Guest Article

(From the June 16, 2008 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

SPD Posted on Intranet Site Not Properly Furnished to Participants, Court Finds

A recent unpublished decision by the Ninth Circuit Court of Appeals reiterates the rule that employee benefit plan sponsors do not satisfy their ERISA duty to deliver summary plan descriptions (SPDs) and other plan documents to participants by simply posting those documents to an intranet site. Gertjejansen v. ________, No. 06-56329 (9th Cir., 2008). This was not the primary issue in the case, in which the plan administrator ultimately prevailed, but it was a factor that potentially prevented a more expeditious and cost-effective resolution of the dispute.

Case Background

The case started when the administrator of an ERISA long-term disability plan denied a participant's claim for benefits. A federal district court upheld the plan administrator's decision on de novo review. The plan administrator asked the court to use the abuse of discretion standard, but the district court refused. Even though the plan's SPD "unambiguously confers upon the plan administrator discretionary authority to determine eligibility for benefits and to construe the terms of the plan," the district court disregarded the SPD because the plan administrator could not show it was properly furnished to participants.

As noted, the district court's problem with the SPD was that it had been "furnished" to participants via posting on an intranet site. Department of Labor regulations do give plan administrators the option of using electronic media to distribute certain plan documents and notices as required by ERISA, including the SPD. However, the plan administrator must take "appropriate and necessary measures reasonably calculated to ensure that the system for furnishing documents ... [r]esults in actual receipt of transmitted information." Examples cited in the regulations include "using return-receipt or notice of undelivered electronic mail features" or "conducting periodic reviews or surveys to confirm receipt of the transmitted information." DOL Reg. § 2520.104b-1(c)(1). Thus, merely posting an SPD on an intranet site, without taking other steps to ensure actual receipt by participants, is not enough.

Why Is the Manner of SPD Delivery Important to this Case?

Any time an ERISA plan administrator's claims decision is challenged in court, one of the first issues to be determined is the appropriate standard of review. The alternatives are de novo review and the abuse of discretion standard. When the former is employed, the court scrutinizes the plan's terms and has substantial leeway to substitute its interpretation of those terms for that of the plan administrator. By comparison, the abuse of discretion standard generally requires the court to accept the plan administrator's interpretation so long as it is "reasonable."

When a claims decision ends up in court, it is normally better for the plan administrator if the abuse of discretion standard is used. In order to ensure this standard will be used, the SPD and/or other relevant plan documents must clearly and unambiguously express that the plan administrator has discretionary authority to interpret the plan's terms and to make benefits decisions. Without this language, courts will turn to de novo review.

In this case the SPD included the right language. However, the district court disregarded it because the SPD was not properly furnished to participants.

The Plan Still Won, But ...

Ultimately, the district court upheld the plan administrator's decision to deny the participant's claim for benefits -- and the Ninth Circuit Court of Appeals affirmed the district court's ruling. However, the district court might have reached its conclusion more quickly -- and an appeal to the Ninth Circuit Court of Appeals may have been avoided -- if the abuse of discretion standard had been used. That likely would have been the result were it not for the failure to properly distribute the SPD to participants.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Erinn Madden 202.572.7677, Bart Massey 202.220.2104, Mark Neilio 202.378.5046, Martha Priddy Patterson 202.879.5634, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2008, Deloitte.