Financial Conflict of Interest in the Eighth Circuit: Trigger of a Less Deferential Standard of Review or Mere Factor in Determining Plan Administrator Abuse of Discretion?
It is well-established under the Employee Retirement Income Security Act of 1974 (“ERISA”) that when an employee benefit plan grants the plan administrator discretion to decide questions of eligibility for benefits or to construe plan terms, judicial review of the plan administrator’s denial of benefits is generally limited to the deferential abuse of discretion standard — pursuant to which a plan administrator’s decision is affirmed if it is reasonable, i.e., a reasonable person could have reached a similar decision given the evidence. Earlier this year, the United States Court of Appeals for the Eighth Circuit, in Boyd v. ConAgra Foods, Inc., 879 F.3d 314 (8th Cir. 2018), clarified when a less deferential standard of review might nonetheless apply in the review of denial of plan benefits under ERISA Section 502(a)(1)(B).
In Boyd, a former executive argued his claim for benefits under a severance plan — the terms of which afforded the plan administrator exclusive authority to interpret the plan and decide all questions of eligibility for benefits — had been wrongly denied. The former executive argued a standard of review that was less deferential than the abuse of discretion standard should apply. Specifically, the former executive argued for a “sliding scale” standard of review, in accordance with Woo v. Deluxe Corp., 144 F.3d 1157 (8th Cir. 1998) and its progeny — which held that a less deferential standard of review applied where a claimant showed a conflict of interest or a serious procedural irregularity by the plan administrator that amounted to a breach of fiduciary duty. The former executive predicated his argument on the financial conflict of interest in the case — i.e., ConAgra’s role as both the plan administrator who determined eligibility for benefits and the plan sponsor who was obligated to pay for benefits awarded under the plan — as well as alleged procedural irregularity — a ConAgra human resources employee’s alleged misstatement during the administrative claim review process concerning the former executive’s continued authority over a corporate program.
The Boyd Court noted that pursuant to the holding in Metro Life Ins. v. Glenn, 554 U.S. 105 (2008), a financial conflict of interest is merely a factor that a court should consider in determining whether a plan administrator has abused its discretion — not a basis for applying a less deferential standard of review. The Court explained that — although apparently substantially similar — a less deferential standard of review versus consideration of financial conflict of interest in conjunction with an abuse of discretion standard of review were distinct concepts. The Court explained that Glenn abrogated Woo to the extent Woo allowed a less deferential standard of review based on a mere financial conflict of interest. Finally, the Court noted that the Eighth Circuit had yet to resolve the impact of Glenn on Woo to the extent the latter allowed a less deferential standard of review based on procedural irregularity. The Boyd Court did not reach that issue, based on its conclusion that the alleged misstatement by the human resources employee to the former executive did not implicate the plan administrator’s procedures in reviewing the claim for severance benefits.
Importantly, the Boyd Court explained that the weight afforded to a financial conflict of interest would depend on the facts of the case, with the conflict being afforded little weight — perhaps almost no weight — where the record contained evidence concerning the procedural safeguards surrounding administration of the plan in question.
Best Practices: Plan sponsors should have employee benefits counsel provide annual fiduciary training to plan administrative committees. Plan sponsors who can show their administrative committees have been trained to administer a plan in accordance with its terms for the sole benefit of participants — and without regard to any consideration of plan sponsor financial liability — will be in the best position to have denied claims reviewed under the deferential abuse of discretion standard, with any financial conflict of interest treated as a mere factor that is afforded minimal weight.