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"Footnote
3
No party has
challenged Rush's status as defendant in this case, despite the fact
that many lower courts have interpreted ERISA to permit suits under
§1132(a) only against ERISA plans, administrators, or fiduciaries. See,
e.g., Everhart v. Allmerica Financial Life Ins. Co.,
275 F. 3d 751, 754-756 (CA9 2001); Garren v. John Hancock Mut.
Life Ins. Co., 114 F. 3d 186, 187 (CA11 1997); Jass v.
Prudential Health Care Plan, Inc., 88 F. 3d 1482, 1490 (CA7 1996).
Without commenting on the correctness of such holdings, we assume
(although the information does not appear in the record) that Rush has
failed to challenge its status as defendant because it is, in fact, the
plan administrator. This conclusion is buttressed by the fact that the
plan's sponsor has granted Rush discretion to interpret the terms of its
coverage, and by the fact that one of Rush's challenges to the Illinois
statute is based on what Rush perceives as the limits that statute
places on fiduciary discretion. Whatever Rush's true status may be,
however, it is immaterial to our holding."
ERISAClaim.com Comment:
In addition to mainstream reading of Moran's ruling on centerpiece of
ERISA preemption with respect to state law requiring independent review,
this footnote has provided another key to the ERISA mystery without
being appreciated by most experts yet.
As
lower federal courts have erroneously interpreted ERISA preemption for
decades, Supreme Court clarifies ERISA preemption for the first time, at
the same time, Supreme Court clarifies and interprets ERISA as to how to
identify and determine the plan administrator status, as most lower
courts have erroneously interpreted ERISA for decades to consider the
plan sponsor as the plan administrator when the plan administrator has
granted the discretion to another party and has never exercised such
discretionary authority.
First, we must understand that this
footnote mainly describes how Supreme Court makes determination of the
plan administrator status and clearly indicates its attention in
avoiding addressing the correctness of other issues determined by lower
courts and clarifies its plan administrator status determination is
immaterial, even the Rush were not the plan administrator, to its
holding in that ERISA does not preempt Illinois HMO act. This footnote
is intended to address how to make determination of the plan
administrator instead of anything else.
The language of "Without commenting on the
correctness of such holdings is only referring to the "fact that many
lower courts have interpreted ERISA to permit suits under §1132(a) only
against ERISA plans, administrators, or fiduciaries" instead of the fact
how the lower courts have interpreted ERISA to identify the plan
administrator.
The language of "Whatever Rush's true
status may be, however, it is immaterial to our holding." Is referring
to that "Held: ERISA does not preempt the Illinois HMO Act. Pp.
6-31. " Instead of the fact how Supreme Court has interpreted ERISA to
identify the plan administrator is immaterial in footnote 3.
In footnote 3, pointing out although no
party has challenged the status of the defendant, Rush, as the plan
administrator, as an appropriate party as defendant in reference to
lower courts traditional holding as to who can be sued under ERISA,
Supreme Court volunteered its interpretation of ERISA to identify the
plan administrator, "because it is, in fact, the plan administrator".
The Supreme Court offered two prongs as evidenced by undisputed facts:
1) "This conclusion is buttressed
by the fact that the plan's sponsor has granted Rush discretion to
interpret the terms of its coverage";
2) "and by the fact that one of
Rush's challenges to the Illinois statute is based on what Rush
perceives as the limits that statute places on fiduciary discretion."
Supreme Court is clear and certain on this
part of reasoning and holding, Rush is, in fact, the plan administrator,
and has given no disclaimer to this part of this conclusion.
Clearly the plan sponsor's granting of
discretionary authority to the defendant, Rush, not originally
designated as the plan administrator in SPD, the discretionary authority
to interpret the terms of its coverage, as the number one criteria.
More importantly, the defendant, Rush, in
its actions to challenge the Illinois statute, is a fiduciary because
Rush believes Illinois statute's has interfered with its discretionary
authority as a fiduciary, the fact that Rush has exercised discretionary
authority in capacity of the plan administrator.
More clearly, SPD designation of Rush
as the plan administraor is not required by Supreme Court, contrary
to lower courts interpretations of ERISA and statutory penalty
provisions, to identify and establish that Rush is the plan
administrator.
Supreme Court's clarification that
absolute SPD designation is not required to identify or limit the plan
administrator, but the plan's granting discretionary authority to a
party and its action in exercising discretionary authority are Supreme
Court's formula in interpreting ERISA to identify the plan
administrator.
This reasoning and holding are consistent
with Supreme Court recent clarification in
Pegram et al. v.
Herdrich, in footnote 8:
A
``fiduciary'' is ``someone acting in the capacity of
a manager, administrator, or financial advisor
to a `plan'.'' Pegram v. Herdrich, _ U.S. _, 120 S. Ct.
2143, 2151 (2000). See ERISA Sec. 3(21); 29 U.S.C. 1003(21).
Footnote 3 appears to have
answered a question and confusion about another ERISA mystery in ERISA
world: "plan administrator"-liability taker, responsibility
bearer, statutory penalty receiver, or "discretionary authority
exerciser"-an ERISA plan insurer, it makes final decision in
interpreting the terms of plan coverage but takes no responsibility or
penalty for failing to comply with ERISA disclosure requirements. The
classical example would be that a plan sponsor, most of time a small
business owner, will purchase a group health policy
with built in discretionary clause
granting ultimate decision making to the group insurer while most of
such ERISA plans are without an official copy of SPD, clearly
designating who is the plan administrator that is responsible for
compliance of ERISA reporting and disclosure requirements. The reality
is that when the claims are in dispute , the group insurer will make
final decisions on policy coverage based on its own confidential
internal documents without having to disclose "proprietary information"
based on which the final decisions were made, while without a clear
designation of plan administrator in SPD, the plan sponsor, by default
under ERISA statutes, becomes the plan administrator, who is responsible
for disclosing those plan document with "proprietary information"
unavailable to himself/herself. In
Hernandez vs. Prudential,
such plan sponsor's own (son) claims were denied by the group insurer on
ground of medical necessity, the group insurer made final decision on
appeals and refused to disclose to the plan sponsor the relevant plan
document based on which the negative medical necessity determination was
made, arguing the SPD (no standard SPD but a simplified copy of group
policy) does not designate the plan administrator, the plan sponsor, by
default, becomes the plan administrator, who is responsible for
disclosure and reporting under ERISA and liable for statutory penalty
for failure to disclose, and he should sue himself for failaure to
disclose or liable for SPD penalty. As in a recent case,
CAFFEY v. UNUM LIFE INS CO,
the court held that an insurance company is not the plan
administrator for the purpose of ERISA reporting and disclosure with
regard to SPD statutory penalty. Different circuits have ruled this
issue differently on whether an insurance company, a group insurer, and
claim administrator who makes final decision on policy coverage, can be
held liable under ERISA for SPD penalty,
Gregory DeLeon v. Brisol-Meyers Squibb Company Long Term Disability
Plan
In this footnote, the
Supreme Court makes another "commonsense view" interpretation,
"Without commenting on the correctness of such holdings, we
assume (although the information does not appear in the record) that
Rush has failed to challenge its status as defendant because it is, in
fact, the plan administrator. This conclusion is buttressed by the fact
that the plan's sponsor has granted Rush discretion to interpret the
terms of its coverage, and by the fact that one of Rush's challenges to
the Illinois statute is based on what Rush perceives as the limits that
statute places on fiduciary discretion", suggesting that if the plan has
granted an insurance company or group insurer discretion to interpret
the terms of the policy coverage, which is almost all the time
built in the group policy by default
and the fact if the group
insurer has exercised such discretionary authority in administrative
appeal decision-making and judicial review challenging state statutes
limitation on ERISA plan fiduciary. Therefore the commonsense view
illustrates that if one exercised discretionary authority and made final
decisions, it must be considered under ERISA commonsense to be the plan
administrator, responsible for fiduciary obligations and compliance with
ERISA reporting and disclosure requirements, subject to SPD statutory
penalty, as found in
Gregory DeLeon v. Brisol-Meyers Squibb Company Long Term Disability
Plan
The above captioned
understanding is consistent with Supreme Court ruling in
Pegram et al. v. Herdrich,
in footnote 8:
".... Although
we are not presented with the issue here, it could be argued that Carle
is a fiduciary insofar as it has discretionary authority to administer
the plan, and so it is obligated to disclose characteristics of the plan
and of those who provide services to the plan, if that information
affects beneficiaries' material interests. See, e.g., Glaziers
and Glassworkers Union Local No. 252 Annuity Fund v. Newbridge
Securities, Inc., 93 F. 3d 1171, 1179-1181 (CA3 1996) (discussing
the disclosure obligations of an ERISA fiduciary); cf. Varity Corp.
v. Howe, 516 U. S. 489, 505
(1996) (holding that ERISA fiduciaries may have duties to disclose
information about plan prospects that they have no duty, or even power,
to change)."
A commonsense
understanding of this paragraph is that anyone who has discretionary
authority to administer the plan and make final coverage decisions is
obligated to disclose the characteristics of the plan and third party
reviewers and pre-certification decision makers providing the essential
and vital services to the plan, therefore small business owner/plan
sponsor will not have to be punished for failure to disclose the plan
document that was
never available to himself/herself.
Footnote 3 in Moran's
case and footnote 8 in Pegram
case are further illustrated in the new ERISA claim regulations. Under
new claim regulations, plan administrator is responsible for claim
procedure, but insurers and any third party administrators with claim
authorities must also comply with new procedures. The new regulations
eliminate this loophole or confusion by eliminating a special rule found
in previous regulation that would allow insured health or disability
plans administered by an insurance company as "appropriate named
fiduciary".
In 1998 version of
proposed rules, 63 Fed. Reg. 48392, the DOL notes:
"The proposal
articulates the Departments view of the current regulation on this
issue and clarifies its application by eliminating the provisions in the
current regulation that provide specific treatment for insured welfare
or pension plans. See Reg. § 2560.5031(c), (g)(2). It is the
view of the Department that these provisions were included in the
current regulation to make clear that plans could employ the services of
insurance companies and other similar organizations as third-party
administrators to make claims decisions, but not to imply that such
plans are subject to different standards than other plans that do not
employ the services of third-party administrators with respect to the
obligations and duties of their administrators.5
The Department considers that these provisions have become confusing in
light of current practices and are no longer necessary to clarify what
is permissible procedure.
5
Whether a party with authority to make claims decisions is acting as a
fiduciary depends on the extent to which the party exercises any
discretionary authority or discretionary control respecting management
of such plan or exercises any authority or control respecting management
or disposition of it assets, * * * or * * * has any discretionary
authority or discretionary responsibility in the administration of such
plan. ERISA § 3(21)(A)."
6.
Reporting by Multiple Employer Welfare Arrangements and Certain Other
Entities that Offer or Provide Coverage for Medical Care to the
Employees of Two or More Employers [Rules and Regulations] [04/09/2003]
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[PDF Version]
§ 2520.1012 (b)(3): b) Definitions. As used in
this section, the following definitions apply:
Administrator
means--"(3) In the case of a MEWA or ECE for which
an administrator is not designated
and a plan sponsor cannot be identified,
jointly and severally the person or
persons actually responsible (whether
or not so designated under the terms of the instrument
under which the MEWA or ECE is operated)
for the control, disposition, or management of the cash or
property received by or contributed to the MEWA or ECE,
irrespective of whether such control, disposition, or
management is exercised directly by such person or persons
or indirectly through an agent,
custodian, or trustee designated by such person or persons."
From reading Moran's
footnote 3 and Pegram's footnote 8 as well as new claim regulations,
hopefully one of the most mysterious confusion of ERISA could be
clarified in the commonsense view that if SPD does not designate the
plan administrator in an insured ERISA plan, any entity exercised
discretionary authority or control in making final coverage and appeal
decisions as a fiduciary shall be the plan administrator, obligated to
disclose, to comply with ERISA claim procedures and liable for SPD
statutory penalty as ruled in
Gregory DeLeon v. Brisol-Meyers Squibb Company Long Term Disability
Plan, or as recommended by
NAIC with respect to discretionary
clause.
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