ERISA: The Standard that Companies Should Use When Determining if an Employee is Eligible for Benefits

An individual eligible for a company’s pension, life insurance, or disability insurance benefits is called a participant.  The company that provides those benefits is called a provider or administrator.  Often the administrator is a third party and not the company that employees the participant. 

An administrator must follow certain steps prior to denying a participant’s application for benefits.   First an administrator must establish and maintain reasonable procedures governing the filing of benefit claims, notifications of benefit determinations, and appeals of adverse benefit determinations.   When denying a claim, the administrator must provide adequate notice in writing to any participant or beneficiary whose claim for benefits under the plan was denied.  In simple English, the administrator must state the specific reasons for denying the claim and reference the provisions of the plan for which the denial is based.  After denying a claim, the administrator must provide the participant with a description of the plan’s review procedures and the time limits applicable to such procedures.  Moreover, the administrator must inform the participant whether the administrator needs any additional information to make a favorable decision.   

After an initial denial, an administrator must provide an opportunity for the participant to appeal the denial.  During the appeal, the administrator must provide a full and fair review.  During the entire review process, the administrators must ensure that benefit determinations are made in accordance with governing plan documents and that, where appropriate, the plan’s provisions have been applied consistently with respect to similarly situated claimants.  The administrator must include a statement of the claimant’s right to bring a civil action under section 502(a) of ERISA following a denial on review; provide the specific rule or a statement that a rule was relied upon in making the adverse determination, and a statement that a copy of such rule will be provided free of charge to the claimant upon request.

To provide a full and fair review an Administrator must:

1. Upon request of a claimant, provide free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits.

2. Take into account all comments, documents, records and other information submitted by the claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination;

3. Consult with a healthcare professional that has appropriate training and experience in the relevant medical field when deciding an appeal of any adverse determination that is based in whole or in part on a medical judgment.

4. Conduct a second review that does not afford deference to the initial adverse benefit determination.

5. Have the person that conducts the second review be a new person and not be a subordinate of the person that performed the initial determination. 

6. Consult a healthcare professional for an appeal of an adverse determination.  This healthcare should not be the individual who was consulted in connection the with initial adverse benefit determination that is the subject of the appeal nor the subordinate of any such individual.

In the Fourth Circuit, which Maryland is in, administrators cannot identify a new reason on appeal to justify why a participant is ineligible for benefits without giving the beneficiary the opportunity to appeal the new reason for the denial.  Moreover, prior to terminating benefits, an administrator needs to rely on substantial evidence and consider all symptoms, not just a select few.

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.