ERISA was enacted to promote the interests of employees and their beneficiaries in employee benefit plans and to protect contractually defined benefits. Black & Decker Disability Plan v. Nord, 538 U.S. 822, 829 (2003). An ERISA plan is a “special kind of contract,” in which there exists a “presumption of full judicial review at the behest of the [plan participants or beneficiaries].”Fritcher v. Health Care Service Corp., 301 F.3d 811, 816 (7th Cir. 2002). Full disclosure of important rights and responsibilities under ERISA plans was a primary goal in the enactment of ERISA. In endorsing ERISA, the Congressional Committee on Education and Labor considered fiduciary duty and disclosure an “essential element” of employee plans. H.R. Rep. 93-533, p. 4645-4646 (October 2, 1973). The Committee specifically stated that disclosure requirements under the prior Welfare and Pension Plans Disclosure Act were insufficient and had not accomplished Congressional intent:
Experience has . . . demonstrated a need for a more particularized form of reporting so that the individual participant knows exactly where he stands with respect to the plan– what benefits he may be entitled to, what circumstances may preclude him from obtaining benefits, what procedures he must follow to obtain benefits, and who are the persons to whom the management and investment of his plan funds have been entrusted.
Id. at 4649. In order to strengthen and improve the protection of participants in employee welfare benefit plans, ERISA was passed in 1974. Congress specifically recognized the importance of disclosure of information and transparency in welfare benefit plans, which includes providing plan participants with clear information regarding whether third party administrators have been given discretionary authority to make claims determinations.
Although ERISA creates a cause of action for plan participants to challenge the denial of benefits, the statute does not specify the judicial standard of review applicable to such actions. The Supreme Court has established that judicial review of an ERISA administrator’s benefits determination is de novo unless the plan grants the administrator 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). When the administrator has such discretionary authority, the court applies a more deferential standard, seeking to determine whether the administrator’s decision was “arbitrary and capricious.”Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 104, 111, 128 S.Ct. 2343, 2348, 171 L.Ed.2d 299 (2008); Jenkins v. Price Waterhouse Long Term Disability Plan, 564 F.3d 856, 860-61 (7th Cir. 2009).
In determining whether a plan confers discretion on the administrator, the Court “review[s] the language of the plan de novo as we would review the language of any contract.”Diaz v. Prudential Ins. Co. of America (“Diaz I”), 424 F.3d 635 (7th Cir. 2005), citing Ramsey v. Hercules Inc., 77 F.3d 199, 205 (7th Cir. 1996); see also Postma v. Paul Revere Life Ins. Co., 223 F.3d 533, 538 (7th Cir. 2000) (“To determine whether a plan grants its administrator discretion, we must look to the language of the plan.”). To lower the standard of review from de novo to arbitrary and capricious, “the plan should clearly and unequivocally state that it grants discretionary authority to the administrator.”Perugini-Christen v. Homestead Mortg. Co., 287 F.3d 624, 626 (7th Cir. 2002). Plenary review is presumed absent clear language to the contrary. Herzberger v. Standard Ins. Co., 205 F.3d 327, 331 (7th Cir. 2000). In doubtful cases, there is a presumption of full judicial review in favor of the claimant who did not draft the plan documents. Id. at 330.
When an ERISA plan grants discretionary authority to the plan administrator to make benefit determinations and construe the terms of the plan, the delegation of such power must be clear and forthright. In considering whether discretionary authority has been properly established, the critical question is notice: “participants must be able to tell from the plan’s language whether the plan is one that reserves discretion for the administrator.”Diaz I, 424 F.3d at 637, citing Herzberger, 205 F.3d at 332; see also Perugini-Christen, 287 F.3d at 626 (the plan should clearly and unequivocally state that it grants discretionary authority to the administrator). Providing plan participants with clear notice regarding the discretionary power of the plan administrator is imperative in keeping with ERISA’s most fundamental principal of transparency and disclosure. As cautioned by the Seventh Circuit court, “An employer should not be allowed to get credit with its employees for having an ERISA plan that confers solid rights on them and later, when an employee seeks to enforce the right, pull a discretionary judicial review rabbit out of his hat.”Herzberger, 205 F.3d at 332-33. Accordingly, in order to achieve the deferential standard of review for arbitrary and capricious decision-making by the plan administrator, the plan documents must provide clear notice to the disability plan participants that the plan administrator – or its third party claims administrator – has the discretionary authority to make such determinations. Absent clear notice, the court’s standard of adjudication will be under de novo review.