Plan Design

Claimants or their attorneys sometimes will complain that specific plan provisions are unfair. They may argue that a plan is not generous enough because it contains offset provisions that serve to reduce the benefits paid by the plan. This type of provision is common in disability plans, for example, where Social Security disability benefits are routinely offset against plan benefits.

Or they may complain about the employer’s decision to grant discretionary authority to the administrator. Perhaps no aspect of plan design is more important in claim disputes than discretionary authority. Claim decisions by administrators with discretionary authority are given some level of deference by the courts. Plaintiffs’ attorneys will often attack the notion of this deference. They may argue that it is inappropriate for a court to have to defer to the decisions of a private entity.

But just as Congress permitted employers to decide whether to provide benefits at all, it also permitted employers to choose what benefits to provide, and under what terms: “Nothing in ERISA requires employers to establish employee benefits plans. Nor does ERISA mandate what kind of benefits employers must provide if they choose to have such a plan.” Lockheed Corp. v. Spink, 517 U.S. 882, 887 (1996). This flexibility applies to all aspects of plan design: “employers have large leeway to design disability and other welfare plans as they see fit.” Black & Decker Dis. Plan v. Nord, 538 U.S. 822, 833 (2003). In essence, when an employer chooses to provide its employees benefits that it is not obligated to give, the employee cannot complain that the benefit was not sufficiently generous or came with strings attached.

Attacks on the deferential standard of review – and they are frequent – can easily play to the well-earned sense of authority of many judges. Telling a judge that he or she must defer to the decision of an insurance company can be an uncomfortable message for defense counsel to deliver.

Once again, congressional policy makes the task easier. Simply put, the attacks on deferential review disregard the fact that the employer who established the plan used its “large leeway” to give discretionary authority to the administrator. The Fourth Circuit has recently highlighted the fact that the deferential standard of review advances the core policy of encouraging employers to establish benefit plans:

Under no formulation, however, may a court, faced with discretionary language like that in the plan instrument in this case, forget its duty of deference and its secondary rather than primary role in determining a claimant’s right to benefits. The abuse of discretion standard in ERISA cases protects important values: the plan administrator’s greater experience and familiarity with plan terms and provisions; the enhanced prospects of achieving consistent application of those terms and provisions that results; the desire of those who establish ERISA plans to preserve at least some role in their administration; and the importance of ensuring that funds which are not unlimited go to those who, according to the terms of the plan, are truly deserving. … Thus, the language of discretion in an ERISA plan is a message to courts, counseling not judicial abdication, to be sure, but a healthy measure of judicial restraint.

Evans v. Eaton Corp. LTD Plan, 514 F.3d 315, 323 (4th Cir. 2008).

In that same decision, the Fourth Circuit reemphasized the “particular significance” that deferential review has in ERISA benefits litigation:

ERISA’s preamble refers to the “interests of employees and their beneficiaries” no fewer than four times in three paragraphs, 29 U.S.C. § 1001 (2000); no one doubts that the statute exists to protect employees’ access to benefits, Firestone, 489 U.S. at 113, 109 S.Ct. 948. And yet a cavalier approach to the deference owed ERISA fiduciaries who contract for it would likely disserve that purpose, whatever the call on our compassion in a particular case, for the fact is that the price of greater coverage would almost certainly be lower benefits levels and lower levels of plan formation. For more than thirty years, then, courts have balanced the need to ensure that individual claimants get the benefits to which they are entitled with the need to protect employees and their beneficiaries as a group from a contraction in the total pool of benefits available. At any point, Congress could have intervened. But the delicate balance persists. [internal quotes, brackets and citation omitted]

Id. at 326.