When a plan participant sues a plan fiduciary questioning the fiduciary’s decision regarding a benefit claim, what standard of review should a court use? A recent decision by the U.S. Court of Appeals for the 8th Circuit in Jobe v. Med. Life Insurance Co., 598 F.3d 478 (8th Cir. 2010) highlights a trend within the circuit courts regarding the appropriate standard of review – and how that standard is established. The 8th Circuit became the most recent of four appellate courts to hold that a grant of discretionary authority to fiduciaries in a summary plan description (SPD) will not suffice to warrant a deferential judicial review for abuse of discretion when the plan document is silent.
The standard of review determines the degree of scrutiny that the court will apply when reviewing the fiduciary’s ruling. The highest degree of scrutiny – de novo review – enables the court to review even the smallest errors. Under the more deferential standard of review – the abuse of discretion or arbitrary or capricious standard – a court may review only the largest and most egregious errors.
The general rule regarding the appropriate judicial standard of review for ERISA plan determinations made by plan fiduciaries was defined in Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989). In Firestone, the Supreme Court held that courts should review a denial of benefits under a de novo standard unless the plan provides to the contrary and grants the fiduciary the discretionary authority to make benefit determinations. If the plan fiduciary can demonstrate an appropriate grant of discretionary authority, then its decisions are entitled to review by the court using the arbitrary and capricious – or abuse of discretion – standard.
Jobe v. Med. Life
The issue that the court addressed in Jobe is what constitutes a sufficient grant of discretionary authority (and in which document) to ensure that courts use the arbitrary and capricious standard to review the fiduciary’s actions. The 8th Circuit’s decision in Jobe is consistent with the growing judicial trend that, in order to receive Firestone deference, discretionary authority can not be conferred in an SPD alone, where a clear grant of such authority does not exist in the plan document. In other words, even though the SPD contains a provision providing the fiduciary with discretionary authority to make benefit determinations, the SPD language was not sufficient to amend the plan document that is otherwise silent on this issue.
Many cases have addressed the legal significance of conflicting language in plan documents and SPDs, observing the importance of disclosure documents in the ERISA statutory framework. In Jobe, because the plan was silent on a critical provision (discretionary authority) and the SPD included the provision, the court found the documents to be conflicting. When a conflict is found between the plan document and the SPD, courts have often found that the SPD language prevails, even though the SPD carries a statement that the plan document will prevail if there is a conflict between the plan document and the SPD.
Often the court will cite fairness to the participant – the participant should be able to rely on the SPD language since the SPD is often the only document available to the participant when making decisions about benefits under the plan. However, in Jobe (and the line of similar cases discussed in the next section of this WorkCite), the SPD does not trump the plan where the construction would favor the plan fiduciary, rather than the participant. The Jobe court’s ultimate conclusion was that Firestone deference was not applicable because the grant of discretion in the SPD did not effectively amend the plan document; therefore, there was no clear grant of discretionary authority.
The 8th Circuit’s holding in Jobe is consistent with rulings of the 7th, 9th, and 11th Circuits that were based on similar fact patterns. In each of those cases, the court found that the provisions of the SPD were not sufficient to establish the discretionary authority of the plan fiduciary.
Only one court of appeals has reached a contrary conclusion. In Murphy v. IBM Corp., 23 F.3d 719, 721 (2d Cir.), cert. denied, 513 U.S. 876 (1994), the 2nd Circuit summarily stated that a grant of discretion in an SPD would warrant Firestone deference, but did not provide a detailed analysis of its rationale.
The result in Jobe illustrates that rights stated within an SPD will operate in a participant’s favor, but the court may not reach the same conclusion when the provisions would work for the benefit of a plan fiduciary. The important distinction for plan fiduciaries is that significant provisions, such as the grant of discretionary authority, must be properly documented, and ideally, should appear in the plan document, SPD, and other relevant materials provided to plan participants.
Employers and other fiduciaries that wish to receive Firestone deference are cautioned to examine their plan-related documents to ensure that they are drafted to grant full discretion to plan fiduciaries. Absent such language in the plan (or underlying policy) and related documents, plan fiduciaries assume a greater risk of having even well-reasoned decisions overturned on court review.
Also, the Supreme Court recently announced that it will rule on the issue of whether participants must show that they were “likely harmed” by a deficient SPD before they will be entitled to recover plan benefits as set out in the SPD. So, the saga of conflicting plan documents and SPDs will continue to evolve.