Wednesday, April 30, 2008

Hey, Did Easterbrook Read My Glenn ERISA Analysis?

Scalesred Apparently not. 

Consider his lack of interest (pun intended) in the structural conflict of interest argument at stake in Metlife v. Glenn in this case, Williams v. The Interpublic Severance Pay Plan, 07-3146 (7th Cir. Apr. 29, 2008):

Williams contends nonetheless that we should review the decision de novo because the Plan is unfunded . . . .

This circuit has held otherwise, Perlman v. Swiss Bank Corp., 195 F.3d 975 (7th Cir. 1999), for three principal reasons. First, Firestone makes the standard of review a matter of contract. By using particular language, the plan’s sponsors can require deferential review. Trust law honors rather than overrides express contractual language specifying a trustee’s powers vis-à-vis a beneficiary. See generally John H. Langbein, The Contractarian Basis of the Law of Trusts, 105 Yale L. J. 625 (1995). ERISA has some rules that displace contracts, but the degree of an administrator’s fact-finding and interpretive discretion is not among the subjects on which the law supersedes private choice.

Second, one must not anthropomorphize “the administrator.” Rarely is a pension or welfare plan’s administrator a person whose own welfare is at stake. Administrators commonly are large organizations, and the real people who make decisions on its behalf are no more interested in the outcome than federal judges are “interested” in the resolution of a tax case. True, judges’ salaries won’t be paid if taxes can’t be collected, but the effect of any one case on federal finances is so small that the judge does not care who prevails. Just so with the people who act on requests for pension or welfare benefits. Corporations often find it hard to align employees’ incentives with stockholders’ interests; they use stock options, bonuses,
piece rates, and other devices. Administrators usually don’t try. There would be a real conflict of interest if a given administrator put in place a method of linking decisionmakers’ income to the substance of their decisions. A quota system (“grant no more than 50% of all applications”) or some other means of tying the wages or promotion of staff to its disposition of claims could call for non-deferential judicial review. But Williams has not argued that anyone who handled his claim had any personal interest in the outcome.

Third, even if the employer made the decision directly, its financial interest would not necessarily imply a thumb on the scale. Interpublic adopted this Plan to attract and retain good workers. If it chisels on those benefits in the course of implementation, that would undermine its reputation for treating workers well. Unless a firm is on the verge of bankruptcy, that reputational interest leads it to make honest decisions on applications for health and
welfare benefits. See Van Boxel v. Journal Co. Employees’ Pension Trust, 836 F.2d 1048 (7th Cir. 1987). Even though Campbell Mithun no longer has a Chicago office, employees in other cities may well learn whether the workers in Chicago have been treated well following the sale. Poor treatment of workers at a divested office would jeopardize Campbell Mithun’s ongoing business.

And just so were clear that Easterbrook may be unfamiliar with my oral argument analysis, but not the pending decision in Glenn:

The Supreme Court may decide this spring in MetLife v. Glenn, cert. granted, 128 S. Ct. 1117 (2008) (argued April 23, 2008), whether an administrator’s financial conflict of interest affects the standard of judicial review. We need not hold this appeal for the outcome of MetLife, however, because Williams loses even under de novo review.

Of course, Glenn is unlikely to say the new standard for dual-role insurers is de novo, but Easterbrook is apparently hedging his bets.

Hat Tip: Dana Muir


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» Why Structural Conflicts of Interest, Standing Alone, Are Irrelevant from Boston ERISA Law Blog
Workplace Prof passes along today this opinion out of the Seventh Circuit by Judge Easterbrook addressing the question of structural conflicts of interest and their effect on the standard of review in ERISA governed benefit cases. Anyone who has read... [Read More]

Tracked on May 1, 2008 7:39:21 AM


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