In the 1950s, Congress began studying welfare and pension funds covered by collective bargaining agreements. After years of hearings, it concluded its studies and investigations with the following:
The most serious single weakness in this private social insurance complex is … the too frequent practice of withholding from those most directly affected, the employee-beneficiaries, information which will permit them to determine (1) whether the program is being administered efficiently and equitably, and (2) more importantly, whether or not the assets and prospective income of the programs are sufficient to guarantee the benefits which have been promised to them.
S.Rep.No. 1440, 85th Cong., 2d Sess., 12 (1958); see Malone v. White Motor Corp. 435 U.S. 497, 5061 (1978).
By the time ERISA was enacted in 1974, Congress still wanted to address related problems: “Congress’ primary concern was with the mismanagement of funds accumulated to finance employee benefits and the failure to pay employees benefits from accumulated funds.” California Div. of Labor Standards Enforcement v. Dillingham Const., N.A., Inc., 519 U.S. 316, 326-327 (1997). In order to advance those goals, ERISA “established extensive reporting, disclosure, and fiduciary duty requirements to insure against the possibility that the employee’s expectation of the benefit would be defeated through poor management by the plan administrator.” Id.
Though this particular congressional interest seems to say that plan administrators must be kept from harming individual participants, the truth is that this interest focused on the plan as a whole, rather than individual claimants: “A fair contextual reading of the statute makes it abundantly clear that its draftsmen were primarily concerned with the possible misuse of plan assets, and with remedies that would protect the entire plan, rather than with the rights of an individual beneficiary.” Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 142 (1985). But see LaRue v. DeWolff, Boberg & Associates, Inc. 128 S.Ct. 1020, 1025 (2008) (“our references to the ‘entire plan’ in Russell, which accurately reflect the operation of § 409 in the defined benefit context, are beside the point in the defined contribution context”). Regardless of whether Congress was focusing on the plan as a whole or individual participants, one can certainly expect claimants to argue that upholding their claim in full will be advancing this policy interest.
This is only part of the Congressional policy story, however. Congress was concerned not only with ensuring that employees got the benefits they were promised, but also with encouraging employers to promise benefits in the first place by, among other things, reducing the cost of those benefits. Thus, Congress announced that ERISA was intended: “to encourage the maintenance and growth of [benefit plans]; [and] … to maintain the premium costs of such system at a reasonable level[.]” 29 U.S.C. § 1001b(c) (2, 5).
The Supreme Court has recognized that the important policies underlying ERISA are in tension, and it has instructed courts “to take account of competing congressional purposes, such as Congress’ desire to offer employees enhanced protection for their benefits, on the one hand, and, on the other, its desire not to create a system that is so complex that administrative costs, or litigation expenses, unduly discourage employers from offering welfare benefit plans in the first place.” Varity Corp. v. Howe, 516 U.S. 489, 497 (1996).
It is obvious how claimants can use the congressional policy of protecting employee’s rights to benefits to argue for a “pay” decision. This is part of the difficulty facing defense counsel in such disputes. Many ERISA claim disputes evoke sympathy for the plaintiff right out of the gate, as the claimant often is sick, elderly, or widowed. The individual before the court may be suffering because of the plan administrator’s decision that he or she is not entitled to a benefit. In contrast, the defendant is typically a large employer or an insurance company. Paying the claim will not break the defendant’s back. Moreover, most ERISA claim disputes that find their way to court are “tough” cases, with at least some facts favoring a “pay” decision. Because Congress expressly stated that it wanted to increase the likelihood that beneficiaries will receive their full benefits, it may not take much for a court to start off with an inclination to give the plaintiff the benefit of the doubt. Making them whole certainly would advance congressional policy, right?
When faced with a dispute between a sympathetic plaintiff and a deep-pocketed defendant, it is a lot harder to see how the congressional goal of encouraging employers to establish benefit plans is relevant. The challenge for defense counsel is to make the court see and understand that the way the court handles and decides this individual case can advance or harm important congressional policies that go beyond the parties in the courtroom at that moment.
A good starting point is the Supreme Court’s observation in Mertens v. Hewitt Associates, 508 U.S. 248, 262 (1993), that, in enacting ERISA, Congress “resolved innumerable disputes between powerful competing interests – not all in favor of potential plaintiffs [emphasis added].” This helps to start the court off at equilibrium; though Congress wanted to protect employees’ rights to benefits, it had other, equally important, interests as well.
Another point to make is that courts should not permit their reaction to tough cases to create law that harms the rights of other actual or prospective plan participants. In other words, the court should be mindful of the “public interest in encouraging the formation of employee benefit plans” Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54 (1987). Millions of workers benefit from plans that their employers voluntarily established. For example, employers provide disability insurance to 30% of the work force, and they have purchased $7 trillion in life insurance for employees. Life Insurers Fact Book, 101 (2005). Employers also provide more than 90% of the private health insurance in force, Economic Report of the President 86 (2006). Most of these employers can reduce, or even discontinue, these benefits if they wish. There can be no question that an employer’s decisions to establish and continue a benefit plan is based, in no small part, on the cost of the plan.
The court cannot simply focus on the individual claimant, but must be cognizant of the larger universe of employees who do not have disputed claims and who depend on benefit plans. If courts react to sympathetic plaintiffs by requiring administrators to pay benefits that should not be paid, or insisting that administrators jump through unreasonable procedural hoops at the administrative or litigation stages, those courts certainly will make benefit plans more expensive. A more expensive plan is one that an employer is more likely to discontinue or reduce in scope or coverage. As the Supreme Court recognized in Egelhoff v. Egelhoff ex rel. Breiner 532 U.S. 141, 149-50 (2001), any burden placed on employers is “ultimately borne by the beneficiaries.” So plaintiffs who are angling for sympathy, or courts who are inclined to offer it, must understand that they are not merely asking to take money from the pocket of an employer or insurer, but, ultimately, from the pockets of other employees.
With that overview, let’s now look at some specific issues that arise in ERISA claim litigation, and how congressional policy can aid defense counsel in moving the court in the right direction.