WASHINGTON BUREAU — The U.S. Supreme Court has issued a ruling that appears to limit the ability of the federal courts to review benefit plan administrators’ decisions from scratch.
Members of the court today handed down a 5-3 decision holding that a federal district court has an obligation to defer to a “reasonable interpretation” made by an administrator of a plan governed by the Employee Retirement Income Security Act in cases in which the plan administrator has arrived at a decision outside of an administrative claim for benefits.
The decision, in Conkright vs. Frommert, Number 08-810, concerns a case involving employees of Xerox Corp., Norwalk, Conn., who left the company in the 1980s, accepted lump-sum benefits settlements, and later returned.
The employees challenged the method used by the plan administrator to calculate their new retirement benefits.
A district court sided with the employees and ordered the plan administrator to re-evaluate the decision. The employees then challenged the second decision by the plan administrator, and the district court supported the employees.
The 2nd U.S. Circuit Court of Appeals held that the district court was correct not to apply a deferential standard on remand, and that the district court’s decision on the merits was not an abuse of discretion.
The Supreme Court reversed the 2nd Circuit decision and has limited the grounds federal courts can use to review ERISA plan decisions “de novo,” or “with a clean slate,” and without deferring to the decision of the plan administrator.
“We held in Firestone Tire & Rubber Co. v. Bruch that an ERISA plan administrator with discretionary authority to interpret a plan is entitled to deference in exercising that discretion,” Chief Justice John Roberts writes in an opinion for the majority. “The question here is whether a single honest mistake in plan interpretation justifies stripping the administrator of that deference for subsequent related interpretations of the plan. We hold that it does not.”
“This is going to have a major impact,” says David Cowart, a lawyer in the Dallas office of Sonnenschein Nath & Rosenthal L.L.P. “In this decision, the majority of the Supreme Court ruled that there is a preference for national uniform interpretations of the plan by the administrator. That is both welcome and important.”
The decision does not limit the ability of participants or beneficiaries to appeal a plan administrator’s decision to a court, Cowart says.
The decision does “limit the court’s ability to view the case from a blank slate,” Cowart says.
The phrase “a single honest mistake” shows up repeatedly in the decision, Cowart says.
The Supreme Court says that, in cases in which there are multiple erroneous interpretations of the same plan term, the court does not have to give deference, Cowart says.