Individuals responsible for 401(k) retirement or welfare plan decisions know that the plan document is the first place to look for guidance when deciding a difficult administration question, such as whether a participant is entitled to a benefit. A recent 6^th Circuit Court of Appeals case, Laake v. Benefits Committee, Western & Southern Financial Group Company Flexible Benefits Plan, Case No. 22-3182 (6th Cir. 2023), provides a cautionary tale for administrators who fail to observe that basic rule.

The Court in Laake upheld the lower Court’s finding that the Benefits Department did not have discretionary authority to resolve the employee’s benefits claim. The Western & Southern plan document granted the Benefits Committee, as opposed to the Benefit Department, the authority to administer the plan and determine benefits. While the plan permitted the Benefits Department to “assist” the Committee, the Court found that the term “assist” aligns more closely with the performance of a “ministerial function” not a “fiduciary function.”  This plan provision did not constitute an explicit delegation of the Benefits Committee’s discretionary authority to the Benefits Department.

The Sixth Circuit Assigns the More Exacting Standard of Review

Because the Department lacked discretionary authority when deciding the benefits claim, the lower court and the 6^th Circuit reviewed the Benefits Department’s decision using the “de novo” standard. Under this standard, courts independently review the facts with no deference to the plan administrator’s decision. In contrast, where the party making a decision has discretionary authority, courts will review that decision using the less demanding “arbitrary and capricious” standard of review, upholding a plan administrator’s decision unless it is determined to be without reason, unsupported by substantial evidence, or erroneous as a matter of law.

Using the de novo standard of review, the 6^th Circuit reviewed the evidence set forth by the parties, and confirmed the district court’s holding that the employee was entitled to long-term disability benefits. The decision contains a detailed discussion on whether the Benefits Department provided the employee with sufficient notice of the reason for its denial of her claim, with the 6^th Circuit upholding the lower court decision that the notice was not sufficient. Interesting reading for anyone who is responsible for preparing a denial of claim notice.

Key Takeaways and Next Steps

 Individuals who make plan administration decisions will want to consider the following action steps:

• Review your plan document to determine who has discretionary authority to make plan decisions. Most plan documents include generic language designating the employer as the “plan administrator” with discretionary authority to interpret and construe the provisions of the plan.
• If the “employer” is the plan administrator, consider who at the employer would be the best person(s) to make decisions. If the Board of Directors of a corporation or the manager of an LLC is the appropriate person to act, then be sure that a majority of the Directors or Managers approve any action taken by the plan administrator and document this approval in the meeting minutes.
• If the Directors or LLC Manager is not the appropriate person to make these decisions, have the Directors or LLC Manager delegate its discretionary authority to an individual or a committee. Most plan documents allow this delegation. The committee’s authority can be narrow, limited to interpreting the terms of the plan, or very broad, including the right to amend the plan.

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