Two Supreme Court decisions in 2008 (Metropolitan Life Ins. Co. v. Glenn, 128 S.Ct. 2343 and LaRue v. DeWolff, Boberg & Assocs., Inc., 128 S.Ct. 1020) were intended to provide final answers to questions that had vexed benefits professionals for years. Unfortunately, to one degree or another, the decisions raised as many questions as they answered and have actually spawned new litigation.

In the Glenn decision, a divided Supreme Court attempted to resolve the question of how much deference a court must pay to a benefit determination by a welfare plan fiduciary that has an inherent conflict because it also pays the benefits. The Court held that: (1)the dual roles do create a conflict; (2)the decision nevertheless is entitled to deference and may be reviewed only for an abuse of discretion; and (3)the conflict is to be taken into account (along with other factors) in determining whether an abuse occurred.

Far from resolving the issue, however, Glenn has caused the lower courts to struggle to create a more objective standard than the one articulated by the Supreme Court. To date, it appears that the circuits are gravitating toward a standard whereby the conflict is taken into account only when all other factors (for example, the fiduciary's past record in adjudicating claims, compliance with its established procedures, etc.) basically are balanced. The conflict then would be the "tiebreaker." It is possible that the circuits that have not yet spoken on this issue may articulate a "harder line," and employers would be well advised to follow the precedent in their circuit.

The inherent problem with the Glenn decision is that the majority of the justices ignored the important reality that insurers typically draft the plans that provide them with the very discretion that, the Court held, entitled their decisions to deference. Given this and the significant economic incentive insurers (and employers that self-insure benefits) have to deny claims, it is difficult to see why a conflicted insurer's decisions should be entitled to any deference. In fact, it would seem more appropriate that such a conflict should create a form of presumption in favor of a plaintiff, shifting the burden to the defendant to show that it acted without prejudice.

Unfortunately, the Supreme Court rejected such a de novo approach, providing insurers with the upper hand. Employers that want to assist their employees should review their contracts with their carriers to see if they can remove some of the typically unlimited discretion granted them.

Prior to the Court's LaRue decision, an individual who had suffered losses in his account under a defined contribution plan because of an alleged fiduciary breach could sue only on behalf of the plan; that is, any amounts recovered would benefit all participants, not just the plaintiff. In LaRue, the Supreme Court essentially reversed two decades of its own precedent, holding that participants in defined contribution plans had the right to sue to recover individual losses. While the result seems equitable and removes a significant litigation disincentive, the decision also seems to be an example of the Court straining to overturn a position it considered inequitable, but which had little statutory or precedential support.

In any case, the immediate result of LaRue has been an increase in fiduciary breach claims by participants in 401(k) and other defined contribution plans. If this trend continues, the increased volume of cases could present problems for both employers and the courts. Perhaps understanding this, in Bendaoud v. Hodgson, 45 EBC 1026 (D. Mass. 2008), the court attempted to limit the scope of LaRue by holding that a participant cannot sue on behalf of other particpants because he or she cannot have an economic interest in the account of any other participant.

If this holding is followed by other courts, it should at least reduce or eliminate the number of class action lawsuits that LaRue could have created. This would be welcome news for employers and plan fiduciaries alike.