Do ERISA plan participants who believe a plan has treated them unjustly have to exhaust their administrative remedies before filing an action in court? Last year, the U.S. Sixth Circuit Court of Appeals joined all but two other circuits in finding that plan participants don’t have to do so. This may tip the scales before the remaining two federal circuits fall into line or the U.S. Supreme Court settles the matter once and for all.

Fateful plan amendment

Since 2009, the Cumberland University plan had matched employee contributions up to 5% of employee salaries. But a plan amendment in 2014 backed off that commitment, giving its trustees discretion whether to provide any matching contributions. Most notably, the amendment was retroactive to 2013.

The university emailed plan participants, telling them that its discretionary match would be zero for the 2013–2014 and 2014–2015 plan years. (It hadn’t yet paid out its matching contributions for the 2013–2014 plan year at that time.) Employees responded with a class action lawsuit.

ERISA rule in question

ERISA Section 1132 governs administrative remedies. It says that employee benefit plans must “provide adequate notice in writing to any participant or beneficiary whose claim for benefits under the plan has been denied, setting forth the specific reasons” for the change. The law also requires the plan to provide an opportunity for review of that decision by a plan fiduciary.

The university asserted at the trial court level that the employee’s complaint was a dispute over the denial of benefits, and covered under ERISA Sec. 1132. Thus, according to the university, the plaintiffs had failed to exhaust their administrative remedies, requiring the court to dismiss the action and require the employees to proceed administratively.

The participants, however, argued that the university’s action was a statutory violation of ERISA, which didn’t require administrative exhaustion. The trial court agreed with the university, and the employees appealed.

The court decides

According to the appeals court, the issue was the legality of the plan provision, not whether the plan’s trustees had accurately interpreted plan provisions. In this case, there was no argument about whether trustees, in withdrawing the match, had acted consistently with the newly amended plan document.

The employees argued that the plan amendment violated ERISA’s “anti-cutback” provision. This section gives employees the right to receive accrued benefits that cannot be decreased by an illegal plan amendment. The participants also asserted that the plan trustees had violated their ERISA fiduciary duties to safeguard participants’ interests.

The appeals court found their argument convincing and concluded that participants need not exhaust administrative remedies before proceeding to federal court when they assert statutory violations under ERISA. Thus, it reversed the lower court’s decision and sent it back to that court for further proceedings.

The future

What does this mean for other plan trustees and fiduciaries? Be sure to consider whether any contemplated changes to your plan are substantive enough to be challenged as an ERISA violation, rather than on grounds of plan document interpretation. Chances are, had Cumberland University’s trustees not made their plan amendment retroactive, they could have avoided this dispute.

Hitchcock, et al. v. Cumberland Univ., et al., No. 16-5942 (6th Cir. 2017).