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As the 2007 Term draws to a close, the U.S. Supreme Court has issued several employment rulings affecting pension and benefits plans. Faegre & Benson considers the latest developments.
On 19 June 2008, in Kentucky Retirement Systems, et al. v. Equal Employment Opportunity Commission, No. 06-1037, the U.S. Supreme Court ruled in a 5-4 decision that a Kentucky state pension plan that provides more generous benefits to workers who become disabled before reaching the plan's normal retirement age than workers who become disabled after reaching normal retirement age does not discriminate on the basis of age. In its decision, the Supreme Court concluded that the more generous treatment afforded to individuals who become seriously disabled before reaching retirement eligibility did not violate the Age Discrimination in Employment Act because this treatment was not "actually motivated" by age. Rather, any disparity is based solely on pension eligibility, which is a concept "analytically distinct" from age, even though pension eligibility may in part be based on age.
In Metropolitan Life Ins. Co. v. Glenn, 2008 WL 244796 (U.S. 19 June 2008), the Supreme Court clarified the standard of review that must be applied by a court when reviewing denied benefit claims arising under section 502(a)(1)(B) of the Employee Retirement Income Security Act of 1974 when the plan administrator acts under an asserted conflict of interest. The court noted that in certain cases, the entity that administers the benefit plan is also responsible for paying benefits under the plan and found that such a structure is not appropriate as it creates an inherent conflict of interest. The existence of a conflict does not, however, change the standard of review. In its decision, the court stated that a conflict of interest "should be weighed as a factor" in determining whether there has been an abuse of discretion. The court noted that a conflict of interest may be of "great importance" but would prove to be "less important (perhaps to the vanishing point) where the administrator has taken active steps to reduce potential bias and promote accuracy." Under their fiduciary duties to the participants, plan administrators should not consider economic consequences to the company when rendering benefit claims decisions. In addition, as set out in the Department of Labor regulations, plans administrators should issue written decisions clearly explaining why the decision to deny the benefits was made.
As a result of the Glenn ruling, it is recommended that plan sponsors and fiduciaries take note and consider the structure of their benefit review processes to ascertain whether the plan administrator is independent or has a financial interest in the outcome of the benefit decisions made under the plan.
The Supreme Court does note certain measures that could be imposed by plan sponsors to reduce potential conflicts of interest. These include, "imposing management checks that penalise inaccurate decision making irrespective of whom the inaccuracy benefits", appointment of a claims committee that is independent from the plan administrator and setting up an independent claims fiduciary.