For Immediate Release
Washington, DC – ERIC applauds a ruling issued earlier today by the U.S. Supreme Court holding that equitable rules cannot override the clear terms of a plan under the Employee Retirement Income Security Act (ERISA). The case is U.S. Airways, Inc. v. McCutchen.
The Supreme Court reversed a November 2011 ruling by the U.S. Court of Appeals for the Third Circuit, which found that a health plan’s attempt to obtain reimbursement from a plan participant’s personal injury settlement was not allowed under ERISA because it would not amount to “appropriate equitable relief.” The Third Circuit had held that the plan would be unjustly enriched if it was paid the full amount and that traditional equitable doctrines and defenses applied.
“ERIC welcomes the ruling by the U.S. Supreme Court reversing the Third Circuit’s earlier decision. The high court appears to have agreed with the basic analysis and argument put forward by ERIC and other trade associations that equitable rules cannot override the clear terms of a plan,” said ERIC President & CEO Scott Macey.
“Had the Third Circuit ruling been allowed to stand, you would have seen an influx of litigation from participants using equitable defense claims to rewrite the clear terms of a plan, and thus undermine the principles of ERISA,” Macey added. Macey further stated that plan benefits are set by plan terms not equitable arguments or defenses.
However, it should be noted that the Supreme Court stated that equitable principles could apply to determine the applicable amount of reimbursement when the plan lacked specific provisions, such as with respect to attorney’s fees. Equitable principles can apply to determine how the plan should be interpreted. Accordingly, the majority decision held that U.S. Airways was required to pay a proportionate amount of the participant’s attorney’s fees incurred in pursuing the ultimate award, in accordance with equitable principles, because the plan lacked any provision regarding attorney’s fees.
ERIC, along with the American Benefits Council, the Society for Human Resource Management, and the U.S. Chamber of Commerce in September 2012 filed an amicus brief with the U.S. Supreme Court arguing that allowing individual courts to decide for themselves, under the guise of equity, which plan provisions will be enforced and under what circumstances, is squarely at odds with ERISA’s objective of establishing uniformity, certainty, and predictability. Plan benefits are not established by equity but by plan terms, which should not be overridden because a court might have provided for different plan benefits and terms, the brief further noted.
In addition, the brief argued that subrogation provisions have long been recognized under ERISA (including by the Supreme Court) and that allowing equitable defenses to take precedence over plan provisions would undermine the uniform application and administration of plans and increase plan costs.