:: First Circuit Finds Plan Language Adequate For Delegation Of ERISA Fiduciary’s Authority
In this case, the Plan gives its named fiduciary- the Pension Committee–express power to “exercise its discretion” to decide on benefits, construe the Plan and render binding decisions.
Unquestionably, the Pension Committee purported to delegate to Corporate Benefits this authority by a 1998 written instrument. Wallace, however, argues that the delegation is invalid because allegedly the Plan did not comply with statutory preconditions for delegation and therefore–Wallace argues–no deference is due to Corporate Benefits’ reading of the Plan.
Wallace v. Johnson & Johnson, 2009 U.S. App. LEXIS 22529 (1st Cir. Mass. Oct. 14, 2009)
Section 1105(c)(1)(B) of ERISA (29 U.S.C. 1105(c)(1)(B)) states that “[t]he instrument under which a plan is maintained may expressly provide for procedures . . . for named fiduciaries to designate persons other than named fiduciaries to carry out fiduciary responsibilities (other than trustee responsibilities) under the plan.”
This First Circuit opinion examines the nature of the delegation process and provides guidance on the requirements necessary for an effective delegation of fiduciary authority. The issue is important since an ineffective delegation may lead to a benefit decision by a person or entity that has no claim to deferential judicial review.
The underlying dispute involved the definition of compensation for purposes of a disability benefit calculation. The gist of the issue required a decision on how commissions were to be taken into account. The decision was reached by a corporate department of the Defendant, Johnson & Johnson. Was this decision entitled to deference?
Grants Of Discretion
The Court set the stage for answering this question by noting the basic rule under Firestone v. Bruch that:
. . . any judicial review of the ERISA entity’s own reading [of the plan] is . . . de novo “unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan,” Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S. Ct. 948, 103 L. Ed. 2d 80 (1989).
And, by extension:
Where a fiduciary properly delegates its discretionary authority under the plan to another entity, we review that entity’s exercise of the authority under a more deferential standard. See Terry v. Bayer Corp., 145 F.3d 28, 36-38 (1st Cir. 1998); Rodriguez-Abreu v. Chase Manhattan Bank, N.A., 986 F.2d 580, 584 (1st Cir. 1993).
The Plan Language
The Court pointed out that the plan’s named fiduciary–the Pension Committee– had express power to “exercise its discretion” to decide on benefits, construe the Plan and render binding decisions.
Furthermore, the Pension Committee took steps to delegate its authority:
Unquestionably, the Pension Committee purported to delegate to Corporate Benefits this authority by a 1998 written instrument.
The Requirements For Delegation
The Plaintiff argued that the Pension Committee had not done enough to meet the requirements for delegation.
In a nutshell:
Wallace, however, argues that the delegation is invalid because allegedly the Plan did not comply with statutory preconditions for delegation and therefore–Wallace argues–no deference is due to Corporate Benefits’ reading of the Plan.
Examining The Statute
Here it may be helpful to recapituate the rule. ERISA provides that a plan
“shall . . . describe any procedure under the plan for the allocation of responsibilities for the operation and administration of the plan (including any procedure described in [section 1105(c)(1)]),” 29 U.S.C. § 1102(b)(2) . . .
and section 1105(c)(1) provides that
“[t]he instrument under which a plan is maintained may expressly provide for procedures” for delegating fiduciary responsibilities to other entities, id. § 1105(c)(1).
So, first the plan must contain language authorizing the delegation, and as noted above, that was clearly true in the case before the Court. The issue, then, was whether the procedures for delegation were adequately described.
Wallace admits that the Plan allowed delegation, but says that it failed adequately to “describe any procedure” for such delegation.
Plaintiff’s Interpretation “Too Rigid”
The Court first pointed out that “Congress seemingly attached no talismanic significance to the term “procedure” nor required some special level of detail.” Thus, the Court concluded that the essential requirement was that the plan provide for delegation and set forth any limitations that may apply to that delegation.
For delegation, it is hard to divine what Congress could have wanted any plan to contain beyond a grant of authority to delegate, together with any limitations that might exist on any such grant or the method of making it. Beyond that, we do not see why more would be expected than that the delegating fiduciary comply with any general formalities provided in the plan or under corporate or trust law. Here, the delegation did specify what authority was being delegated and to whom, and Wallace does not claim that the delegation instrument in this case was deficient in generally apposite formalities.
Consonantly, the 1974 House and Senate Conference Reports on ERISA suggest only that if delegation authority were limited, that limitation should be spelled out. The Reports explain, “[f]or example, the plan may provide that delegation may occur only with respect to specified duties, and only on the approval of the plan sponsor or on the approval of the joint board of trustees of a Taft-Hartley plan.” H.R. Rep. No. 93-1280, at 43 (1974); S. Rep. No. 93-1090, at 301 (1974). Here, the Plan permitted delegation of benefit decisions and plan interpretation without limitation.
Applying the forgiving deferential standard, the Court had little trouble holding for the Defendant:
This means that Corporate Benefits’ decision must be upheld “unless it is arbitrary, capricious, or an abuse of discretion,” Morales-Alejandro v. Med. Card Sys., Inc., 486 F.3d 693, 698 (1st Cir. 2007). The standard is generous–”the decision ‘must be upheld if there is any reasonable basis for it,’” id. (quoting Madera v. Marsh USA, Inc., 426 F.3d 56, 64 (1st Cir. 2005))–but it is not a rubber stamp, Lopes v. Metro. Life Ins. Co., 332 F.3d 1, 5 (1st Cir. 2003). In this instance, we think that Wallace’s arguments are not frivolous but that Corporate Benefits’ position is by no means unreasonable and so must prevail.
Note: The conflict of interest factor was discounted since the plan was funded with employee contributions:
The deference may be less generous where the deciding entity has a financial stake in the outcome, Metro Life Ins. Co. v. Glenn, 128 S. Ct. 2343, 2348, 171 L. Ed. 2d 299 (2008); but in the present case the Plan is funded by employee contributions–not those of Johnson & Johnson–and no argument has been made for such an adjustment to the standard of review.
See also – :: Thorny Issues Presented In Grants Of Discretion To Benefit Administrators; :: Sixth Circuit Reviews ERISA Plan TPA Benefit Denial De Novo; :: Tenth Circuit Opinion Creates Split In Circuits In Standard of Review Decision (on issue of whether delegation must be to fiduciaries)
