Recently, the U.S. Court of Appeals for the Fourth Circuit clarified its position on whether or not district courts may consider extrinsic evidence in ERISA cases. In Helton v. AT&T, Inc., et al. (No. 11-2153, March 6, 2013), the Fourth Circuit confirmed that courts may consider evidence outside the administrative record, when necessary and appropriate, in order to determine whether a plan administrator abused its discretion.
Cases brought under the Employee Retirement Income Security Act of 1974 (ERISA) are unique in that there is generally no discovery, and the court’s analysis is largely confined to the administrative record, which is basically the insurance company’s file relating to the plaintiff’s claim for benefits. When an individual’s benefits claim and subsequent administrative appeal(s) have been denied, he or she may file a lawsuit in federal court. If plan administrator denies the claim by determining that the claimant was not eligible for benefits, the court must decide whether or not the administrator abused its discretion. Sometimes, as the Helton decision shows, the court turns to evidence outside the administrative record (“extrinsic evidence”) when reviewing the plan administrator’s decision.
Francine Helton worked for AT&T from 1980 until her resignation on May 31, 1997. Helton was a vested participant in AT&T’s Pension Plan (the “Plan”), and she resigned thinking that she wasn’t eligible to receive benefits under the Plan until she turned 65. However, in August 1997, AT&T amended the Plan through a “Special Update,” which allowed certain participants, including Helton, to elect benefits at age 55 without facing any benefit reduction. Helton alleged that she was never notified of this Update.
In July 2009, roughly two years before her 65th birthday, Helton contacted AT&T’s Pension Service Center to find out how much she would receive when she became eligible for her pension. In response, AT&T mailed certain pension materials to Helton, who subsequently learned (for the first time) about the 1997 Update. She then contacted the plan administrator and requested pension benefits dating back to her 55th birthday. The administrator denied Helton’s request on December 16, 2009, stating that the Plan does not allow for “retroactive pension payments.” Helton appealed the denial to AT&T’s Employee Benefits Committee (the “Benefits Committee”), explaining that she never received notice of the Special Update. The Benefits Committee denied Helton’s appeal on March 22, 2010, affirming the administrator’s decision that the plan did not allow for “retroactive” benefits.
On August 8, 2010, Helton filed a complaint against AT&T in federal district court alleging that AT&T: (1) improperly denied her retroactive benefits; (2) violated ERISA’s disclosure obligations by failing to inform her about the Special Update; (3) breached its fiduciary duty to keep her informed about her benefits under the Plan; and (4) failed to provide her with the information she requested. Following a bench trial, the court awarded Helton $121,563.90 in retroactive pension benefits for the 8 years since she’d first become eligible.
AT&T appealed the judgment, arguing that the court erred in reversing the Plan’s coverage determination and awarding Helton retroactive benefits. AT&T contended that the district court improperly relied on evidence outside of the administrative record, and disputed the court’s finding that the Plan did not comply with ERISA reporting and disclosure requirements.
Because AT&T’s Pension Plan gave the plan administrator discretion to make eligibility determinations, the district court evaluated the decision for abuse of discretion. Under this deferential standard, the benefits denial would be upheld if AT&T could show it resulted from a “deliberate, principled reasoning process,” supported by “substantial evidence.”
AT&T argued that district courts are generally confined to the same evidence that the plan administrator considered when making its benefit determination (i.e., the administrative record). As the Fourth Circuit pointed out in its opinion, however, a district court can consider extrinsic evidence on deferential review. In fact, certain types of extrinsic evidence often are necessary to assess whether an administrator abused its discretion. If courts were rigidly limited to the administrative record alone, plan administrators would have the “unchecked opportunity to pick and choose what evidence in their possession to include in the administrative record,” allowing them to “simply omit any evidence from the administrative record that would suggest their decisions were unreasonable.”
The proper standard, then, is not what evidence already exists in the administrative record, but whether a plan administrator “knew or should have known of certain pieces of evidence outside of the administrative record.” By law, corporate entities (and plan administrators) can be charged with knowledge of: (1) information acquired by their employees in the scope of their employment, and (2) the contents of their corporate books and records. Because nearly all the extrinsic evidence challenged by AT&T was known to (or at least in the control of) AT&T when the Benefits Committee made its decision regarding Helton’s claim, the district court could properly consider it. Accordingly, the court’s judgment was affirmed, and Helton was permitted to keep her retroactive pension benefits.