ERISA: The Standard of Review When Determining if an Employee is Eligible for Pension Benefits, Disability Insurance, or Life Insurance

Section 502 of the Employee Retirement Income Security Act (ERISA) is a law that ensures that employees are given the work benefits that their employer provides.  (Section 502 of ERISA corresponds to 29 U.S.C. §1132).  If a company provides a benefit plan to employees, and the employee meets the standards to qualify for the benefits, the employer must provide the benefits to the employee.  Life insurance, disability insurance (both short term and long term benefits), and pension plans are types of plans that fall under ERISA. ERISA requires plans to provide participants with information about the plan and sets the minimum standards for participation in the plan, vesting, benefit accrual, and funding.   More specifically, ERISA is designed to help participants recover benefits due, enforce rights, and to clarify rights to future benefits under the terms of the plan.

Individuals participating in the plan are considered participants.  If a participant applies for benefits under the plan, and the plan administrator denies the participant’s claim for benefits the participant can ask the administrator to reconsider the claim.  (Appeals to the administrator are considered administrative appeals.)  A participant can bring their case to court once the opportunities for reconsideration at the administrative level are exhausted.  Often, ERISA claims are filed in federal court. 

If a participant chooses they can attempt to enforce their rights by bringing a lawsuit against the administrator.  In court, participants and administrators will often fight over the standard of review: de novo or abuse of discretion.  A brand new review is called a de novo review. Courts should conduct a brand new review to determine if a participant is eligible for benefits, unless the plan gives the administrator discretionary authority to award benefits.  If the judge proceeds with a de novo review he will review all records submitted to the administrator and potentially other records to reach a decision. 

Many plans incorporate language that give administrators discretionary authority to determine if a participant is eligible for benefits.   If the plan gives the administrator discretionary authority to decide if a participant is eligible for benefits, courts will review the claim by determining whether the administrator abused their discretion or made arbitrary and capricious decision. In abuse of discretion, the judge will only determine if the company came to a reasonable decision.   The abuse of discretion standard is not as favorable to the participant as a de novo review. 

Although plan administrators will often try to use language in their plan to ensure that courts use an abuse of discretion standard of review, sometimes the language the plan administrator uses is insufficient to permit courts to use the deferential abuse of discretion standard.  For example, an insurance company might not be able to rely on an abuse of discretion standard of review if they use language that states proof must be “satisfactory to us” to provide benefits.

If an employee is successful in court, they can be awarded the entirety of benefits due, court costs, and attorney fees. Hiring a knowledgeable attorney can help you in your ERISA claim.  If you need legal assistance for your ERISA claim, contact the Law Office of Phillip E. Chalker at phillip@attorneychalker.com or (443) 961-7345.