ERISA-Fourth Circuit Rules That The Plan Administrator Did Not Abuse Its Discretion In Denying Benefits Under A Change In Control and Severance Pay Plan; Conflict of Interest Is (Part of) One Of Eight Factors To Consider In Testing Abuse

In Lamb v. Nextel Communications of the Mid-Atlantic, Incorporated, No. 10-2252 (4th Cir. 2011), the plaintiff, Edward Lamb (“Lamb”), had filed a law suit under ERISA. He claimed that that the defendant, Nextel Communications of the Mid-Atlantic, Incorporated (“Nextel”), had wrongly denied him benefits under Nextel’s Change of Control Retention Bonus and Severance Pay Plan (the “Plan”). The district court upheld this denial, and Lamb appealed. The Fourth Circuit Court of Appeals affirmed the district court’s ruling.

In analyzing the case, the Fourth Circuit Court noted that the Plan explicitly states that the plan administrator-here Nextel acting through a committee- “shall promulgate any rules and regulations it deems necessary in order to carry out the purposes of the Plan or to interpret the terms and conditions of the Plan.” It further states that the plan administrator “shall determine the rights of any employee of the Company to any Retention Bonus or Severance Compensation.” The Court found that this language provided Nextel with sufficient discretion to warrant the deferential review of its decision to deny Lamb the benefits he was claiming under the Plan.

The Court said that, when a deferential review applies, a court will not disturb the plan administrator’s decision, unless the decision is unreasonable. In testing for reasonableness, the court will consider 8 factors: (1) the plan’s language; (2) the plan’s purposes and goals; (3) the adequacy of the materials considered to make the decision and the degree to which they support it; (4) whether the plan administrator’s interpretation was consistent with other provisions in, and earlier interpretations of, the plan; (5) whether the decision making process was reasoned and principled; (6) whether the decision was consistent with the procedural and substantive requirements of ERISA; (7) any external standard relevant to the exercise of discretion; and (8) the plan administrator’s motives and any conflict of interest it may have.

In this case, Nextel denied Lamb the benefits he was claiming under the Plan, since it concluded that he voluntarily withdrew from the company, after rejecting an offer of continued employment. This made him ineligible for the second half of his retention bonus and severance compensation under the Plan. Under the 8 factors listed above, the Fourth Circuit Court held that Nextel’s conclusion was not unreasonable. Thus, the conclusion must be upheld.

Querry: Here, the Fourth Circuit Court uses conflict of interest as only part of one of 8 factors in determining the reasonableness of a plan administrator’s decision. This may be giving less weight to a conflict of interest than the Supreme Court intended in Metro. Life Ins. v. Glenn.

Posted in:
Updated:

Comments are closed.