July 06, 2022

ERISA Litigation Roundup: The End of Firestone?

The Employee and Retiree Access to Justice Act is — yes — another employee benefits bill recently introduced in both the House and Senate (see our other blog post on SECURE 2.0, already passed by the House and which now has a draft bill under review in the Senate Health, Education, Labor and Pensions Committee). In addition to seeking to eliminate individual arbitration as a method for resolving benefit denial and breach of fiduciary duty disputes under ERISA, the Employee and Retiree Access to Justice Act also seeks to invalidate discretionary clauses in ERISA-governed benefit plans. The prohibition of such clauses would eliminate deferential judicial review of benefit claim denials in court.

In 1989, the Supreme Court ruled in Firestone Tire and Rubber Co. v. Bruch that “a denial of benefits challenged under § 1132(a)(1)(B) [a civil action to recover benefits due under a plan] is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.” Since Firestone, the majority of ERISA-governed health and welfare and retirement plan documents have delegated discretionary authority to a plan fiduciary to decide claims for benefits. With this delegation of discretionary authority, any subsequent benefit claim denial lawsuit would be reviewed under a highly deferential judicial standard, to determine whether the claim fiduciary’s decision was arbitrary or capricious. Deferential review is consistent with ERISA’s purposes of quickly and efficiently resolving benefit claim disputes.

The Employee and Retiree Access to Justice Act would create a huge shift in how ERISA benefit claims are adjudicated. The Act would prohibit a court from giving any deference to a fiduciary’s benefit determination, requiring de novo review of benefit claim lawsuits, and inevitably increasing the cost and length of litigation. Notably, the bill excludes multiemployer plans from these proposed changes.

Of course, the Employee and Retiree Access to Justice Act is still just a draft bill in the House and Senate, and we anticipate significant pushback from plan sponsors and fiduciaries. This story is far from over and the Faegre Drinker benefits and executive compensation team will continue to monitor this bill and provide updates on its potential implementation.

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