Can a Company Change its Reason for a Denying a Claim?

[Guest Grecco]

Hello,

Here are the facts surrounding this question:

1. An ex-employee was denied a lump sum distribution by his ex-company.

2. This ex-employee filed a “Claim for Benefit Request”.

3. The company responded and denied his lump sum distribution request.

4. The company stated that the reason for the denial solely as “Reason #1”.

5. This ex-employee filed an Appeal and clearly showed that “Reason #1” is not a valid reason.

QUESTIONS:

Can the company deny this appeal and state a new reason (“Reason #2”) for the denial?

Or must the company only use the initial reason (“Reason #1”) for all matters now relating to the claim?

Are there any regulations applicable to this?

Thank you for your time.

Lisa

[My 2 cents]

Do we get to assume that the company has good, legitimate reasons for denying the claim, unrelated to issues outside of the plan or animus?

For example, if the participant is suing the ex-employer because of the circumstances surrounding his or her termination, the employer must resist the temptation to arbitrarily deny the lump sum, even if it is known that the ex-employee plans to use the proceeds to cover legal expenses to pursue his or her lawsuit. For the employer to deny the lump sum on a pretext, in that circumstance, (or even to drag out the payment of the lump sum) would be cause for further litigation as an interference with ERISA rights. If the participant's termination involved the participant taking a number of the employer's customers along with him or her to a new job, ditto.

If this were being arbitrated or pursued in a court of law, there might be restrictions on the ability of the employer to drop new reasons into the mix at a later stage, but prior to formal legal proceedings, if there is a good, defensible reason for maintaining the denial, with opportunities for the participant to pursue appeals, raising new reasons is probably acceptable. But the key is that it must be done in good faith.

[QDROphile]

ERISA section 503 and related ERISA regulation section 2560.503-1. The disposition of the claim does not restrict the review. The goal is to get to the correct result with appropriate consideration. The rules are different with respect to presenting and adjudicating the claim in court.

[Guest Grecco]

Understood.

The reason I brought this up is that…

If the company brings up a new reason to deny the claim (responding to the appeal) – there is no way for the ex-employee to dispute this new reason (except in a court of law).

The Plan only lists one appeal. The company’s decision concerning the appeal is “final and binding”.

Thank you all.

Lisa

[My 2 cents]

The law and regulations require a plan denying a benefit claim to provide information concerning the reason for the denial (including the plan provision that leads to the denial) and/or the participant must be provided information concerning what actions could be taken to perfect his or her claim.

An appeal process in which the benefit claim is denied, in whole or in part, for reasons not previously identified to the participant could not possibly be considered a final and binding appeal. The denial of a benefit claim, even in an appeal, based on reasons that the participant has not been given an opportunity to respond to is not a decision upholding the initial denial - it is itself an initial benefit denial for which an appeal must be granted.

Further, if the decision is final and binding, the participant would have to be treated as having exhausted the plan's administrative remedies, which makes the issue eligible to be litigated. Does the employer like being sued? Unless the reason(s) for the denial are sound, wouldn't the employer have to pay the participant's legal fees as well as its own?

Out of curiosity, what was the first reason for the denial of a request for a lump sum? Out of even more curiosity, what was the second?

[Guest Grecco]

Here's the story: http://benefitslink.com/boards/index.php?/topic/53880-esop-and-change-in-distribution-policy-after-required-forms-signedcompletedsubmitted/

Any and all input is appreciated.

Lisa

[mbozek]

How much is due the employee in a lump sum?

[Guest Grecco]

A substantial amount...