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Read All About It: Plan Language Controls in ERISA Matters

For anyone who handles matters related to plans governed by the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq., looking first to the plan language is key to resolving most issues that arise with employee benefit plans.  Both plan administrators and beneficiaries can save significant time and expense by carefully reading the plan documents and then applying the terms of the plan to any particular issue.  While many cases arise where there is a dispute as to what a particular term means, this article will focus on ERISA’s mandate that the plan language controls the rights and benefits of those governed by the plan.

For anyone who handles matters related to plans governed by the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq., looking first to the plan language is key to resolving most issues that arise with employee benefit plans.  Both plan administrators and beneficiaries can save significant time and expense by carefully reading the plan documents and then applying the terms of the plan to any particular issue.  While many cases arise where there is a dispute as to what a particular term means, this article will focus on ERISA’s mandate that the plan language controls the rights and benefits of those governed by the plan.

The benefits and protections under ERISA are premised on providing the plan participants with written documentation regarding the plan.  See, e.g., 29 U.S.C. § 1022(a)(1) (“A summary plan description of any employee benefit plan shall be furnished to participants and beneficiaries…”).  “Congress intended that plan documents and the [Summary Plan Descriptions (“SPD”)] exclusively govern an employer’s obligations under ERISA plans.”  Moore v. Metropolitan Life Ins. Co., 856 F.2d 488, 492 (2nd Cir. 1988).  “Predictability as to the extent of future obligations would be lost, and, consequently, substantial disincentives for even offering such plans would be created.”  Id.  Thus, the backbone of any ERISA plan analysis must include a careful reading of the plan documents and a review of the plan documents as a whole.

Additionally, a fiduciary under ERISA, including the administrator responsible for determining benefits under the plan, is specifically required under ERISA § 404(a)(1)(D) to follow the written terms of the plan.  See 29 U.S.C. § 1104(a)(1)(D).  Following the written terms of the plan provides “a straightforward rule of hewing to the directives of the plan documents that lets employers ‘establish a uniform administrative scheme, [with] a set of standard procedures to guide processing of claims and disbursement of benefits."”  Kennedy v. Plan Adm’r for DuPont Sav. & Inv. Plan, 129 S. Ct. 865, 875-876 (2009) (citations omitted).  “The point is that by giving a plan participant a clear set of instructions for making his own instructions clear, ERISA forecloses any justification for enquiries into nice expressions of intent, in favor of the virtues of adhering to an uncomplicated rule: ‘simple administration, avoid[ing] double liability, and ensur[ing] that beneficiaries get what’s coming quickly, without the folderol essential under less-certain rules.’”  Id. citing Fox Valley & Vicinity Constr. Workers Pension Fund v. Brown, 897 F.2d 275, 283 (7th Cir. 1990).

There are two primary areas where litigation arises related to the plan language controlling the rights and benefits of the parties under an ERISA plan: (1) conflicts between the plan language and the language of the SPD and (2) actions to recover benefits or enforce plan terms. 

Currently, there exists a split among the circuits as to what standard should be applied to determine whether the plan or the SPD should control.  For example, the Sixth Circuit takes an expansive view holding that the SPD controls where there is a conflict between the SPD and the plan.  See Haus v. Bechtel Jacobs Co., LLC, 491 F.3d 557, 564 (6th Cir. 2007).  On the other hand, the Second Circuit takes a more limited approach that requires the participant to demonstrate that he or she was “likely to have been harmed” as a result of the deficient SPD.  See Burke v. Kodak Ret. Income Plan, 336 F.3d 103, 113 (2nd Cir. 2003).  The U.S. Supreme Court recognized this split and has granted certiorari to decide the question “Whether a showing of ‘likely harm’ is sufficient to entitle participants in or beneficiaries of an ERISA plan to recover benefits alleged on an alleged inconsistency between the explanation of benefits in the Summary Plan Description or similar disclosure and the terms of the plan itself.” CIGNA Corp. v. Amara, 130 S. Ct. 3500 (U.S. 2010).

In actions to recover benefits or enforce the terms of a plan, the statute specifies that the plan language is key and controls the rights of the parties.  Under § 502(a)(1)(B), a participant or beneficiary may bring a cause of action “to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.”  29 U.S.C. § 1132(a)(1)(B).  The statute specifically speaks to the concept that such claims arise “under the terms of the plan.”  This language makes it clear that the plan language controls the rights of participants and beneficiaries.

The Sixth Circuit recently reiterated that courts must look to the language of the plan, including a review of the plan language as a whole, to determine eligibility for benefits under an ERISA plan. See Union Security Insurance Company v. Blakeley, No. 09-4368, 2011 U.S. App. LEXIS 2911 (Feb. 15, 2011).  In Blakeley, the court had to determine the proper beneficiary under a life insurance policy governed by ERISA.  The decision in this case turned on the meaning of the term “domestic partner” under the plan.

The decedent, Thomas Blakeley, was survived by three children and a cohabitant named Sondra Billet.  Mr. Blakeley had a life insurance policy that was governed by ERISA, but he failed to elect a beneficiary for that policy.  The policy provided for the distribution of benefits in the event a beneficiary was not identified.  First, benefits would be distributed to Mr. Blakeley’s spouse, then to his domestic partner, then to his children (or his domestic partner’s children), then to his living parents, and finally to his estate.  There was no dispute that at his death, Mr. Blakeley was unmarried.  There was a dispute between Ms. Billet and Mr. Blakeley’s children as to whether Ms. Billet qualified as a “domestic partner” under the controlling plan. Union Security Insurance Company wisely filed an interpleader action to allow the court to determine the correct beneficiary.

After determining that the phrase “domestic partner” did not appear in the plan’s general definitions section, the district court looked outside of the plan language and applied federal common law to determine the meaning of the term “domestic partner.”  Id. at *2.  Consequently, the district court held that Ms. Billet qualified as a “domestic partner” under the plan and she was therefore awarded life insurance benefits under the policy.  Id. at *2-3.  Mr. Blakeley’s children appealed this decision.

The Sixth Circuit reversed the district court and instead found that there was language in the plan that, when read as a whole, provided a definition for “domestic partner.”  Id. at *5.  In particular, the court held that another section of plan provided specific criteria that the district court should have relied upon to determine whether someone qualified as a “domestic partner.”  Id. at *5-6.  The appellate court determined that the district court had prematurely resorted to outside sources to determine the meaning of “domestic partner.”

Based on both the language of the statute and the pronouncements of the U.S. Supreme Court, the plan language controls the rights of both plan administrators and participants. Any practitioner faced with an ERISA matter should be sure to first read all of the plan documents because any court that hears the issue will surely do the same.  Of course, well drafted plan language can prevent ambiguities and disagreements about the meaning to certain terms within a plan.  It is likely that a simple reference or added definition would have resolved the issue in Blakeley very early on. 

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