A former employee receiving benefits under her employer’s long-term disability (LTD) plan sued after the plan’s claims administrator terminated her benefits and denied her appeal. The employee argued that the court should apply de novo (nondeferential) review, while the employer argued that the claims administrator’s decision should be reviewed only for abuse of discretion. Following Eleventh Circuit guidelines, the court first considered whether the administrator’s decision on appeal was “de novo wrong” and concluded that it was. (Examining all the evidence, the court would have reached a different decision regarding termination of benefits.) The court then turned to the key issue of whether the plan vested the administrator with discretion to review claims, and, if so, whether “reasonable grounds” supported the administrator’s decision.
The court determined that the summary plan description (SPD) serving as the plan document properly granted discretionary authority to the employer as plan administrator, and permitted the employer to delegate that authority. The employer pointed to several clauses as evidence that it had made the delegation to the claims administrator: First, the SPD provided that a court’s review of any plan decision “shall be limited to a determination of whether the decision was arbitrary and capricious.” Second, the SPD directed benefit claimants to submit proof of disability “either directly to the Plan Administrator or to any person delegated by it.” The SPD also specified that the claims administrator would determine whether a claimant’s disability fell within the plan’s definition. Finally, the administrative services agreement between the employer and the claims administrator indicated that the claims administrator would make determinations on certain ERISA appeals but that in other cases, the employer would be responsible. The court concluded that all of these clauses fell short of authorizing the claims administrator to determine eligibility for benefits or construe the terms of the plan—thus, the claims administrator was not vested with discretionary authority, and de novo review was appropriate. Having already found that the administrator’s decision was de novo wrong, the court ruled in favor of the employee, ordering the employer to provide past-due benefits plus interest.
EBIA Comment: While the SPD and administrative services agreement in this case implied that the claims administrator had discretionary authority, the court determined that more specificity was required to actually delegate that authority. While courts may disagree as to the formality required to bestow discretionary authority (see, for example, our Checkpoint article), such cases remind plan sponsors to carefully and clearly draft their plan documents. And, to increase the likelihood of deferential review by a court, delegation of discretionary authority should be done clearly and in accordance with the terms of the plan, and final decisions should be made only by parties to whom discretionary authority has been appropriately delegated. For more information, see EBIA’s ERISA Compliance manual at Sections XI.B (“Discretionary Authority to Interpret Plan and Determine Facts”) and XXXVI.C (“Standard of Judicial Review Applied to Benefit Decisions Under ERISA Plans”).
Contributing Editors: EBIA Staff.