When a court reviews the decision of an ERISA plan (both health and welfare and pension plans), it must first determine the standard of review: abuse of discretion or de novo. Under an abuse of discretion standard, the court gives the plan’s sponsor (or trustees) more deference and looks at whether the decision was reasonable under the plan’s terms and available evidence. The court will also pay attention to the weight the sponsor or trustees gave to any available evidence.
On the other hand, the deference is gone under a de novo standard of review and the weight the plan sponsor placed on any factors when rendering the determination is ignored. This difference is large from a legal standpoint and plans will look to protect themselves by including language in the plan document calling for the higher standard review. However, and as the case below shows, that standard could be lost if the plan fails to follow certain rules.
In Hampton v. National Union, 2020 WL 5946967 (N.D. Ill. October 7, 2020), a surviving spouse sought death benefits from an ERISA sponsored accidental death and dismemberment (“AD&D”) policy following her husband’s death in a motor vehicle accident. The AD&D benefits were included in her deceased husband’s health plan. The Plan was sponsored by Boeing, but National Union underwrote and co-administered the death benefit. The claim was submitted to National Union and they denied the claim asserting that the husband died of natural causes, citing underlying medical issues. Both the Summary Plan Description (“SPD”) and plan document required an abuse of discretion standard of review for all claim determinations.
The surviving spouse filed suit and asserted that the Court should apply a de novo standard of review because National Union took fiduciary action without proper designation. The SPD listed National Union as a “service provider” and indicated that they were responsible for making all benefit determinations, including processing and paying claims. However, the Plan’s document allowed the Administrator to delegate any administrative or fiduciary duties provided that “any allocation or delegation of fiduciary responsibilities will be in writing, approved by majority vote.” Neither the Plan nor National Union was able to produce a written record of a majority vote. Thus, the Court held that Plan Administrator did not properly delegate fiduciary authority to National Union and therefore National Union was not authorized to render the determination. As a result, and because the Plan did not follow its own procedures, the Court held that a de novo standard of review should apply.
It is important that plan sponsors (or trustees), administrators, and legal counsel understand the rules and procedures adopted in any plan document. While the level of specificity included in the Boeing plan document (i.e., written record of majority vote) is not required under ERISA, the Hamilton Court cited appellate court authority holding that a fiduciary duty cannot be implicitly delegated. Therefore, what should plan sponsors, trustees, administrators, or legal counsel do when delegating responsibility?
- Understand, evaluate, and follow (if not modified) any fiduciary delegation process set forth in the plan document;
- Know that a general or implicit delegation is insufficient; and
- Consider addressing the delegation through a formal written document if it is unclear whether previous action properly protects the plan.