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Defined Benefit Plans vs. Defined Contribution Plans: What You Need to Know

Saving for retirement is a common goal for many. One means of achieving this is for employees to take advantage of different types of retirement benefits offered by their employers to save money for their future retirement. Different retirement plans provide different options for how you can save, how much you can save, and what benefits you can expect from your employer. It is important to have an understanding of your benefits that allows you to protect yourself in the case that you are denied your benefits.

The Employment Retirement Income Security Act of 1974, or ERISA, is the federal statute that protects employees’ benefits. You can find out all you need to know about ERISA on our frequently asked questions page and on our ERISA and Insurance Litigation Blog. If you believe you are not getting your benefits, reach out to us to find out how we can utilize ERISA to help you recover the benefits you are owed.

Additionally, find out more about the difference between defined benefit plans and defined contribution plans below.

What Is a Defined Benefit Plan?

A defined benefit plan is a retirement plan that promises to pay a specific benefit each month once you reach a certain age. The plan defines the age of eligibility, commonly between 62 and 65. Some defined benefit plans promise a specific dollar amount as a benefit, like $200 per month once you reach retirement age and retire. Others promise a benefit that is calculated based on your salary and years of service with your employer.

For example, determining the benefit might involve calculating your average salary over the last few years and multiplying it by a percentage determined by your years of service with your employer(s).

Positive Aspects of Defined Benefit Plans

Employers often contribute more to defined benefit plans than to defined contribution plans every year, which can benefit you in the form of tax savings. A defined benefit plan may also allow you to accrue more benefits in less time than with other plans, depending on the plan structure. A defined benefit plan also allows you to rely on the security of predictable payments in retirement.

Example of a Defined Benefit Plan

Imagine that Bob works for a company that offers a defined benefit plan. Bob’s employer contributes a certain amount to the plan. The plan, or a contracted third party, will then invest the contributions. Bob does not have any say in those investments or how they are handled, but his employer guarantees that Bob will receive a certain pension benefit upon retirement, which may be $100 per month in pension funds for every year he works for his employer. If Bob worked 10 years with the employer, his employer would guarantee him a pension of $1,000 per month.

What Is a Defined Contribution Plan?

A defined contribution plan is a savings vehicle that helps employees save for retirement, but it does not provide a specific promised benefit amount. The employee contributes to the plan, typically with pre-tax dollars. The employer may match the employee’s contribution up to a certain amount.

Contributions are invested to accrue additional value over time. Once you reach retirement age, you can begin to withdraw from the retirement plan as needed and according to IRS tax requirements. Examples of defined contribution plans include 401(k) and 403(b) plans.

Positive Aspects of a Defined Contribution Plan

While employee and employer contributions are capped at lower annual rates annually in a defined contribution plan, contributions are discretionary, allowing for greater flexibility in employers offering, and employees participating in, such plans. Defined contribution plans tend to be more common in the private sector today and are more favored by many employers, partly because they are less complex and less expensive to manage than defined benefit plans.

Hypothetical Example of a Defined Contribution Plan

Use Bob as an example again, but now he has a defined contribution plan rather than a defined benefit plan. Bob decides to contribute 4% of his salary to the plan and the employer matches up to 3%. The money contributed goes into a retirement fund specifically for Bob, and he is able to see and make changes to how the money is invested. Bob can decide whether he wants to play it safe or be a bit more aggressive with his retirement investments.

When he retires, Bob does not receive a specific amount every month based on his tenure and average salary. Rather, he can simply withdraw the amounts he needs, in accordance with IRS rules, from his retirement fund.

Does ERISA Cover Both Defined Benefit and Defined Contribution Plans?

Both a defined benefit and a defined contribution plan are covered by ERISA, so long as the plan is offered as an employer-sponsored benefit by a business in the private sector.

What If You Are Being Denied the Benefits You Are Owed?

Based on the above information, the importance of understanding the nature of your retirement benefits is clear. If you do not understand how your benefits work, you do not know whether you are getting what you are owed.

If you believe you are not getting the benefits you are owed, your best course of action is to reach out to someone with expertise in handling ERISA pension/retirement matters, like the experienced ERISA attorneys at McKennon Law Group PC. The knowledgeable ERISA pension attorneys at McKennon Law Group PC have helped their clients recover benefits owed to them and can help ensure that you receive the pension benefits you are due under your pension plan. Contact McKennon Law Group PC today for more information.

In the case of Irina Morris v. Aetna Life Insurance Company, the Ninth Circuit Court of Appeals made a significant ruling that favors ERISA plan participants. The court’s decision in Bafford v. Northrup Grumman Corp. had previously established that a third-party administrator’s incorrect plan benefit calculation is not a fiduciary duty breach if it is within the framework of a preset policy set by another. Insurers and administrators relied on this ruling to avoid liability for miscalculating plan participants’ benefits.

However, the Morris case expanded the definition of fiduciary function and increased the potential liability for insurers and administrators. The court clarified that an ERISA insurer can still be held liable for fiduciary duty breaches if they exercise discretion in other misconduct related to ministerial benefit calculation errors that harm the plan participant.

Aetna argued that Bafford controlled the outcome of the case because their error was a ministerial calculation mistake. The court rejected this argument, emphasizing that Aetna’s subsequent actions, which were discretionary and central to Morris’s injury, qualified as fiduciary functions.

The court identified several instances where Aetna performed fiduciary functions involving discretion after its calculation error. They provided Morris with individualized consultations and engaged in extensive communication regarding her monthly plan benefit. Unlike the automated online mechanism in Bafford, Aetna’s benefits specialists consulted with Morris by phone, sent letters for her to share with lenders, and communicated with her financial institutions.

Aetna’s communication of the incorrect benefit amount to Morris and her lenders was deemed a fiduciary function due to the extent of Aetna’s involvement in her financial life. Despite Morris questioning the accuracy of the benefit calculation, Aetna affirmed the erroneous amount for nearly a decade, leading Morris to make significant financial decisions based on the misinformation.

The court also ruled that Aetna exercised discretion and performed a fiduciary function when gathering Morris’s earnings information and interpreting the plan’s terms to determine her monthly benefit amount. This was different from the ministerial calculations in Bafford, where a third-party administrator followed a preset online formula without discretion.

The Morris court restated the designated Ninth Circuit ERISA fiduciary duty law, emphasizing that a breach of fiduciary duty must occur in connection with the performance of a fiduciary function. The key question in fiduciary breach cases is whether the fiduciary was performing a fiduciary function when the complained action took place.

The ruling in the Morris case expands the potential liability for ERISA plan insurers and administrators, highlighting the importance of exercising their discretion properly to act in the best interests of plan participants. With the help of McKennon Law Group PC, an insurance and ERISA litigation law firm in Newport Beach, California, Irina Morris was able to get the justice she rightfully deserved for her case.

McKennon Law Group PC has a long track record of successfully representing and fighting on behalf of clients dealing with insurance and ERISA-related disputes. With a pay-if-you-win structure, there is hardly any risk to seeking out their help – no matter how big or small your insurance dispute is. Get in touch with McKennon Law Group PC today at 949-504-5381 to book an initial consultation.

Is an ERISA Insurer or Other Fiduciary Liable When They Incorrectly Calculate and Misrepresent the Amount of Your Plan Benefits?

Most employee benefits are governed by a federal law called the Employee Retirement Income Security Act of 1974 (“ERISA”), including disability insurance, life insurance, accidental death insurance, health insurance, pensions, and other benefits offered by employers to their employees through their employee benefit plans. Sometimes the plan’s administrator or an insurance company (if the plan’s benefits are funded by an insurance policy), miscalculates the employee’s monthly benefit and misrepresents to him the amount due, which in turn can lead to dire financial results if the employee relies to his detriment on the insurer’s misrepresentation. Is an ERISA insurer liable to an employee for such wrong calculations and misrepresentations?

That is a complicated question under ERISA fiduciary duty law. Until the very recent decision from the Ninth Circuit Court of Appeals in Irina Morris v. Aetna Life Insurance Company, No. 21-56169, 2023 WL 3773656 (9th Cir. Jun. 2, 2023), the answer was unclear. The courts had found that when an administrator made a mistake in calculating plan benefits while following the procedures set by another entity, it engaged in a “ministerial” function, not a fiduciary one, because no discretion or judgment was required. So held the Ninth Circuit of Appeals in Bafford v. Northrup Grumman Corp., 994 F.3d 1020 (9th Cir. 2021). But, going forward, the answer is a resounding yes, insurers, plan administrators and their third-party administrators who make “calculation” errors are performing a fiduciary function when those calculation errors are accompanied by other actions, thanks to the Morris decision.

In that case, the McKennon Law Group PC obtained a favorable decision for one of its ERISA plan long-term disability clients. The Ninth Circuit clarified and drastically expanded the scope of an ERISA insurer’s fiduciary duty liability for miscalculating and misrepresenting plan benefits. That is a fair result because ERISA insurers and administrators are fiduciaries of plan participants and their beneficiaries. As fiduciaries, they have a duty to act solely in the interest of the plan’s participants and beneficiaries for the exclusive purpose of providing them their benefits, and with care, skill, prudence, and diligence. See 29 U.S.C. § 1104(a)(1). With these very high duties of loyalty and prudence, why would a court allow an insurer to cavalierly misinform a plan participant about his benefit amount to his financial detriment with no consequence.

Morris is significant because it changed the landscape of ERISA fiduciary duty law on these types of issues in a favorable way for ERISA plan participants. To that end, the Morris Ninth Circuit Court of Appeals limited its landmark Bafford decision. Let’s step back for a moment. In Bafford, the Court held that a third-party administrator that incorrectly calculated a pension plan benefit amount within the framework of a policy and procedure set by another entity did not have to exercise any discretion, and so its error did not constitute a fiduciary function but was just a ministerial calculation error that could not be a fiduciary duty breach. The TPA selected the wrong salary data which caused it to overstate the employee’s monthly pension. ERISA insurers and administrators had successfully relied on Bafford to avoid liability for breach of fiduciary duties (when they miscalculated a plan participant’s benefits), on the ground that they did not exercise any discretion or judgment, the prerequisite of a fiduciary function. That is still the law in that very specific factual circumstance, i.e., when the person that mistakenly miscalculated the benefits did not exercise any discretion and acted within the framework of procedures set by someone else. However, Morris drastically expanded the scope of fiduciary duty liability for ERISA plan insurers and administrators when they commit a wrong subsequent to such a ministerial benefit calculation error. And Morris even implied that some benefit miscalculations similar to the mistake in Bafford are not ministerial but fiduciary.

In the wake of Bafford, the Ninth Circuit’s Morris decision swung the pendulum back toward plan participants. The case expanded what constitutes a fiduciary function. The Morris case clarified that, in relation to even a ministerial benefit calculation error, an ERISA insurer still can perform fiduciary functions in many respects. A plan participant can recover damages when an insurer or administrator incorrectly calculates her plan benefits if the insurer exercises discretion in other misconduct related to such a non-fiduciary benefit calculation error that harms the plan participant.

In Morris, the group insurer, Aetna, of the employer’s long-term disability plan negligently miscalculated the employee plaintiff Morris’ monthly LTD benefit, overstating it by hundreds of dollars per month. In collecting data to calculate Morris’ benefit, Aetna made a mistake about the amount of Morris’ salary, that she was paid 26 times per year when she was really paid 24 times per year. Since her monthly LTD benefit was a percentage of her pre-disability salary, Aetna’s mistake caused it to overstate her benefit. Aetna paid Morris the wrong monthly benefit amount, and misrepresented the amount to her and her lenders, for nine years. Aetna did not verify that its initial calculation was correct for almost a decade, even in response to Morris’ several phone calls and letters to Aetna’s benefit counselors asking the amount of her benefit because she wanted to apply for a mortgage and later refinance based on her disability income.

In a key part of the opinion, the Morris Court rejected the insurer Aetna’s contention that Bafford controlled because Aetna performed a ministerial benefit calculation error and, therefore, could not have performed a fiduciary function. Morris found, “But this misreads Bafford’s holding.” It held that, “Even assuming Aetna’s initial mathematical calculation is not discretionary, its subsequent actions – which were central to Morris’ injury – were” discretionary. Thus, the appellate court reversed the district court, which had held that all of Aetna’s subsequent misconduct and misrepresentations were inextricably entwined with its initial ministerial benefit calculation error and, therefore, were not fiduciary functions under Bafford.

The Morris Ninth Circuit Court found that Aetna performed fiduciary functions in several respects after its calculation error (even if Aetna’s initial long-term disability plan benefit calculation error was not a fiduciary act under Bafford because it did not exercise discretion). Specifically, Morris found the following conduct by Aetna were fiduciary functions that involved discretion (and thus subjected Aetna to liability to its insured Morris for breach of fiduciary duty):

After Aetna miscalculated Morris’ monthly LTD plan benefit amount, Aetna provided Morris with “individualized consultations with benefit counselors” about the incorrect amount of her monthly plan benefit.
In contrast to Bafford’s use of an online mechanism to calculate benefits and mail auto-generated statements to the plan participants: (1) Aetna’s employee ability specialists, team leaders, and customer service representatives consulted with Morris by phone about her benefit amount numerous times; (2) Aetna’s Long Term Disability Benefit Manager sent letters Aetna knew Morris would share with lenders as proof of her benefits; and (3) Aetna communicated with Morris’ financial institutions to verify her benefit amount.
Morris cited Bafford and other cases that, “‘[C]onveying information about the likely future of plan benefits’ through benefit counselors amounts to a fiduciary act.”
Aetna communicated with Morris and her lenders, and represented to them, the incorrect monthly benefit amount, which was a fiduciary function, unlike Bafford, because of the extent of Aetna’s involvement in her financial life.
After Morris phoned Aetna and asked whether Aetna made a benefit calculation error, Aetna did not verify the accuracy of its benefit calculations. Instead, Aetna repeatedly affirmed the erroneous benefit amount directly to Morris and her lenders for almost a decade, which higher income misrepresentations allowed Morris to take out a mortgage, refinance, enter a divorce settlement, and pay taxes on the basis that she was entitled to a higher income, to her financial detriment.
Aetna exercised discretion when it decided to aggressively collect its $56,000 overpayment of disability benefits back from Morris, even suspending her monthly benefit to recoup the money, which put her in dire financial straits, despite its knowledge that Morris had relied on Aetna’s incorrect statements about her monthly benefit amount to make important financial decisions.

In addition, the Morris Court held that Aetna exercised discretion and thus performed a fiduciary function when it gathered Morris’ salary information and interpreted the Plan’s terms to determine which benefits and deductions or offsets applied in order to determine Morris’ monthly benefit amount, which was different than the ministerial calculations in Bafford where a third-party administrator calculated benefits within the framework of a preset online formula set by another entity and did not have to exercise discretion. Though the Court did not explicitly say so, this implies that Aetna’s benefit calculation error was fiduciary in nature, not ministerial. The Morris Court also reiterated established Ninth Circuit ERISA fiduciary duty law that: (1) The “alleged wrong must occur in connection with the performance of a fiduciary function to be cognizable as a breach of fiduciary duty;” and (2) “Thus, the ‘threshold question’ in cases involving fiduciary breach is whether the fiduciary ‘was performing a fiduciary function[] when taking the action subject to complaint.’ ”

Key Take Away
The Ninth Circuit Morris Court expanded ERISA plan participant’s rights, as well as insurer’s fiduciary duties, particularly in the context of benefit calculation errors, benefit amount misrepresentations, and other related conduct. ERISA fiduciary duty law is quite complex. Whether an insurer performed a fiduciary function in a specific case requires careful analysis by an expert.
You should hire an experienced ERISA lawyer to represent you if your claim for disability, life, accidental death, health, or pension benefits is denied, or if your insurer or plan administrator miscalculates and misrepresents to you the amount of your plan benefits to your financial detriment. You can call (949) 387-9595 for a free consultation with the attorneys of the McKennon Law Group PC, several of whom previously represented insurance companies and are exceptionally experienced in handling both ERISA insurance claims and non-ERISA California insurance bad faith claims.

Many people today find themselves in a situation in which at any given time, one incident can cause financial catastrophe. A medical diagnosis, accident, injury, or some other event can quickly cause a person to be unable to work, even permanently. Between the age of 20 and retirement, one in four people will be out of work for at least a year due to a disability, according to the Council for Disability Awareness. In the next year alone, five percent of working Americans will become unable to work for up to six months due to illness, injury, or pregnancy, most of which are not work-related. The leading causes of disability are pregnancy, musculoskeletal disorders, mental health issues and injuries such as fractures, sprains, and strains. However, people become unexpectedly disabled from countless causes. You simply never know when your life will be impacted by disability.

Short-term disability and long-term disability coverage can provide valuable protection for both employees and employers. A disabled employee with short-term and/or long-term disability insurance can focus on recovering from an injury or illness, or adjusting to living with a new condition, whereas one without short-term or long-term disability coverage may very well face financial ruin, which can also be catastrophic for anyone who is financially dependent on the employee. Having short-term and long-term disability insurance can easily mean the difference between a period of inconvenience and one’s life being completely upended.

For employers, providing short-term and long-term disability insurance coverage can allow employees to perform their work without the unnecessary stress that comes along with not having a financial plan in case of a disability arising. Employers who provide disability coverage will naturally attract higher quality candidates, so it stands to reason that those employers will enjoy better production than those who do not provide such coverage.

May is Disability Insurance Awareness Month, so there is no better time for employees to assess their coverage, and if they are not protected by short-term or long-term disability insurance, to consider obtaining such insurance. For those who already have short-term and long-term disability insurance, it is a perfect time to become more knowledgeable about disability insurance, such as how it works, what it covers, what the claims process entails, and how they can be protect themselves into the future. If you have any questions about short-term or long-term disability insurance, reach out to our trusted counsel for disability insurance matters in San Diego for a free consultation.

Disability Insurance Awareness Month is also an optimal opportunity for employers to reflect on the coverage their plan provides to employees. There are many different group plans, addressing various needs and providing different benefits. Employers can consider whether their group plan is meeting their employees’ and the company’s needs, and can educate themselves on types of plans, which may allow them to better meet the employees’ and company’s needs. If you are an employer with questions about the various plans available, contact a group insurance provider now to be sure that you have the group insurance plan that is the best fit for your company and its employees.

Whether you are an employer or an employee, short-term and long-term disability coverage can be a significant factor for you. This May, take some time to further educate yourself about disability insurance. You do not need to face issues related to disability matters alone. The experienced disability insurance attorneys at McKennon Law Group PC are available to assist you, if you have a few basic questions about short-term or long-term disability insurance or you have made a claim that was denied by an insurer and you are ready to appeal the denial or bring a lawsuit to recover your disability benefits. The lawyers at McKennon Law Group PC have the expertise to assist you.

Compassionate Allowances Can Help Speed Up Social Security Disability Payments

Becoming disabled due to an injury or medical condition can be devastating. The thought of facing the future can be daunting, especially thinking about how you might manage financially. If you are unable to work, you likely have concerns about how you can cover your expenses.

If you are unable to work due to a disability, you will likely look to long-term disability insurance benefits or Social Security Disability Income (SSDI) benefits to help you survive financially. Disability benefits can be a vital lifeline for those who are unable to work.

However, getting SSDI or long-term disability benefits can be an extremely slow process. It can take several months or even years to get your claim for benefits approved. Many are simply not able to afford to wait so long to begin receiving benefits. .

You may be surprised to learn that once you submit a long-term disability claim with a private insurance company, such as through coverage you obtained as part of a group plan offered by your employer, it can take much longer for the claim to be approved and for you to begin receiving disability benefits than being approved for and receiving SSDI benefits. And, if you are able to get your SSDI benefits approved prior to your long-term disability benefits, a favorable decision can assist you in recovering long-term disability benefits. This is because under the law, insurance companies may be required to consider a favorable SSDI benefit award and may be required to give significant weight to such an award when making their own decisions.

The Social Security Administration understands how difficult it can be for people to wait so long for benefits and has therefore implemented Compassionate Allowances to help reduce the wait time for people who meet certain conditions. However, when it comes to private insurance companies, you may be at the mercy of the insurer’s timeline for reviewing your claim.

Find out more about Compassionate Allowances below and learn how the McKennon Law Group PC can help fight insurance companies for long-term disability benefits due to you.

Why Does it Take So Long to Get Approved for Disability Benefits?

Before the Social Security Administration will approve your claim for SSDI benefits, you must qualify for the program. During this process, the Social Security Administration looks at medical records and other documents to understand whether you are disabled from working and to what extent you maybe able to work.

To apply for SSDI benefits, you must complete lengthy paperwork related to your disabling condition and your daily life. You may also have to provide copies of medical records demonstrating that you have a disabling condition. The Social Security Administration may also request records from your medical providers, including hospitals, doctors’ offices, and physical therapy clinics.

This can be a slow process, especially given that the Social Security Administration is a large government agency. How quickly you provide the relevant information and documentation will impact how long it takes for the Social Security Administration to approve or deny your claim.

If the Social Security Administration denies your claim for SSDI benefits, you have options for appealing the decision. However, the appeals process itself can take several months or years, which will delay you receiving SSDI benefits by even longer.

Long-term disability claims with private insurance companies also may take a long time to be decided. The insurance company will need to obtain and review your medical records. If your claim is denied, the insurance company will likely have a process by which you can appeal the denial, which also can take a substantial amount of time. If your disability claim is governed by a federal law called ERISA, then the insurer is required to allow you to appeal any long-term disability claim denial.

The Relationship Between Social Security Disability Income Benefits and Disability Benefits From Private Insurers

There is a relationship between SSDI benefits and long-term disability benefits paid by private insurance companies. Your private disability policy obtained through your employer will almost certainly contain provisions allowing the insurer to “offset” income you receive from other sources of income against your disability benefits. The most common offset is one for SSDI benefits. The concept is that you may be entitled to receive a given monthly benefit amount, but you should not be able to earn more being disabled than you were when you were working.

Because of these provisions allowing insurers to offset other income against your disability benefits, disability policies commonly contain provisions requiring the covered person to seek SSDI benefits. These provisions often require that you apply for SSDI benefits, and sometimes require you to exhaust any available appeals. Many insurers will pay for legal counsel to handle your SSDI claim for you.

More importantly for you, a favorable determination on your SSDI claim will likely make it easier for you to qualify for long-term disability benefits with your employer or under your individual disability policy. Therefore, it may be in your interest to consider making claims for SSDI benefits and long-term disability simultaneously. At the very least, this can allow you to be more efficient with obtaining medical records and completing documents.

Why the Social Security Administration Has Compassionate Allowances

The Social Security Administration recognizes that some conditions lead to a disability 100% of the time. Therefore, persons who are diagnosed with such conditions do not need to prove their disability. They only have to demonstrate that they have the diagnosis.

Because of this, the Social Security Administration instituted Compassionate Allowances. This is a list of conditions that support the automatic approval of SSDI benefits. This saves time by avoidingr the lengthy claim process that involves a detailed review of your medical records.

Having a condition on the Compassionate Allowance list does not necessarily mean that you will not be required to go through a claim process with the Social Security Administration . You will still have to provide medical records or the Social Security Administration may still request them from your providers. Your claim and case will still go through a review process.

Some of the Conditions on the Compassionate Allowance List

The list of Compassionate Allowance conditions is quite long. It includes a variety of terminal illnesses, cancers, autoimmune disorders, mental health disorders, and musculoskeletal disorders.

Some of the Compassionate Allowance conditions are:

Acute leukemia
Breast cancer
Child lymphoma
Fatal familial insomnia
Lewy body dementia
Liver cancer
Perry syndrome
Seckel syndrome
Skin malignant melanoma with metastasis
Small cell cancer
Thyroid cancer

The best way to understand if your condition is on the list is to check for yourself. The Social Security Administration updates the list from time to time, so do not assume a condition is not on it simply because it was not on the list in the past.

It is also important to note that if your condition is not on the list, that does not mean that you will not be approved for disability benefits. It simply means that you will not get automatic and immediate distribution of benefits based on a Compassionate Allowance condition.

There is no such Compassionate Allowance program when you are dealing with a long-term disability claim involving a group disability policy from your employer or under an individual disability policy you obtained privately.

Get Help With Your Long-Term Disability Claim

Applying for long-term disability and SSDI benefits is a complex process. It is full of potential obstacles that can delay or hinder the process. A mistake on your application or a misunderstanding over your records can lead to an inappropriate denial of benefits. If you are struggling with these processes, feel you have been unfairly denied benefits, or you seem to be waiting forever for anything to happen, consider getting help.

Reach out to a reputable attorney for disability insurance in San Diego that is highly experienced with long-term disability claims. Call the McKennon Law Group PC at 800-682-4137 to make an appointment with our legal team. We will help you understand what your options are and how we can help you fight insurance companies hat are unfairly denying your disability insurance benefits.

The purpose of insurance companies is to generate profits, which they do by bringing in more revenue through premiums than they pay out in benefits. Naturally, then, they are motivated to avoid paying out benefits. Unsurprisingly, they will go to great lengths to find a reason to deny a claim for benefits. Even if the insurer or the claimant’s employer makes a mistake in administering the insurance policy or the claim, the insurer will likely take advantage of a situation that allows it to deny a claim, regardless of the impact on the claimant. For example, an employer may mistakenly fail to notify its insurer of an employee’s resignation or termination, so the insurer will not make any changes to the employee’s insurance enrollment. The employee may continue paying premiums thinking that he is still covered by the policy. When the employer catches its mistake, it retroactively terminates the policy. Then the insured suffers an injury and the beneficiary makes a claim, which the insurer predictably denies. Because the insured did not get notice that the coverage was terminated, he never had the opportunity to secure coverage from a different insurer.

In situations like this, the beneficiary can bring an ERISA claim against the insurer to recover benefits under the policy and another ERISA claim against both the employer and the insurer for breach of fiduciary duties. In response to a motion to dismiss such claims, the Sixth Circuit Court of Appeals recently found that the beneficiary’s claim against the employer should not be dismissed in Bailey v. United of Omaha Life Ins. Co., 2023 WL 2599979 (S.D. Ohio Mar. 22, 2023).

In Bailey, Adam Bailey was an employee of Hirschvogel Inc. from September 16, 2016 to September 24, 2019. During his employment, he obtained two life insurance policies (the “Policies”) taken out as part of an employee welfare benefit plan established by Hirschvogel under the provisions of ERISA. The plaintiff was Bailey’s son and the beneficiary of the life insurance policies at issue. His father terminated his employment, but a glitch in Hirschvogel’s system caused the company to fail to notify the insurer, United of Omaha, of several employees’ termination of employment, including his. The company caught the mistake and retroactively terminated his policies as of the time his employment ended, then he died in a car accident. Because he had been paying the premiums on the policies and had not been notified of the termination of his coverage under the policy, plaintiff filed a lawsuit asserting ERISA claims against Hirschvogel and the insurer for breach of fiduciary duties under Section 1132(a)(3) of ERISA (which acts as a catch-all provision to cover claims not covered in other ERISA provisions), and against the insurer to recover benefits due under the policy. Hirschvogel moved to dismiss the claim against it. The court denied the Hirschvogel’s motion and found that the plaintiff’s claim against Hirschvogel was adequate because the claim alleged an injury that was separate and distinct from the injury alleged in the claim for recovery of benefits and that could not be remedied through a claim brought under any other ERISA provision.

Regardless of the reason for Hirschvogel’s failure to notify United of Omaha of the termination of employment, Hirschvogel was bound as a fiduciary to take the necessary steps to ensure that such mistakes do not happen. Whether the plaintiff in Bailey will find success on the merits remains to be seen, but his claim survived the motion to dismiss by Hirschvogel under ERISA’s catch-all provision because it was separate and distinct from his claim for recovery of benefits and because his injury cannot be remedied through any other provision.

Bailey serves as an example to be diligent and understand the various provisions of ERISA. However, just because your particular claim is not covered by a specific policy/plan provision, that does not mean that you are not able to pursue that claim. McKennon Law Group PC has vast experience with ERISA claims and can assist ERISA plan participants and their beneficiaries with pursuing their employment benefits. If you would like to know whether you are to bring an ERISA claim against your insurer or employer, look to McKennon Law Group PC.

Defined Benefit Plans Versus Defined Contribution Plans: What is the Difference?