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.