August 30, 2022
Read ARAWC Gov. Relations Advisor AJ Donelson’s analysis below:
When Congress reconvenes after Labor Day, ARAWC will be keeping a close eye on proposed ERISA changes that would impact Texas injury benefit plans. Specifically, The Employee and Retiree Access to Justice Act (H.R. 7740 and S. 4219) amends ERISA to make discretionary clauses in employer-sponsored benefit plans unenforceable.
Background. Currently, most ERISA benefit plans (including Texas injury benefit plans) have discretionary clauses that give plan administrators broad authority to interpret, construe and apply the terms of the benefit plan. These discretionary clauses require courts to “give deference” to plan administrators when reviewing a benefit decision. A reviewing court can only overturn a plan administrator’s original benefit decision if that decision was so “arbitrary and capricious” that the court determines that the plan administrator abused the discretion given to them by the benefit plan.
The current standard of review for ERISA benefit claims has been in place for over thirty years. Under this standard, employers can prevail in an ERISA lawsuit if they can show a reasonable process for how the plan administrator made their decision.
Impact of Legislation on Texas Injury Benefit Plans. The pending Congressional legislation would allow courts to conduct de novo review of benefit decisions – a much lower standard of review. In other words, a federal judge could now “second guess” the plan administrator and overturn a benefit denial based on their review of the claim facts and plan terms. This lower standard of review could negatively affect employers with Texas injury benefit plans in several ways, such as:
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Increasing the number of ERISA lawsuits, including the time and cost defending such lawsuits.
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Plaintiff attorneys filing ERISA lawsuits as leverage for higher liability settlements or awards.
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Increased opportunity for federal courts to abuse their discretion when conducting de novo review of benefit decisions (e.g., sympathy for claimants, political reasons, etc.).
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Fiduciary duty breaches caused by plan administrators basing benefit decisions on increased ERISA litigation fears rather than benefit plan terms.
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Lack of confidence in plan administrator decisions, leading to inconsistent benefit claim decisions and claim outcomes.
Business Opposition. The U.S. Chamber of Commerce sent a letter to the Hill expressing its opposition to the legislation. The Chamber argues that the legislation would increase the costs of claims for benefits and increase the time for courts to resolve claims for benefits, including time sensitive claims such as disability and severance.
Prospects for the legislation. Both bills are still in committee and neither bill has been scheduled for floor consideration in the House or Senate. Congress has a broad range of other priorities to get done between now and when it adjourns for the mid-term elections. This makes it unlikely that either bill can move as a stand-alone piece of legislation. To become law, it is more likely that the only path to enactment this fall is as an amendment to another bill.
ARAWC takes action to oppose the legislation. ARAWC has been in touch with the U.S. Chamber to explain to Chamber staff how it adversely affects Texas injury benefit plans. ARAWC will continue to monitor the legislation and work with the Chamber to oppose the bills if there is an effort to attach the provisions to another piece of legislation.
For further information or questions, please contact ARAWC government relations.