advantage, ERISA law- suits are among the most common (seventh most frequent) categories of cases clogging our federal court sys- tem. Most ERISA cases are at heart claims for additional benefits, although plaintiffs have recently been attaching other claims (such as fiduciary-breach claims, reporting or disclosure claims or ERISA retaliation or discrimination claims) to their benefit claims. Unlike ADEA and other claims that may be waived, an employee ordinarily cannot waive or release his or her future retirement plan rights. Many benefit disputes are equivalent to a Kelly is a shareholder with Ogletree, Dcakins, Murphy, Smith & Polk in Chicago. business divorce. A disgruntled partici- pant's litigation decisions may be moti- vated by anger or revenge and often are not restrained by normal economic considerations. Although defendant plans and fidu- ciaries often prevail in such cases, defending an ERISA lawsuit can be expensive. Lawsuits challenging the outcome of a plan's internal benefit appeal process rarely are resolved before the defendants are forced to incur significant discovery costs. The Seventh Circuit recently issued two opinions that could have a signifi- cant impact on benefit claim lawsuits conducted in courts throughout the country. These opinions, authored by two of the most prolific judges in the federal judicial system, each contain unusually blunt guidance for future liti- gants. Taken together, these decisions could lead to new restrictions on dis- covery in ERISA benefit claim cases and will offer a sharper distinction between plan decisions that will be afforded def- erence and those that will not. Let's first look at the Firestonc defer- ential standard of review. If an ERISA plan expressly grants plan officials dis- cretionary authority to determine eligi- bility for benefits or to interpret the terms of the plan, a court second guessing that decision must use a favorable standard of review that gives these plan fiduciaries the benefit of the doubt. Firestone, 489 U.S. at 114-15. The decision of the plan fiduciary will ordinarily only be overturned if the plan fiduciary acted in an arbitrary and capricious manner. Id. at 111. This standard of review is also referred to as the abuse of discre- tionary standard because an arbitrary and capricious decision is often described as an abuse of the discretion granted to the plan fiduciary One way to think of this deferential standard of review is that it creates a presumption that the fiduciary making the benefit decision did so properly A plaintiff may overcome or weaken this presumption. The strength of the presumption will vary depending on the facts and circumstances. For exam- ple, if there is evidence that the fidu- ciary has a conflict of interest in mak- ing the decision, the presumption might be weaker than if no conflict of interest is present. This conflict of interest exception is frequently asserted by plaintiffs in ERISA cases based on language in Fire- stonw suggesting that a conflict of inter- est is the type of factor that might alter the degree of deference. However, courts will generally require plaintiffs to point to specific evidence of a conflict of interest beyond the mere status of the fiduciary as an employee or officer of the plan sponsor in order to seriously affect the Firestonc deferential standard of review. Chalmers v Quaker Oats Co., 61 E3d 1340, 1345 (7th Cir. 1995). If the decisions challenged in court were not made by fiduciaries who are granted interpretive discretion, the court is not required to give deference to the fiduciary's decision. In such cases, the court must review the bene- fit claim de novo. Firestone 489 U.S. at 114-15. As the literal meaning of that phrase suggests, a court reviewing the benefit denial on a de novo basis takes a new look at the issue and makes its JulylAugust2000 alai

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