The ERISA Litigation Newsletter

Editor's Overview

In this month's newsletter we address ten important issues to consider when drafting and amending a summary plan description. You will not find any of these issues directly addressed in ERISA's regulations. Rather, they all have been derived largely by case law. As always, the Newsletter also addresses a multitude of topics under Rulings, Filings and Settlement of Interest, including PPACA Penalties, liability for underfunded pension liabilities; the Moench presumption of prudence; fiduciary breach cases and the DOL's new field assistance bulleting providing relief from required annual fee disclosures.

Top 10 Summary Plan Description Issues Not Addressed in the ERISA Regulations

By Heather Stone

The Employee Retirement Income Security Act of 1974 (ERISA) requires employee benefit plans to provide a summary plan description (SPD) to participants and beneficiaries and also sets forth the minimum required information that must be disclosed in an SPD. The following 10 items are what we consider to be the most important issues to consider when drafting and amending an SPD that are not directly addressed in ERISA's regulations.

1. Firestone Language

   SPDs, in addition to plan documents, should give the plan administrator discretionary authority to interpret and administer, in its sole discretion, the terms of the plan, and to make factual determinations. If a plan grants a plan administrator discretionary authority to determine eligibility for benefits, courts are required to defer to the plan administrator's interpretation of the plan unless the interpretation is arbitrary and capricious. In the absence of a grant of discretion to the plan administrator, a court may engage in de novo review and substitute its own view of reasonableness for that of the plan administrator.1 The importance of including Firestone language in the plan document and SPD cannot be overstated. While Firestone language is routinely included in new plan documents and SPDs, older SPDs should be reviewed to ensure it is included.

2. Exhaustion Requirements

   ERISA's regulations require that SPDs provide a description of the procedures that participants must follow to make a claim and/or appeal for benefits under a plan. The description should specify that the procedures be "exhausted" before a participant can file a lawsuit against the plan. Exhaustion requirements encourage a resolution without resorting to a costly lawsuit and also ensure that the plan administrator's decision is given deference if a lawsuit is filed.

   Recently, the Second Circuit held in Kirkendall v. Halliburton Inc.2 that, despite the plan's inclusion of an exhaustion requirement, a participant did not need to exhaust the plan's claims procedures when filing a claim to clarify a right to a future benefit because the exhaustion language referred only to actions to recover benefits. One possible way to avoid a similar problem is to make sure that the exhaustion language references all three types of benefit claims available under Section 502(a)(1)(B) of ERISA: (i) recovery of benefits under the plan, (ii) enforcement of the participant's rights under the terms of the plan, and (iii) clarification of the participant's right to future benefits under the terms of the plan.

3. Forum Selection Clause

   Generally, ERISA allows a lawsuit to be filed in any venue where the plan is administered, where the breach took place, or where the defendant resides or may be found. By allowing a participant to select any of these venues, ERISA gives participants substantial control over the venue of a lawsuit. In light of the fact that the circuit courts have not reached uniform rulings on many ERISA issues, the broad venue provision also provides an opportunity for plaintiffs to forum shop.

   Plan fiduciaries can regain control over the venue in which suits are brought by including a clause in the plan document and SPD that preselects a venue that is convenient for litigation (also known as a forum selection clause). Courts generally will enforce such clauses unless a plaintiff can prove that: (i) the forum selection clause was the result of fraud, undue influence, or overwhelming bargaining power; (ii) the selected forum was so inconvenient that injustice will result or the party will be deprived of its day in court; or (iii) enforcement of the clause would contravene a strong public policy of the forum in which the suit is brought, declared by statute or judicial decision. Courts have declined to uphold such clauses due to inadequate notice of the provision. Plans should therefore consider inclusion of the forum selection clause in the SPD.

4. Modification of the ERISA Rights Statement

   The U.S. Department of Labor (DOL) provides model language for use in SPDs that describes a participant's rights under ERISA, including the right to file a lawsuit when a claim for benefits is denied. While it is generally advisable to use the model language created by the DOL verbatim, in some cases it may be appropriate to modify it. One such instance is the model language that states a participant "may file suit in a state or Federal court" when a benefit claim is denied. At least one court held that the use of this phrase permitted a participant to file a lawsuit without exhausting the claims procedures.3 Therefore, plan sponsors and fiduciaries should consider modifying the model language to refer to the plan's claims procedures and to require participants and beneficiaries to exhaust the plan's claims procedures before filing a lawsuit.

   ERISA does not provide a statute of limitations for benefit claims. As a result, courts generally apply the most analogous state law statute of limitations. The length of such statutes of limitations varies (sometimes significantly) from state to state. In order to avoid being subject to varying statutes of limitations, plan sponsors and fiduciaries should consider including in their plan documents and SPDs a limitation on the time that a participant may file a lawsuit for benefits after exhausting the claims and appeals procedures. Many courts have enforced these plan-imposed limitations as long as they are published (e.g., in the SPD) and reasonable. Courts have upheld time limits as short as 90 days, although the lengthier the time limit, the more likely that a court will be to uphold it.

6. Subrogation and Reimbursement Language

   ERISA regulations require SPDs to clearly identify any circumstances that may result in recovery of benefits by the plan, including the plan's subrogation and reimbursement rights. In the employee benefit plan context, subrogation is the...