PLANADVISER - May/June 2019 - 51

fiduciary fitness
Denial of Benefits
How the DOL views disability claims
IF a plan sponsor fails to comply with the terms of a plan, in
theory the plan could be disqualified, and the plan sponsor
would need to take the appropriate method of correction
under the Employee Plans Compliance Resolution System
(EPCRS). Under Employee Retirement Income Security Act
(ERISA) Section 404(a)(1)(D), a plan must be administered in
accordance with its terms, unless those terms are inconsistent
with ERISA.
The above rules are straightforward on their face, but,
as with most rules, there can be exceptions and qualifications.
For example, the phrase " any
occupation " in a long-term disability
plan cannot be given an absolute and
literal meaning, such that a benefit
could only be paid to an individual if
he had no conscious life.
Similarly, while the Supreme
Court's decision in Kennedy v. Plan
Administrator for Dupont Savings Plan
emphasized the necessity for a plan
administrator to comply with the
terms of a plan, lower courts are
still undecided as to whether that decision eliminated the
substantial compliance doctrine, an issue that frequently
arises in designation of beneficiary cases. So long as a plan
contains Firestone language that provides the plan administrator
with discretion to interpret the plan, the administrator
may always insist upon strict compliance with the
plan's terms. An issue may arise, however, where an administrator
wants to rely upon the substantial compliance
doctrine in interpreting a plan.
The substantial compliance doctrine is not limited to
compliance with the substantive provisions of a plan. This is
because the doctrine often excuses plan administrators that
don't turn square corners in following ERISA regulations.
The Department of Labor (DOL) regulations contain a
" deemed exhaustion " rule, which states that a plan's administrative
procedures will be deemed exhausted if the plan
has failed to establish or follow certain claims procedures.
Discussing this regulation in Halo v. Yale Health Plan in 2016,
the 2nd Circuit held that, when denying a claim for benefits,
if a plan fails to comply with the DOL's claims procedure
regulations, the claim will be reviewed de novo in federal
court unless the plan has otherwise established procedures
in full conformity with the regulation and can show that
the failure to comply with the regulation, in processing the
claim, was inadvertent and harmless.
As an illustration, when the DOL revised the claims
procedure regulations with respect to disability claims,
it provided that " if the plan fails to strictly adhere to all
the requirements of this section [of the regulations] with
respect to a claim ... the claim on appeal is deemed denied
on review without the exercise of discretion by an appropriate
fiduciary. "
Further, the loss of deferential review is prevented only
by " de minimis violations that do not cause, and are not
likely to cause, prejudice or harm to the claimant so long
as the plan demonstrates that the violation was for good
The DOL regulations contain a " deemed
exhaustion " rule, which states that a plan's
administrative procedures will be deemed
exhausted if the plan has failed to establish
or follow certain claims procedures.
cause or due to matters beyond the control of the plan and
the violation occurred in the context of an ongoing, good
faith exchange of information between the plan and the
claimant. "
However, unlike the 2nd Circuit decision in Halo, in
Edwards v. Briggs & Stratton Retirement Plan, the Court of
Appeals for the 7th Circuit explained that " in general the
doctrine of substantial compliance means that a plan
administrator who has violated a technical rule under
ERISA ... may be excused for the violation if the administrator
has been substantially compliant with the requirements
of ERISA. " Although, as stated in Rasenack v. AIG Life
Ins. Co., a plan administrator that does not render a decision
within the time provided by the DOL regulations " can
only be in substantial compliance with ERISA's procedural
requirements if there is an ongoing productive evidencegathering
process in which the claimant is kept reasonably
well-informed as to the status of the claim and the kinds of
information that will satisfy the administrator. "
Marcia Wagner is an expert in a variety of employee benefits and
executive compensation areas, including qualified and nonqualified
retirement plans and welfare benefit arrangements. She is a summa
cum laude graduate of Cornell University and Harvard Law School and
has practiced law for 32 years. Wagner is a frequent lecturer and has
authored numerous books and articles.
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