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A denial of benefits challenged under 29 U.S.C.S. § 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gave the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the plan's terms.
Petitioner Firestone Tire & Rubber Co. (Firestone) maintained, and was the plan administrator and fiduciary of, a termination pay plan and two other unfunded employee benefit plans governed by the Employee Retirement Income Security Act of 1974 (ERISA), 29 U. S. C. § 1001 et seq. After Firestone sold its Plastics Division to Occidental Petroleum Co. (Occidental), respondents, Plastics Division employees who were rehired by Occidental, sought severance benefits under the termination pay plan, but Firestone denied their requests on the ground that there had not been a "reduction in work force" that would authorize benefits under the plan's terms. Several respondents also sought information about their benefits under all three plans pursuant to § 1024(b)(4)'s disclosure requirements, but Firestone denied those requests on the ground that respondents were no longer plan "participants" entitled to information under ERISA. Respondents then brought suit for severance benefits under § 1132(a)(1)(B) and for damages under §§ 1132(a)(1)(A) and (c)(1)(B) based on Firestone's breach of its statutory disclosure obligation. The Federal District Court granted summary judgment for Firestone, holding that the company had satisfied its fiduciary duty as to the benefits requests because its decision not to pay was not arbitrary or capricious, and that it had no disclosure obligation to respondents because they were not plan "participants" within the meaning of § 1002(7) at the time they requested the information. The Court of Appeals reversed and remanded, holding that benefits denials should be subject to de novo judicial review rather than review under the arbitrary and capricious standard where the employer is itself the administrator and fiduciary of an unfunded plan, since deference is unwarranted in that situation given the lack of assurance of impartiality on the employer's part. The Court of Appeals also held that the right to disclosure of plan information extends both to people who are entitled to plan benefits and to those who claim to be, but are not, so entitled.
Is de novo review the appropriate standard for reviewing Firestone's denial of benefits to the employees?
The court held that a denial of benefits challenged under § 1132(a)(1)(B) of the Act was reviewed under a de novo standard unless the plan gave the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the plan's terms. The court rejected the arbitrary and capricious standard finding no support for it in the plan's language and noting that trust law principles pointed to de novo review. Further, de novo review comported with ERISA's purpose to promote the interests of employees and their beneficiaries in benefit plans. The court reversed the appellate court's holding as to the definition of "participant" under the Act explaining that "participant" meant either employees in, or reasonably expected to be in, currently covered employment or former employees with a reasonable expectation of returning to covered employment or with a colorable claim to vested benefits.