The Third Circuit recently issued an opinion (unpublished) in the case of Donachy, et al. v. Motion Control Industries which highlights the importance of writing well-reasoned, comprehensive benefits denials under the claims and appeals procedures of a benefit plan. In Donachy, participants had challenged the plan committee's interpretation of plan provisions and claimed that their pensions should have been calculated using a $31.00 per month multiplier rather than a $30.00 per month multiplier. The plan documents--which apparently contained a bit of ambiguity--included the important Firestone discretionary language which gave the plan committee/fiduciaries the discretion to interpret plan provisions and resolve such ambiguities. The district court had opined that the plan committee's interpretation of the plan (in denying that the plaintiffs' pension should be calculated using the higher multiplier) was "rationally related to a valid plan purpose and not contrary to the plain language of the plan" so that it need not be overturned under the "arbitrary and capricious" standard of Firestone.
On appeal, the Third Circuit noted that the MetLife v. Glenn Supreme Court opinion had laid down a slightly different rule of law where the plan fiduciaries making a decision are conflicted. However, the Third Circuit said that because there "was no partiality" in the facts at hand, the court need not invoke the MetLife conflicts rule.
Of particular note, however, is the fact that the court was impressed that the committee/fiduciaries responsible for issuing the denial of the plaintiffs' claims had "laid out a five-page, reasoned explanation for its decision" citing specific plan terms that it relied on in reaching its decision, all leading the court to conclude that the committee's interpretation was reasonable.
The moral of this story is that, where disputes occur over benefits, plan fiduciaries who follow the requirements of the DOL's claims procedure regulations and include in their benefits denial the "specific reason or reasons for the adverse determination" and "reference to the specific plan provisions on which the determination is based" will more likely prevail in any litigation which may arise as a result of the dispute and will be protected from challenges that they abused their discretion. It is surprising how committees sometimes overlook this simple step.
Also, utilizing legal counsel in helping to prepare the written response to a participant's claim can be important in making sure that any such benefits denial withstands judicial scrutiny.
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