Ninth Circuit Case Sheds Light on ERISA’s Plan Document and SPD Requirements

On Aug. 1, 2017, the U.S. Court of Appeals for the Ninth Circuit, in Mull v. Motion Picture Indus. Health Plan, No. 15-56246 (9th Cir., Aug. 1, 2017), provided a reminder to employer plan sponsors on the importance of complying with ERISA’s plan document and SPD requirements.

As background, ERISA requires a plan to be established and maintained according to a written plan document. ERISA also requires the plan sponsor to develop and distribute to covered participants an SPD, which is meant to be a summary of the material terms of the written plan document. Employers often rely on the carrier contract (in the case of a fully insured plan) or the service (ASO) agreement (in the case of a self-insured plan, which usually engages a third-party administrator) as evidence of compliance with the written plan document and SPD requirements. Importantly, the carrier or ASO contracts/agreements generally do not contain all of the terms and provisions required under ERISA.

One big risk to not having an ERISA-compliant plan document or SPD (or having inconsistent plan documents/SPDs) is that an employer (as plan sponsor) may have a more difficult time establishing plan terms, policies and processes, should a dispute arise regarding plan benefits. This risk is highlighted in the Mull case.

In the Mull case, the plaintiff is a covered dependent under a self-insured, multi-employer health plan sponsored by the Motion Picture Industry. The plaintiff was injured in a car accident, and as result received close to $150,000 from the plan to treat her related injuries. The dependent/plaintiff later received $100,000 from a third party involved in the accident. The defendant (the health plan) requested reimbursement based on the third-party payment, but the plaintiff declined. The plan then invoked its overpayment procedures, which included recoupment of future benefits payable to the dependent and other beneficiaries (including the employee through which the dependent was covered). The plaintiff sued to stop the plan from recouping the over payment from future benefits. The plan then filed a counterclaim seeking to recover the $100,000 received by the plaintiff from the third party.

Before getting to the holdings of the courts, it’s important to understand the plan’s SPD and trust agreement. The plan based its initial reimbursement request and the recoupment on the terms of the SPD, which was previously adopted (along with a trust agreement) by the Motion Picture Industry’s board of directors. Generally, the SPD outlined plan details, including eligibility, benefits, conditions for the receipt of benefits, and the amount and duration of benefits provided to participants and their dependents. Specifically, the SPD stated that no benefits will be payable in a third-party liability claim unless the participant or dependent agreed to reimburse the plan for any benefits previously paid upon receipt of a third-party recovery, and that the plan would deduct the amount of benefits paid from all future benefits payable to the participant and his or her dependents (if the participant/dependent refused to reimburse the plan).

The district court held for the plaintiff, reasoning that because the reimbursement and recoupment provisions were found only in the SPD (and not in any formal or official document that constituted the plan), the reimbursement and recoupment provisions were not enforceable under ERISA. The district court relied on language from a U.S. Supreme Court case (CIGNA Corp. v. Amara, 563 U.S. 421 (2011)), which held that summary documents (such as SPDs) do not themselves constitute the terms of the plan for purposes of ERISA — they are meant to serve a different purpose of providing communication with plan participants and beneficiaries. Under Amara, an SPD itself was not part of the plan and therefore could not create terms that are not consistent with, or part of, governing plan documents (although an SPD could be adopted into and made a part of the plan). Because the formal plan documents (the trust agreement) did not establish the reimbursement and recoupment provisions, those provisions were not enforceable (and therefore the plan could not seek reimbursement or invoke its recoupment provisions on the dependent).

On appeal, though, the Ninth Circuit disagreed, saying that the district court erred in holding that the SPD was not part of the plan. The Ninth Circuit admitted that the trust agreement (the plan’s official written plan document) did not specify the basis on which payments would be made to and from the plan; it did not by itself meet all of ERISA’s requirements for a written plan document. However, the trust agreement stated that the basis on which payments would be made to/from the plan would be outlined in writing by a board resolution. The Ninth Circuit reasoned that the SPD – a document created and adopted by the board – detailed the basis for payments. Based on that reasoning, the Ninth Circuit concluded that the ERISA plan consisted of two documents: The trust agreement and the SPD. As a result, the plan’s reliance on the SPD’s reimbursement and recoupment attempts was justified by the plan’s written plan document, and should therefore be allowed. The Ninth Circuit’s decision appears to be consistent with Amara, since the SPD was part of the plan itself and did not conflict with the trust agreement.

For employers, the Mull case is a reminder of the importance of ERISA’s plan document and SPD requirements. Employers should review their carrier and/or ASO contracts, alongside any SPDs, with outside counsel to determine if the documents are consistent and constitute an enforceable written plan document. Employers hoping to have their SPD serve as a plan document should ensure that the SPD actually satisfies the specific and substantive requirements for both documents as required under ERISA. Lastly, for those employers using so-called ‘wrap’ documents, the wrap document should describe its intent to constitute the plan document, and that should be consistent with any information contained in an SPD (or other communication) distributed to plan participants and beneficiaries.

Mull v. Motion Picture Indus. Health Plan »