Congress Considers Major Changes to Adjudication of ERISA Claims

The Employee and Retiree Access to Justice Act (“the Act”) was recently introduced in, both, the Senate and House. This employee benefits bill would create major changes in how ERISA benefit claims currently are adjudicated. Although it remains a draft bill, benefits plan sponsors and fiduciaries should remain aware of this bill and any progress it makes through Congress in the future. 

In Firestone Tire and Rubber Co. v. Bruch, the U.S. Supreme Court ruled that challenges to the denial of retirement, health, or other benefits under an ERISA-governed plan are subject to a de novo standard of review. The only exception to this rule is if the benefit plan gives the administrator or fiduciary the discretionary authority to determine eligibility for benefits, or otherwise construe the plan’s terms. 

Since the U.S. Supreme Court issued Firestone in 1989, most ERISA-governed benefits plans have delegated discretionary authority to plan fiduciaries to decide claims for benefits. Taking advantage of the exception the Supreme Court carved out in Firestone allows courts to adjudicate claims based on the denial of benefits under ERISA plans, under an “abuse of discretion” standard. This standard requires that a court reverse an administrator’s decision on benefits only when it is” arbitrary and capricious.” This highly deferential standard is far easier for the plan to meet than the de novo standard required by Firestone, resulting in a quicker and more efficient adjudication of benefit claims. 

The Act would upend the Firestone exception that grants deference to a fiduciary’s benefits determination. Instead, the Act would prevent a court from extending deference to a fiduciary’s benefits determination and require a de novo review of all benefit claim lawsuits. The only exception to this standard would be for multi-employer plans, which the Act, altogether, excludes from the changes. A higher standard of review inevitably would increase the cost and time involved in benefits litigation. 

Notably, the Act also seeks to prohibit benefit ERISA-governed plans from requiring arbitration, leading to more benefit claim disputes in the judicial system. Consequentially, all existing arbitration clauses in plans would become invalid, and no future arbitration clauses in plans would be allowable. Likewise, class action and representation waiver clauses would be impermissible.

HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.
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