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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
From Spencer's Benefits Reports: An insurance company could not deny a beneficiary’s claim for group term life insurance benefits under a 180-day waiting period provision that was not included in either the plan document or the summary plan description (SPD). This was the ruling of the Fourth Circuit U.S. Court of Appeals in Blackshear v. Reliance Standard Life Insurance Company (No. 06-2126).
On June 10, 2003, Verdie Blackshear began working as a nurse at Duplin General Hospital. The hospital offered a group term life insurance plan underwritten by Reliance Standard Life Insurance Company. For the time at issue in the case, the plan provided coverage to all full-time employees; the plan did not impose any waiting period on coverage of present or future nonexempt employees or on present exempt employees, while future exempt employees were subject to a 180-day waiting period. Ms. Blackshear was a nonexempt employee. As specified by the terms of the plan, an employee’s coverage became effective on the first of the month coinciding with or next following completion of the waiting period, if a waiting period was applicable. The SPD for the plan included identical provisions.
Ms. Blackshear died on Dec. 14, 2003. On Jan. 8, 2004, Verdelle Blackshear, Ms. Blackshear’s named beneficiary under the group life plan, filed a claim with Reliance Standard seeking the life insurance proceeds of $81,078. Upon receiving the claim, Reliance Standard contacted the hospital’s human resources department to verify Ms. Blackshear’s nonexempt status and the effective date of her coverage. The hospital replied that, contrary to the actual language of the plan and the SPD, the “policy should cover all employees for life insurance after six months of employment” and that “there should be no discrimination between exempt and nonexempt employees.” Accordingly, on Jan. 26, 2004, Reliance Standard reissued the hospital’s group life plan with an amendment that eliminated the distinction between exempt and nonexempt employees and instead imposed a six-month waiting period for all employees. Reliance Standard then denied Mr. Blackshear’s claim on the grounds that Ms. Blackshear was not covered under the plan on the date of her death for failure to satisfy the waiting period. Mr. Blackshear appealed, but Reliance Standard upheld its denial of benefits, citing a provision of the plan that excluded coverage due to “clerical errors.”
Subsequently, Mr. Blackshear filed suit against Reliance Standard in the U.S. District Court for the Eastern District of North Carolina, seeking to recover the life insurance benefits under ERISA. However, the district court granted summary judgment in favor of Reliance Standard, holding that the insurer did not abuse its discretion in applying the “clerical errors” provision of the plan. Mr. Blackshear appealed, and the Fourth Circuit reversed the district court’s ruling.
In rendering its decision, the Fourth Circuit initially explained, “Broadly speaking, ERISA plans are contractual documents which, while regulated, are governed by established principles of contract and trust law. Accordingly, courts must enforce and follow the plan’s plain language in its ordinary sense. Moreover, even as an ERISA plan confers discretion on its administrator to interpret the plan, the administrator is not free to alter the terms of the plan or to construe unambiguous terms other than as written. An administrator’s discretion never includes the authority to read out unambiguous provisions contained in an ERISA plan, and to do so constitutes an abuse of discretion.”
Turning to the plan documents at issue, the Fourth Circuit stated, “It is undisputed that, at the time of Verdie’s death, the plan documents relevant to Duplin General’s group life insurance clearly and unequivocally afforded coverage for Verdie and other nonexempt employees without a waiting period. Thus, in concluding that, contrary to the written instruments, Verdie was in fact subject to a 180-day waiting period, Reliance Standard was not resolving an ambiguity in the policy’s language but reading a clear and unambiguous provision out of the written plan documents.”
With respect to the plan’s exclusion for “clerical errors,” the Fourth Circuit concluded, “Here, Blackshear’s rights under the plan vested at the moment Verdie died, which was prior to the issuance of the amended policy containing a service waiting period. The insertion of a waiting period had the effect of dispossessing Blackshear of rights that were already vested and was therefore impermissible. We conclude that the ‘clerical errors’ provision does not dictate a different result. Reliance Standard argues that the failure to include a waiting period in the original policy was a ‘clerical error’ upon which Blackshear cannot rely. Assuming such an omission would even qualify as a ‘clerical error,’ we believe the language still in no way authorizes the administrator to divest benefits that are already due by amending, modifying, or correcting the language of the policy itself. In sum, Reliance Standard may not deprive Blackshear of vested benefits based on the waiting period in the amended policy. We conclude that its application of the ‘clerical errors’ provision to arrive at such a result was an abuse of discretion.”
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
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