Are the Right People Deciding Your Plan’s Benefit Appeals?
Last month the Sixth Circuit Court of Appeals upheld a lower court ruling that a company’s benefits committee did not properly delegate decision-making authority to its benefits department. As a result, the plaintiff’s appeal was reviewed under the de novo standard of review (which allows the court to conduct an independent analysis of the plan’s denial of claims with scrutiny), rather than the arbitrary and capricious standard (which allows the plan’s decision to be overturned only if it was clearly in error). For plan committees that routinely handle these types of determinations, this decision should serve as a call to make sure duties and functions within the plan have been properly delegated and authorized.
In Laake v. Benefits Committee, Western & Southern Financial Group Company Flexible Benefits Plan, 68 F. 4th 984 (6th Cir. 2023), the plaintiff sued over the denial of her claim for long-term disability benefits. While the plan document granted the Benefits Committee the normal discretion to make these types of determinations, the denial was actually made by the Benefits Department which was neither delegated fiduciary duties under the plan document nor expressly granted discretionary authority.
The trial court agreed with the plaintiff that a de novo standard of review should apply and, upon their review, determined she was eligible for long-term disability benefits. The trial court further found the benefits department had decided the claim without any express delegation of authority allowing it to do so.
On appeal, the Sixth Circuit upheld the trial court’s decision, agreeing that the de novo standard of review applied. The court noted the plan document clearly granted the Benefits Committee, as opposed to the Benefits Department, the authority to administer the plan. The plan permits the Benefits Committee to appoint the Benefits Department “to assist in the administration of the Plan.” Sixth Circuit precedent requires that the plan’s grant of discretionary authority to the administrator be express.
The court also noted that, by the company’s own admission, only two members of the Benefits Committee were present during the meeting to decide the claim, and the remaining individuals who reviewed the claim were members of the Benefits Department. Having only these two members did not constitute a quorum of the Benefits Committee and therefore the Committee could not have conducted the review as required by the terms of the plan.
As such, the arbitrary and capricious standard normally applied to properly made fiduciary decisions for the plan did not apply. This meant the trial court’s de novo review, and granting of long-term disability benefits, stood.
This decision highlights the importance of clearly drafting and following a plan’s delegation of authority policies. As plan document should clearly and expressly state what duties may be delegated and then clearly define what those duties should encompass.
If you have any concerns about your plan’s delegation or decision-making process or procedures, please contact Bricker Graydon’s Employee Benefits team.