Background

The U.S. Court of Appeals for the Second Circuit recently joined the U.S. Courts of Appeals for the Seventh and Eleventh Circuits in concluding that Employee Retirement Income Security Act plan participants are not required to exhaust their administrative remedies when “they reasonably interpret the plan terms not to require exhaustion.” Applying this principle, the court, in Kirkendall v. Halliburton Inc., 2013 BL 23838 (2d Cir. Jan. 29, 2013), held that plaintiff Kathy Kirkendall could proceed with her claim for clarification of future pension benefits without first exhausting the plan’s administrative claims procedures.

Kirkendall was employed by Dresser-Rand Co. and then Halliburton Inc. As a result of several corporate restructurings, Halliburton informed employees that their last date of employment for pension plan purposes was March 1, 2000. The consequence of this corporate restructuring for Kirkendall was that she would no longer be eligible for an early retirement subsidy and her early retirement benefit would not be as high as previously quoted to her.

Over the course of nearly five years, Kirkendall made several efforts to understand the changes made to the pension plan. Kirkendall wrote to the benefits department on two occasions but received no response on either occasion. She also spoke to someone in the benefits department and was told that she had already received all of the monies due to her.

Kirkendall subsequently filed a complaint in federal court alleging several claims, all stemming from her assertion that Halliburton had incorrectly determined that she and her coworkers had been terminated for pension plan purposes as of March 1, 2000. The district court, in relevant part, granted Halliburton’s motion for judgment on the pleadings because Kirkendall failed to exhaust her administrative remedies.

The Second Circuit’s Decision

It is well-established that ERISA plan participants and beneficiaries must exhaust a plan’s administrative claims procedures before proceeding with a claim for benefits in federal court. In this case, Kirkendall contended that she was not required to exhaust her administrative remedies because the plan did not provide a procedure for filing a claim for clarification of future benefits. As applicable here, the plan’s claim procedures stated:

To file a benefit claim under the Plan, a Claimant must obtain from the Benefits Administrator the information and benefit claim forms, if any, provided for in the Plan and otherwise follow the procedures established from time to time by the Committee or the Benefits Administrator for claiming Plan benefits.

In the Second Circuit’s view, the term “benefit claim” could be read to apply only when a participant seeks to commence her benefits immediately upon filing a claim. Kirkendall did not seek to retire immediately, but rather sought to know what her benefits would be if and when she chose to pursue early retirement.

Finding the plan terms a “bit baffling,” the court concluded that it was unclear whether Kirkendall’s claim was a “benefit claim” within the meaning of the plan’s claims procedures. The court thus concluded, as had the Seventh and Eleventh Circuits, that a plaintiff who “reasonably interprets the plan terms not to require exhaustion and, as a result, does not exhaust her administrative remedies,… may proceed in federal court.”

According to the court, this exception to the general exhaustion requirement is grounded in the statutory dictate that a summary plan description “shall be written in a manner calculated to be understood by the average plan participant, and shall be sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan.” 29 U.S.C. § 1022(a).

The court also reasoned that excusing Kirkendall and others similarly situated from exhausting their administrative remedies will encourage employers and plan administrators to clarify their plan terms and ultimately lead more participants and beneficiaries to pursue their benefit claims through the plan’s claims procedures in the first instance.

Proskauer’s Perspective

The Second Circuit’s decision provides an important reminder about the importance of clear and unambiguous plan terms, even as they relate to the procedures for administering claims for benefits.

To eliminate potential ambiguity in a plan’s claims procedures concerning the types of claims that the procedures apply to, plan sponsors and fiduciaries should review plan documents and summary plan descriptions to ensure that the documents require exhaustion for all types of claims for benefits.

One method for doing so may be to track the language of ERISA Section 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B), which authorizes participants and beneficiaries to commence a civil action “to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.”

In short, the more embracive the description of the claims procedure, the more likely it will be that the plan’s administrative determination will receive deference when reviewed by a federal district court.