Second Circuit Decision Emphasizes Importance Of Having Clear Administrative Exhaustion Language In ERISA Plans

Kirkendall v. Halliburton, Inc., No. 11-CV-2733 (2d Cir. Jan. 29, 2013): The plaintiff filed a putative class action under the Employee Retirement Income Security Act (ERISA) seeking, among other things, a redetermination of her benefits under the company’s pension plan should she decide to retire early. Halliburton argued that the plaintiff failed to exhaust her administrative remedies because she and her co-plaintiffs did not follow the process outlined in the “benefit claims” section of the plan documents, which outlined the procedure for filing a claim for benefits. The district court agreed and dismissed the plaintiff’s claim for failure to exhaust administrative remedies. The Second Circuit Court of Appeals reversed, and held that there was no clear procedure for the plaintiffs to follow in seeking a determination of future retirement benefits. The court explained that the plan documents “could be read to apply only when a plan participant is demanding benefits at the time when she is filing the claim” and did not discuss a participant’s inquiry as to the amount of future benefits. The Second Circuit thus adopted the Eleventh Circuit’s reasoning “exempting from the general exhaustion requirement those plan participants who ‘reasonably interpret’ their ERISA plan not to impose an exhaustion requirement” and explained that doing so “will have the salutary effect of encouraging employers and plan administrators to clarify their plan terms and, thereby, of leading more employees to pursue their benefits claims through their plan’s claims procedure in the first instance.” This decision reaffirms that companies must clearly draft the claims procedures in ERISA plan documents and ensure that the procedures are readily understood by a reasonable participant. Doing so will preserve the failure to exhaust administrative remedies defense, and will allow courts to apply the arbitrary and capricious standard that is generally utilized when reviewing an administrator’s denial of benefits, as opposed to the de novo standard of review, which will apply when a plan does not give an administrator authority or discretion to review and decide the specific benefits claim.

Note: This article was published in the February 2013 issue of the New York eAuthority.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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