The broad discretion given to most plan administrators to both pay benefits and to rule on eligibility for benefits could potentially be reduced as a result of a decision by the Supreme Court to review the issue.

In a case involving MetLife, the Court on Jan. 18 agreed to decide whether the manager of an employee benefit plan had an illegal conflict of interest if the plan gives that individual the authority both to pay benefits and to rule on eligibility for benefits.

But the key is the Court’s decision to also decide that, if there is a conflict of interest, how it should be taken into account by a court reviewing a specific benefit decision.

Currently, according to Paul M. Secunda, an assistant professor of law at the University of Mississippi, most plan documents state that in cases where there is a potential conflict, the plan administrator has broad discretion in determining whether a benefit should be paid.

The standard established by a 2000 decision by the Supreme Court in the Firestone case says plan administrators should not be held accountable in the case of a conflict unless the administrator’s decision is deemed by a court to be arbitrary and capricious, Secunda said, a standard that is very hard for someone appealing a rejection to meet.

MetLife, for its part, argued in its petition for review that if the Court rules that handling both functions constitutes a conflict, it could encourage employers to hire separate companies for each function, potentially raising the plans’ costs.

“The more an employer has to pay for its benefit plans, the less generous the benefits will be,” the brief said.

Secunda noted that, with the decision to review the MetLife case, there are 11 pending labor and employment cases in front of the Supreme Court.

The Court agreed to hear the case after both MetLife and the U.S. Solicitor General noted in briefs the wide conflict between federal appellate circuits on the issue.

As MetLife noted in one of its briefs, even “the respondent concedes that there is a conflict among the circuits over whether the fact that an ERISA administrator is also a plan funder creates a conflict of interest.

“She also admits that this conflict is wide, deep and mature,” the brief said.

Specifically, the brief noted, the 3rd, 4th, 5th, 6th, 8th, 9th, 10th and 11th Circuits “have essentially held that a dual-role insurer is subject to an inherent conflict to be considered on judicial review.”

At the same time, the brief noted, the 1st, 2nd and 7th Circuits have basically held that there is no “inherent conflict” arising from the fact that the insurer plays this dual role.

As noted in the MetLife brief, Congress “specifically provided” that ERISA administrators could serve in both capacities.

But the question the Court has agreed to rule on is whether judges should consider such arrangements potential conflicts in disputes between employees seeking disability benefits and plan administrators.

“Depending upon the Circuit in which the benefit decision is reviewed, the dual status of an ERISA administrator may have no effect, may be considered as evidence of a conflict of interest, may change the standard of review, may change the burden of proof, or may make the administrator’s decision presumptively void,” MetLife said in asking the Court to review the case.

“This is no small matter,” the brief said, noting that MetLife alone processes more than 290,000 disability claims a year, and “desperately needs a resolution of this issue so that it knows how properly to manage its massive benefits business.”

The case is MetLife v. Wanda Glenn, 06-923. Oral arguments in the case haven’t yet been scheduled.

The case deals with Wanda Glenn, who worked for a Sears, Roebuck store in Ohio for 14 years. In 2000, she sought disability benefits due to a heart condition, and MetLife provided short-term disability benefits under a plan it administered paid for by premiums paid by Sears. She applied for long-term disability benefits in 2002, but was turned down in 2003. The briefs noted the Social Security program did agree that she had a long-term disability, and provided her with long-term disability benefits.

Sears is not a party to the case.

Glenn sued, with a federal district court declining to overturn MetLife’s decision. However, on appeal, a panel of the 6th U.S. Circuit Court of appeals reversed the ruling, granting Glenn long-term disability payments.

In its decision, the 6th Circuit panel said MetLife’s decision “was not the product of a principled and deliberative reasoning process,” and the company “acted under a conflict of interest.”