Court Upholds Plan Administrator's Interpretation in Recent ERISA Case
On August 16, 2019, the Ninth Circuit ruled in O'Rourke v. Northern California Electrical Workers Pension Plan, et al. that the board of trustees for an ERISA-covered multiemployer pension plan did not abuse its discretion by broadly interpreting the plan's ambiguous trade-based suspension of benefits provision to preclude a participant’s claim for early retirement benefits. Even though the Ninth Circuit acknowledged that the plaintiff offered an equally reasonable and competing interpretation of the provision at issue, the court ruled the board's broad interpretation was reasonable because it did not clearly conflict with the plan's plain language, did not negate any other plan provision, and was consistent with the plan's purpose. The court also rejected the plaintiff’s assertion that alleged procedural irregularities were sufficiently serious to alter the abuse of discretion standard of review.
The dispute in O'Rourke arose from the Northern California Electrical Workers Pension Plan's board of trustees' denial of appellant John O'Rourke's claim for early retirement benefits. The plan, an ERISA-covered multiemployer pension plan, provided an early retirement benefit for participants at age 55 after completing ten or more years of covered employment. Even if these requirements were met, however, the plan provided for suspension of early retirement benefits for any month in which the participant worked in “prohibited employment,” defined in the plan as the performance of services in any capacity in the “electrical industry,” which included all branches of the “electrical trade” in the United States. The plan did not define “electrical trade.” In addition, the plan gave the board discretionary authority to interpret the plan.
In 2014, while continuing his administrative work for the International Brotherhood of Electrical Workers union, O'Rourke applied for an early retirement benefit from the plan. Despite his eligibility under all other requirements for the benefit, the board denied his application based on its broad interpretation of “prohibited employment” to include his administrative work for the union. In 2016, after the board again denied his claim on appeal, O'Rourke sued the plan and the board, claiming he was entitled to the early retirement benefit under the Employee Retirement Income Security Act of 1974, codified at 29 U.S.C. § 1001, et. seq. (ERISA).
The district court granted the board's motion for summary judgment, concluding that the board's interpretation of “prohibited employment” was reasonable. O'Rourke appealed. On appeal, the Ninth Circuit first considered which standard of review applied to the board’s decision in light of certain procedural irregularities and how much weight to give those irregularities in applying the appropriate standard. There are generally only two standards of review in ERISA cases: (1) abuse of discretion, the more deferential standard, applies when the plan gives the plan administrator discretionary authority; and (2) de novo. The panel concluded the abuse of discretion standard applied because the plan terms granted the board discretionary authority to interpret the plan and the procedural irregularities were neither substantial enough to alter the abuse of discretion standard nor serious enough to weigh more heavily in O'Rouke's favor in applying that standard.
After dismissing the procedural irregularities as minimal, the court next considered whether the board abused its discretion by broadly interpreting prohibited employment to include working for the electrical workers' union in an administrative capacity. To make this determination, the court applied a three-part reasonableness test. Applying this test, the court concluded that the board's interpretation was reasonable because it did not clearly conflict with the plan’s plain language, did not invalidate any other plan provision, and was rationally related to the plan’s purpose. The deference afforded the board’s interpretation was underscored by the Ninth Circuit’s observation that even though both parties offered “reasonable” interpretations, so long as the board’s interpretation was “not unreasonable” and was “supported by rational justifications” it would be upheld.
This case is significant in that it further confirms the significant deference afforded to ERISA plan administrators’ interpretations of ambiguous plan provisions, so long as those interpretations do not conflict with the plan’s plain language or render other plan provisions superfluous.
For questions about the impact of this case or ERISA plan interpretation generally, please contact authors of this alert.
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