Disability benefits provide an interesting problem for plan administrators because there are multiple times when an appeal right may attach. The first is at the beginning when the claim is made. Of course there could be appeals if benefit limits are changed. And there is the potential for appeal if the decision is made to terminate disability benefits. The latter is what the 3rd Circuit Court of Appeals was looking at in Miller v. American Airlines (Jan. 2011). Miller was a pilot who was awarded long-term disability benefits from the Plan in November 1999, based on his psychosis and anxiety. In October 2006, the plan administrator terminated the benefits, on the grounds that it could no longer verify the disability. The Court determined the termination of benefits was "arbitrary and capricious" because the "decision making process that American applied was flawed in many aspects, demonstrating that the assessment of Miller's disability was not the product of a reasoned, disinterested fiduciary." Some of the failure identified by the Court: the plan administrator's decision was not based on substantial evidence, as reports from the plaintiff's examining doctor evidenced the disability and has not changed since 2003; the plan administrator operated under a structural that created a conflict of interest. Although the the Plan is a defined benefit pension plan, every dollar the employer saved by terminating the disability benefits from the Plan decreased the employer's projected benefit obligation, and thus the amount the employer must ultimately contribute to the Plan.. This meant that the plan administrator had an incentive to stop paying benefits because it would have a "gain" once the benefits were terminated. the plan administrator added requirements midstream, like providing that the absence of an FAA certification justified the termination, though the plan itself had no such requirement. The Court also opined that, in reviewing actions in the "remedy" phase, courts should focus on preserving the status quo, and that logic dictates differing approaches for an initial denial versus a termination of benefits. "In a situation where benefits are improperly denied at the outset, it is appropriate to remand to the administrator for full consideration of whether the claimant is disabled. In the termination context, however, a finding that a decision was arbitrary and capricious means that the administrator terminated the claimant's benefits unlawfully." The Court's holding points out what the plan administrator did wrong, which is good to know. But it also illustrates the possibility of a shifting standard of review and obligation on the part of plan administrators related to the appeals process. The court seems to confirm that cutting off benefits once given might require a more stringent review than the initial decision to grant or deny benefits. Implication aside, the court does make pretty clear that if you are going to modify or terminate benefits, the appeal of that decision should be "by the book" and in close compliance with the plan documentary provision. So ultimately the warning to plan administrators (and sponsors) is to make sure you know the content of your plans, the requirements of the appeals process for those plans and the standard of review that may ultimately apply to the decision. This will make you better prepared to defend that position if it is ever challenged.
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