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ERISA and Allowance for Imperfection
as well as in modifying the plans’ contributions or benefits across the board. Once established, however, the plan must be administered for the ultimate good of the beneficiaries. The employer—switching hats from settlor to trustee, as in trust law—must shift from negotiating with its employees to managing the plan in their interest. It is not always clear when the roles change, or what we expect from employers in playing these roles. Although most of us would likely look at an ERISA case through the eyes of a beneficiary, the Roberts Court has evinced more sympathy for those who run the plan. The Court’s decisions in this area may have some elements of a conservative, probusiness, and/or antilitigation approach. However, once again the most consistent theme is that of protection for and empathy toward private institutional players—in this case, ERISA administrators. The Court believes that businesses must govern themselves in the area, and it wants to provide the internal administrators with the means and independence to do so.
The foundational Rehnquist Court case for the Roberts Court’s ERISA jurisprudence is Firestone Tire & Rubber Co. v. Bruch.107 The plaintiffs in Firestone believed they were entitled to termination pay under the company’s termination pay plan and brought suit challenging Firestone’s denial of benefits.  The Court, in a unanimous ruling, held that Firestone’s denial had to be reviewed under a de novo standard. The Court rejected Firestone’s argument for an arbitrary and capricious standard of review. However, the Court’s holding ultimately paved the way for employers to do exactly that. The Court stated: “we hold that a denial of benefits ... is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan"  That “unless,” of course, was fairly easy for employers to add to their plans. As a result, arbitrary and capricious review became available to any employer that wanted it.
The Roberts Court has generally expanded upon this deference. In Metropolitan Life Ins. Co. v. Glenn,112 the Court tackled the issue of whether there is a conflict of interest when a plan administrator is also the payer of benefits and, if so, what effect that conflict has. The Court found that the roles of decider and payer do create a conflict of interest and held that this conflict of interest must be taken into account as a factor in determining whether to uphold the denial of benefits. However, the Court also left the “arbitrary and capricious” standard of review in place, so that the conflict is only a factor as to whether the plan administrator abused its discretion. As a result, the case has become more important for its retention of the abuse of discretion standard in the face of a conflict of interest, rather than for the fact that it takes that conflict into account in some way.
The insurance company’s decision in Metropolitan Life seems ripe for an abuse of discretion finding. After the plaintiff was diagnosed with a severe heart condition, the insurance company denied her claim for long-term disability benefits, even though it had encouraged her to seek such benefits under Social Security. The larger question, however, was whether the responsibility for paying out benefits created a conflict of interest when that party also decided whether to grant benefits. The Court, in dicta, found a “clear” conflict of interest “where it is the employer that both funds the plan and evaluates the claims.” And it held that such a conflict should be taken into account when reviewing the decision pursuant to a ERISA claim. Despite the fact that it found for the plaintiff, however, the Metropolitan Life decision is still favorable to ERISA administrators in that it maintains the abuse of discretion standard. Ultimately, the standard would be more important than whether an ambiguous conflict-of-interest “factor” was made part of the abuse of discretion test. The majority opinion also considered its effect on private institutional decision making, and offered a set of suggestions by which ERISA plan administrators could reduce the importance of the conflict of interest factor through “active steps to reduce potential bias and promote accuracy” in administration decisions.  Firewalls and internal controls could be employed to insulate future administrators from concerns about their conflicts of interest. Like the Faragher/Ellerth affirmative defense, these suggestions provide a road map for employers and plan administrators in carrying out their compliance responsibilities.
In Conkright v. Frommert,117 the ramifications of Firestone and Metropolitan Life become clear. The “abuse of discretion” standard, which Firestone made available and Metropolitan Life kept in place, becomes the centerpiece of the Court’s deference toward plan administrators. That deference continues even when the administrator has already demonstrated a flawed understanding of the plan and has used that understanding to harm beneficiaries. The facts of Conkright are “exceedingly complicated,” according to the Court, “[a]s in many
ERISA matters.”119 The plaintiffs were Xerox employees who left the company in the 1980s, received lump-sum distributions of retirement benefits, and were later rehired. The dispute involved how the pension plan accounted for that lumpsum distribution in calculating the plaintiffs’ benefits after they were rehired. The plan administrator created “phantom accounts” whereby it calculated the hypothetical growth that the lump-sum distributions would have experienced if they had stayed in the plans. The plaintiffs’ pension benefits were then reduced by that amount.120 Plaintiffs challenged this method of calculation, and the Court of Appeals ultimately found the method to be unreasonable. On remand, the plan administrator submitted an affidavit with another method of calculating the benefits. The district court did not give this suggestion any deference, and it instead developed its own method of calculating the impact of the lump-sum distributions on future benefits. In the majority’s telling, the plan administrator appears to be a good faith actor, coming up with legitimate approaches that are ultimately ignored by the district court. And not only did the district court fashion its own approach, but its approach did not account for the time value of money, instead reducing the plans by the nominal amount of the distributions.121 However, the dissent painted the “phantom account” approach as much more unreasonable, explaining in an appendix how workers subject to the phantom account make significantly less than if they had simply been treated as new hires upon their return to Xerox.122 Perhaps more damningly, the plan administrator never notified employees about the phantom account method, other than vague language mentioning an “offset” to their pensions.123
The majority opinion does not mention the administrator’s failure to notify. Instead, it focuses on the need for deference to plan administrators, even in light of error. In fact, the majority is remarkably empathetic to the administrators, as the opening of the opinion makes clear:
People make mistakes. Even administrators of ERISA plans. That should come as no surprise, given that the Employee Retirement Income Security Act of 1974 is an enormously complex and detailed statute, and the plans that administrators must construe can be lengthy and complicated.
authority to the plan administrator, a deferential standard of review remains appropriate even in the face of a conflict.”).
(The one at issue here runs to 81 pages, with 139 sections.) ... .
The question here is whether a single honest mistake in plan interpretation justifies stripping the administrator of that deference for subsequent related interpretations of the plan. We hold that it does not.
The focus on “mistake” here is critical: in the Court’s view, it is not as if the administrator intentionally tried to misread the plan and deny benefits to employees. A “single honest mistake,” the Court reasons, seems fairly understandable and excusable.
From a practical perspective, ERISA plans cannot be too onerous on employers, or they will disappear. As the Court points out, “Congress enacted ERISA to ensure that employees would receive the benefits they had earned, but Congress did not require employers to establish benefit plans in the first place.” Enforcement of employees’ rights must be balanced against “the encouragement of the creation of such plans.” In order to balance the rights of beneficiaries with the proper incentives for plan creators, the majority refers to “the guiding principles ... underlying ERISA”—namely, efficiency, predictability, and uniformity. Deference to the administrator’s interpretation promotes efficiency “by encouraging resolution of benefits disputes through internal administrative proceedings rather than costly litigation.” Such deference also provides predictability, as “an employer can rely on the expertise of the plan administrator rather than worry about unexpected and inaccurate plan interpretations that might result from de novo judicial review.” Finally, deference encourages uniformity by “helping to avoid a patchwork of different interpretations of a plan, like the one here, that covers employees in different jurisdictions—a result that would introduce considerable inefficiencies in benefit program operation, which might lead those employers with existing plans to reduce benefits, and those without such plans to refrain from adopting them.” All of these guiding principles seek to protect the plan administrator.
For the majority, the district court’s ruling in Conkright is an example of what could happen if such deference were not afforded. The lower court settled on an interpretation that did not account for the time value of money and fomented continued litigation. Deference, by contrast, would leave the plan’s reins in the hands of the administrator, absent bad faith or severe incompetence.132 Conkright illuminates the Court’s core premise that runs, somewhat hidden, through Firestone and Metropolitan Life: namely, administrators must be given deference.
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