Pension & Benefits News Plan wrongfully withheld employer audit from widow appealing claim denial
Wednesday, October 2, 2019

Plan wrongfully withheld employer audit from widow appealing claim denial

By Pension and Benefits Editorial Staff

A pension plan administrator abused its discretion when it failed to provide a coal miner’s widow with an employer audit report that was used by the plan as one factor in its denial of her appeal of the amount the plan awarded for her survivor’s annuity benefit, the U.S. Court of Appeals in Richmond (CA-4) has ruled. The plan failed to provide the widow with a “full and fair review” of its decision under ERISA Sec. 503.

Claim denied. After 30 years of work in the coal mining industry, the widow’s husband died from black lung disease. The United Mine Worker’s Pension Plan informed the widow it would award her a survivor’s annuity based on 15.25 years of credited service by the miner. The widow requested a hearing, claiming that the miner had worked additional hours of credited service. (Under the plan, an employee received credit for a year of service for working at least 1,000 hours of service in a “classified” position. Work as a foreman or superior was not classified employment.)

After two hearings, the plan sustained its denial of the widow’s claim. To make its decision, the plan relied in part on an audit of the worker’s employer but did not provide the widow with a copy of the audit.

The widow filed suit in district court, alleging the plan had improperly denied her claim and requesting a remand back to the plan for further review. Rejecting a magistrate judge’s recommendation in favor of the widow, the district court found for the plan, concluding there was no credible indication that providing the audit during the review process would have made any difference.

Full and fair review. The Fourth Circuit reversed, holding the plan erred procedurally by denying the widow the opportunity to review the audit during the administrative process. ERISA Sec. 503 requires that any plan participant whose claim for benefits has been denied be given a “reasonable opportunity…for a full and fair review” of the decision. Under ERISA Reg. §2560.503-1(h), as part of this review the claimant must be “given reasonable access to documents relevant to her claim.”

Based on the regulation’s plain language, the court held, the plan was obligated to provide the widow with a copy of the audit the plan had explicitly relied upon to make its benefit determination. While it’s true that not all procedural defects will invalidate an administrator’s decision, in this instance the plan’s failure to disclose the audit prevented the widow from pursuing further investigation and arguments in support of her claim. Having now had the opportunity to review the audit, the widow contended that several facts in the audit support her claim. For example, the audit stated the employer underreported the classified hours of its employees, engaging “in a pattern of reporting a seemingly implausible number of employees as non-classified foreman to avoid making pension contributions.”

Thus, the court concluded that the plan’s failure to disclose the audit was prejudicial to a degree that was enough to constitute an abuse of discretion and remanded to the plan administrator.

SOURCE: Odle v. UMWA 1974 Pension Plan (CA-4).

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