Judgment in Favor of Aetna Reversed on Fiduciary Status

The Ninth Circuit re-visited the circumstances in which claims administrators can cross the line to become fiduciaries under ERISA. In Morris v. Aetna Life Ins., No. 21-56169 (9th Cir. June 2, 2023), an unpublished decision, the court agreed with the plan participant, Morris, that the district court judge erred in finding that the plan's named fiduciary and claims administrator, Aetna Life Insurance (Aetna), was not functioning as a fiduciary in its handling of her benefits claim. The appellate court reversed the judgment in favor of Aetna and remanded the case to the district court for further proceedings.

In 2009, Aetna approved Morris's claim for long-term disability benefits after cancer surgery and chemotherapy left her unable to perform her job as a software consultant. Two years later, Aetna advised Morris she was determined totally disabled and would continue to receive monthly disability benefits so long as she continued to meet her plan's definition of disability. Morris relied on that benefit calculation when obtaining and then refinancing a mortgage, negotiating a divorce, and filing her taxes. After Morris suffered a further medical complication in 2018, Aetna informed her that it had inflated her monthly benefit amount and that she owed back $56,478.17, which Aetna subsequently recouped from her subsequent benefits payments. Morris then sued, alleging that Aetna breached its fiduciary duty and seeking surcharge and reformation remedies.

The district court concluded that under the plan terms, Morris was not entitled to the allegedly inflated amount of benefits she was claiming and that her ERISA fiduciary breach claim was foreclosed by Bafford v. Northrop Grumman Corp., 944 F.3d, 1020, 1028 (9th Cir. 2021). In Bafford, the Ninth Circuit had held that the calculation of pension benefits according to a pre-set formula was not a fiduciary function under ERISA. The Bafford court emphasized the "fundamental precept that discretion is one of the central touchstones for a fiduciary role" and reasoned that calculating a benefit within a preset framework "does not involve the requisite discretion or control to constitute a fiduciary function."  

In contrast, Aetna was a named fiduciary whose actions "lie well within the category of 'well established fiduciary functions.'" Distinguishing Bafford, the Ninth Circuit held that Aetna, apart from its initial calculation of benefits, repeatedly and over the course of years provided Morris individualized consultations with, and phone support from, benefits specialists and customer service, including about the amount of her benefits, as well as letters for Morris to submit to financial institutions verifying her benefit amounts, knowing she and the institutions would rely on the letters. Conveying such information "amounts to a fiduciary act," according to the circuit court. The court also held that Aetna exercised discretionary control over the plan when it gathered Morris' earnings information and "interpreted plan terms to determine which benefits and deductions applied," as well as when it decided to "immediately and aggressively collect the overpayment amount after nine years had passed." According to the court, "the extent of Aetna's involvement in Morris's financial life distinguishes her case from the ministerial calculation error addressed in Bafford."  

Morris highlights the fact-specific analysis courts undertake when deciding fiduciary status and chips away at the defendant-friendly and much-discussed holding in Bafford. Even though Morris is an unpublished decision lacking precedential value, plan fiduciaries and administrators should take note of the court's reasoning and exercise caution when calculating benefits and providing benefits information and assistance to plan participants. 

EBSA Advisory Council to Address Disability Plans, Electronic Records, and SECURE 2.0

The Employee Benefits Security Administration (EBSA) announced the next 2023 meeting of the Advisory Council on Employee Welfare and Pension Benefit Plans (Advisory Council) will be July 17-19. During the three-day meeting, which may be attended in-person or virtually, Advisory Council members will hear from witnesses on the topics of (1) Long-Term Disability Benefits and Mental Health Disparity and (2) Recordkeeping in the Electronic Age. EBSA will also consult with the Advisory Council on ERISA fiduciary standards for selecting an annuity provider for a defined benefit pension plan, as required by Section 321 of the Setting Every Community Up for Retirement Enhancement Act 2.0 (SECURE 2.0). Members of the public wishing to submit written statements or address the Advisory Council on these topics must notify EBSA by July 10, 2023. The list of witnesses and meeting agenda is not yet published. 

Section 512 of ERISA provides for the establishment of the Advisory Council tasked with advising and making recommendations to the Secretary of Labor regarding the Secretary's functions under ERISA. The council consists of 15 members appointed by the Secretary of Labor and are representatives from employee organizations, employers, insurance, corporate trust, actuarial counseling, investment counseling, investment management, and accounting professions and industries, and the general public. 

Upcoming Speaking Engagements

Joanne Roskey and Anthony Shelley will present, "Discussion with EBSA: Enforcement & Regulatory Priorities Impacting Health Plans," at the BCBS 2023 Law, Audit, Compliance & Ethics Conference on August 9, 2023.

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