Stricter Review of Benefits Denial Where Plan Terms Inadequately Disclosed

[P]lan administrators must create written plan documents and offer members an opportunity to examine those documents to “determine exactly what [their] rights and obligations are under the plan.” Id. (quoting H.R. Rep. No. 93-1280, at 297 (1974), reprinted in U.S.C.C.A.N. 4639, 5077, 5078). Given the members’ right to examine the documents, the plan administrator must make the documents “available for examination by any plan participant or beneficiary.” 29 U.S.C. ยง 1024(b)(2).

To exercise this right, members must clearly identify whatever they want to examine. Moothart v. Bell, 21 F.3d 1499, 1503 (10th Cir. 1994). Of course, no member could clearly identify a document that the plan administrator has kept secret.

So ERISA’s procedure for inspection of plan documents assumes notice to members.

Lyn M. v. Premera Blue Cross (10th Cir. 2020)

Under ERISA, courts ordinarily conduct de novo review of a plan administrator’s decision to deny benefits. In Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989), however, the Supreme Court adopted the view that courts should use a trust analogy in interpreting plan administrator decisions. On this view, if the plan document grants discretionary authority to the plan administration, courts should apply a deferential standard, Under this standard the court must affirm the decision unless it is arbitrary and capricious.

In the present case, the Court applied the deferential standard even though the plan document granted discretion to the plan administrator. Why? Because the summary plan description did not specify that discretion was reserved to the plan administrator.

The Court stated that “[n]otice requires the plan administrator to disclose its discretionary authority or the existence of a document with information about the discretionary authority.4 Without either form of notice, members cannot be bound by a reservation of discretionary authority inserted into some secret document locked away by the plan administrator.”

Comment:

The dissent took issue with the holding stating that “Today the majority imposes a new duty on plan administrators to notify members ‘that undistributed, inspectable documents could affect the scope of judicial review.’ ” One simple solution would be to include the discretionary language in the plan document as well as the summary plan description. But the plaintiffs also argued that the document was not distributed, so additional steps to ensure notice to plan participants are also advisable.