Legal Advocacy
AARP Asks Supreme Court to Protect Plan Participants and Beneficiaries
AARP has filed a “friend of the court” brief with the U.S. Supreme Court in an employer-provided disability insurance case that addresses the thorny issue of how to handle conflicting duties when one is both an employee benefits plan administrator and has a financial stake in the plan itself on account of being the benefit funding source.
So-called “dual role” plan administration – where decisions are made by the same entity whose profit is based on the claim experience of the plan that it administrators – are increasingly problematic. At issue specifically in MetLife et al. v. Wanda Glenn is the standard of review a court should use when a claimant appeals a benefit denial.
As plan fiduciaries, insurance company administrators are obligated under the federal Employee Retirement Income Security Act (ERISA) to act “solely in the interest of the participants and beneficiaries and for the exclusive purpose of providing benefits to participants and their beneficiaries.”
Increasingly, the role of administrator is being taken on by entities with a financial stake in the profitability of the plan – funding sources such as insurance companies or other entities who contract with group plans to perform various duties and whose compensation is tied to the financial results of the plan. These dual role administrators must juggle their ERISA duties against their duties to their own shareholders, a difficult act since the very business success of these hired administrators may well be driven by their claim evaluation and payment experience.
AARP’s brief argues that in these situations, as several Courts of Appeals have recognized, courts should review benefit denials with a more skeptical eye. AARP’s brief urges that in these cases, courts reviewing the benefit denials should in fact review the entire claim de novo without regard to the decision made by the administrator in the initial review. This fresh look at the merits of the claim would provide beneficiaries with an important safety net that ensured that at least at some point in the claims process, a truly neutral observer is utilized.
Adopting the administrators’ argument – that administrators’ decisions should be overturned by courts only if they are “arbitrary and capricious” – would leave claimants with a nearly insurmountable hurdle in a process where conflicts of interest already tilt the playing field against them. It would also violate the language, principles and legislative history of ERISA, which clearly imposed a strict fiduciary duty on plan administrators to act in the interests of beneficiaries.
Jay E. Sushelsky
jsushelsky@aarp.org
(202) 434-2060>br? July 1, 2008