The High Court Stongly Endorses Deference To An ERISA Plan Administrator's Interpretation, Even In Light Of A "Single, Honest Mistake"

June 10, 2010

The U.S. Supreme Court recently issued an important decision that renewed its endorsement of the deferential treatment of plan fiduciary and administrators’ interpretations of ERISA governed pension and welfare plans. Conkright v Frommert, 2010 U.S. LEXIS 3479 (April 21, 2010). Under the Supreme Court’s seminal 1989 decision, Firestone Tire & Rubber Co. v. Bruch, a denial of benefits is to be reviewed under a de novo standard unless the benefit plan gives the fiduciary or administrator discretionary authority to determine eligibility for benefits or to construe the terms of the plan. Where a fiduciary or administrator has discretionary authority, a reviewing court is to uphold the decision made by the fiduciary or administrator unless such decision is found to be arbitrary and capricious. The question in the Conkright case was whether a deferential standard of review should be applied to a new decision when the plan administrator’s original decision had been overturned by the court.

After the 2008 decision in Metropolitan Life v. Glenn, concerning the effect of a financial conflict of interest on the judicial standard of review to be applied to a plan fiduciary’s decisions, there has been uncertainty as to the level of fiduciary discretion that might be upheld by a court, even where the plan documents expressly allow such discretionary authority. However, the Court in Conkright reaffirmed the core principles of ERISA – efficiency, predictability and uniformity – and found that deference to a plan fiduciary’s decision is vital to the implementation of those principles.

The dispute in Conkright concerned the method of accounting for the distribution of past pension benefits in the calculation of current benefits. The issue before the Court was whether the lower court owed deference to the plan administrator’s interpretation of the plan terms on remand. The Court traced its consideration of the deference issue beginning with Firestone Tire, and focused on principles of trust law, the terms of the plan at issue, and the governing principles of ERISA. Because the Court held in Glenn that a financial conflict of interest does not necessarily eliminate deference to the plan administrator’s decision, the Court reasoned here that “a single honest mistake” in plan interpretation does not warrant stripping deferential review of an administrator’s subsequent exercise of discretion.

The Court explained that, by enacting ERISA, Congress intended to create a system that would encourage employers to provide plans without being subject to excessive administrative or legal costs or other burdens in administering a plan with nationwide participants. Deference serves the principles of uniformity, efficiency and predictability by avoiding differing interpretations of plans across jurisdictional lines through de novo judicial review, by allowing plan fiduciaries to develop a process for resolving claims before litigation, and by ensuring that plans will be interpreted by experienced administrators rather than judges.

It remains to be seen whether such a hearty endorsement of deference would also apply in a case concerning a factual determination of a benefit claim decision, as opposed to interpretation of plan terms. Further, the Court’s focus on a “single, honest mistake” here raises the question of whether the outcome might be different in another case involving compelling evidence of bad faith. For now, plan administrators and fiduciaries, and employer sponsors can take comfort in the High Court’s ruling.

If you have questions about the impact of this decision, or other ERISA litigation issues, please contact:

Kimberly J. Ruppel is a Member in the Troy
office. Her expertise is in Insurance & Healthcare and
ERISA Litigation, including defending benefit denial
disputes and breach of fiduciary duty allegations.
She can be reached at 248.433.7291 or kruppel@
dickinsonwright.com.