Arbitrary and Capricious Standard Continues to Favor Plan Administrators

The First Circuit, in O’Shea v. UPS decided September 15, 2016, upheld a denial of monthly payments under an annuity plan to a deceased UPS worker’s family because the worker died prior to the annuity start date. The decedent, who was terminally ill, delayed his retirement start date in order to accrue the maximum paid vacation and personal time he had for the remainder of his employment. He was not advised on his benefits application or by Human Resources that there was a survival requirement beyond the annuity date in order to receive the benefits. The application merely stated that the benefits would be “subject to the terms of the plan”. The retirement plan provided for a Preretirement Survivor Annuity for active employees spouses in the event they died prior to their annuity start date. The plan does not explicitly state that this is the sole provision available in those circumstances. After the decedent’s family was denied the annuity benefits, the plan justified that denial by interpreting the Preretirement Survivor Annuity provision as the sole benefit in light of the absence of another benefit for those circumstances.
The Court reviewed this interpretation under the arbitrary and capricious standard, which does not seek to find the best reading of the plan but rather if the administrator’s interpretation was reasonable. UPS’s interpretation was upheld as reasonable since there was no other term in the plan that applied to the decedent’s circumstances. Despite the fact that the decedent did not choose the Preretirement Survivor Annuity benefit, rather the annuity that paid a Single Life Annuity payable over 120 months, did not persuade the court that UPS’s interpretation failed under the standard of arbitrary and capricious. The Court’s application of this standard often favors the plan administrator and not the beneficiary. Particularly in this case the Court considered the argument that the single life annuity did not expressly state there could be no payment of the benefit if the employee died prior to the annuity start date, but agreed with UPS’s interpretation that the other annuity is the sole benefit since there was yet again an absence of language in the plan that guaranteed or provided another benefit under these circumstances. The Court’s willingness to allow an administrator to hinge its interpretation on the absence of express language for eligibility perquisites as well as additional remedies in the event of a plan participant’s early death, demonstrates just how favorable the arbitrary and capricious standard is for plan administrators.