Seyfarth Synopsis:  The courts have stated that their review of fiduciary decisions is both exacting and deferential.  A recent decision from the Court of Appeals for the Seventh Circuit offers help to ERISA benefit professionals who prefer to maximize judicial deference in favor of the fiduciaries.

One of the enduring paradoxes of ERISA litigation is the judicial standard of review of fiduciary decisions. The standard of review is important because an easier standard will uphold more fiduciary decisions in court and encourage more individuals to serve as fiduciaries.  No one who acts in good faith – as the vast majority of ERISA fiduciaries do – likes to make tough decisions and be sued or reversed.

On the one hand, the courts frame their review of fiduciary decisions in exacting terms.  For example, in Donovan v. Bierwirth, 680 F.2d 263 (2d Cir. 1982), the Court of Appeals for the Second Circuit said that the ERISA fiduciary’s duty of loyalty to plan participants and beneficiaries is “the highest known to the law.”

But, in Bator v. District Council 4, Graphic Communications Conf., No. 18-cv-1770 (7th Cir. Aug. 27, 2020), the court proffered another viewpoint.  It considered whether ERISA fiduciaries violated their duties by undercutting the financial health of the pension plan they managed.  The plaintiffs alleged that the fiduciaries breached their duties by not enforcing the contribution terms of the Trust Indenture when they allowed one participating local union’s members at one company to contribute to the plan at lower rates than other members form the same local at another company.. Notably, the case did not involve a review of a claim for benefits, and the court’s decision did not turn on claim review.

The Bator court upheld the fiduciary decision by reasoning that the fiduciary interpretation of the governing plan document “falls comfortably within the range of reasonable interpretations” and “is compatible with the language and the structure” of that document.  The Court did so even though it recognized that the plaintiffs’ interpretation of the Trust Indenture was equally reasonable.

So, how can these very different standards of judicial review be reconciled?

Yes, reconciliation is possible.  ERISA’s core focus is the governing plan documents.  If, as in Bator, they provide the fiduciary with broad discretion to interpret their terms, and provide that the fiduciary decision shall be final and binding, the court should give the fiduciary the benefit of the doubt.

One final point is worth noting.  Plaintiffs often argue that equitable principles should govern judicial review of fiduciary decisions.  But, as Justice Thomas said recently in his concurrence in Thole v. U.S. Bank, 140 S.Ct. 1615 (2020) (Seyfarth analysis here), the common law of trusts is not the starting point for interpreting ERISA.  The starting point is the statute itself, and the statute commands that the courts honor ERISA plan terms, including terms that give interpretative discretion to fiduciaries.

Our take away is – there is no substitute for good drafting of ERISA plan terms.