Administrative Proceedings for ERISA Legality Claims Would Be Futile

The 6th U.S. Circuit Court of Appeals has reversed a district court’s holding that participants in Cumberland University’s 403(b) plan must exhaust all administrative remedies under the plan before filing suit against the plan fiduciaries.

The appellate court found some claims questioned the legality of a plan amendment, which it said are issues for courts to decide.               

According to the court opinion, in 2009, the university adopted a 5% matching contribution, whereby the university would match an employee’s contribution to the plan up to 5% of the employee’s salary. On October 9, 2014, the university amended the plan to replace the 5% match with a discretionary match, whereby the university would determine the amount of the employer’s matching contribution on a yearly basis. The university made the amendment retroactive effective January 1, 2013. It announced that the employer matching contribution for the 2013–14 year and the employer matching contribution for the 2014–15 year would be zero percent. 

The court also noted that as of the date of oral argument in the case on January 25, 2017, the university had not produced a summary plan description subsequent to the 2009 Summary Plan Description despite plaintiffs’ repeated requests.

On November 12, 2015, the plaintiffs filed a class action complaint against the defendants alleging wrongful denial of benefits on behalf of the benefits class (Count I); anti-cutback violation on behalf of the benefits class (Count II); failure to provide notice on behalf of the notice class (Count III); and breach of fiduciary duty on behalf of the benefits and notice classes (Count IV). 

“The predominant issue here is whether exhaustion principles should apply to the anti-cutback and fiduciary duty claims, which is a question of law,” the court stated in its opinion. It noted that the Employee Retirement Income Security Act (ERISA) “provides a contract-based cause of action to participants and beneficiaries to recover benefits, enforce rights, or clarify rights to future benefits under the terms of an employee benefit plan.” However, the administrative exhaustion requirement includes an exception for circumstances “when resort to the administrative route is futile or the remedy inadequate.”

The court found a challenge to the legality of a plan’s amendment, rather than a challenge to the interpretation of an amendment, is futile because if plaintiffs were to resort to the administrative process, the plan administrator would merely recalculate their benefits and reach the same result. It noted that the plaintiffs did not argue that their benefits were calculated incorrectly under terms of the amendment, but that the amendment was illegal in some respect.

The 6th Circuit said the district court erred in applying the administrative exhaustion principles to Counts II and IV.

The appellate court also addressed whether the district court erred in dismissing Count III for failure to state a claim. It found that rather than dismiss the complaint, the district court should have allowed the plaintiffs an opportunity to formally request the documents. “At the very least, the district court should have given Plaintiffs an opportunity to amend the complaint,” the appellate court wrote in its opinion. “On remand, the district court should determine whether Count III is a statutory ERISA claim not subject to the administrative exhaustion requirements.”

The 6th Circuit reversed the district court’s judgment and remanded the case for further proceedings.