In Barton v. ADT Sec. Servs. Pension Plan, the US Court of Appeals for the Ninth Circuit held that if a benefits claimant makes a prima facie case that he is entitled to benefits but lacks certain information (that the defendant-employer controls) to substantiate the claim, then the burden shifts to the defendant to produce this information.
In a decision the dissent characterizes as "off the rails," a three-judge panel of the Ninth Circuit has ruled that where a benefits claimant makes a prima facie case of entitlement to retirement benefits but lacks access to the corporate information needed to substantiate the claim, the burden shifts to the defendant-employer to produce this information (Barton v. ADT Sec. Servs. Pension Plan, (9th Cir. Apr. 21, 2016)).
NOTE: In September 2016, over a vigorous dissent, the Ninth Circuit declined to rehear en banc the April 2016 panel decision in this case (see , at *2 (9th Cir. Sept. 20, 2016) (with dissenting judges accusing the panel majority of inventing "an unprecedented burden-of-proof standard that only it seems to have had the foresight to impose on plan administrators")).
Upon reaching age 65 in 2010, the participant in this case sought benefits under his former employer's pension plan, claiming he had worked for the employer (or affiliated companies) from the late 1960s until 1986. Participating employers in the plan included the employer and certain members of its controlled group (see Practice Note, Controlled Group and Affiliated Service Group Rules). According to the plan's administrator, however, employment documents submitted by the participant failed to establish that he was entitled to vested benefits. The participant later submitted a claim to the plan's benefits committee, furnishing correspondence that reflected his years of service, along with paystubs, W-2s, FICA statements, and other documents. The committee denied the participant's claim, stating that there were no plan records demonstrating:
The participant's plan eligibility and participation.
That he had the requisite years of continuous service to be eligible for vested pension benefits.
The committee provided plan documents in response to the participant's request for documents and records affecting the claim, but apparently failed to provide the participant a copy of the governing summary plan description (SPD). The committee later denied the participant's appeal, concluding that:
There was no official record of his participation in the plan.
Documents provided by the participant failed to override plan records.
The participant's own FICA records raised uncertainty about whether he had been continuously employed by the employer.
The participant sued the plan, employer, and plan administrator in district court under the Employee Retirement Income Security Act (ERISA), seeking benefits and statutory penalties for the employer's failure to satisfy ERISA's disclosure obligations (29 U.S.C. § 1132(c)(1)). Following a bench trial, the district court ruled for the employer, concluding that:
The benefits committee did not abuse its discretion under the governing deferential standard of review.
The participant was not entitled to penalties because he lacked a colorable claim to benefits.
The participant appealed.
The Ninth Circuit acknowledged that the district court correctly applied governing precedent for deferential "abuse of discretion" review of a claim denial. However, the Ninth Circuit concluded that the district court improperly placed the burden of proof on the participant for issues within the defendants' control, including that:
The employers for whom the participant worked participated in the plan.
The participant worked the requisite number of hours each year.
The Ninth Circuit observed that a participant may bear the burden of proving entitlement to benefits in some ERISA cases (for example, establishing disability under a long-term disability plan). In other situations (including this one), however, the court reasoned:
A defendant has sole control over the information needed to determine a participant's entitlement to benefits (for example, which employers participated in the plan).
A claimant therefore has no meaningful way to meet his burden of proof.
Here, for example, the relevant corporate sub-entities were not evident from company materials provided to the participant. Citing authority from the Fair Labor Standards Act (FLSA) context, the court reasoned that the employer should bear the risk if its records are insufficient to determine which companies are participating employers under a plan.
The Ninth Circuit viewed its shifting of the burden as flowing naturally from ERISA's statutory penalty provisions for failures to disclose certain plan-related documents, which are intended to ensure that individuals have basic plan information (29 U.S.C. §§ 1132(c)(1) and 1024(b)(4)). (According to the dissenting judge, however, these ERISA provisions do not require plan administrators to maintain the kinds of records at issue in this case.)
How the Burden of Proof Works
As applied in this case, the burden to produce information shifts to the defendant if:
A claimant makes a prima facie case that he is entitled to a pension benefit.
The claimant lacks access to the key information about corporate structure or hours worked needed to substantiate his claim.
The defendant controls this information.
The Ninth Circuit therefore reversed the district court and remanded for proceedings consistent with its opinion (but expressed no view regarding the participant's eligibility for benefits). On remand, the Ninth Circuit instructed the district court to determine whether the participant has established a prima facie case. In doing so, the district court may consider evidence available at trial (for example, the participant's Social Security records, W-2 statements, paystubs with the pension box marked, and correspondence thanking him for ten years of service). If a prima facie case is established, the defendants will bear the burden of production regarding whether he worked enough hours for a participating employer to collect plan benefits.
In a footnote, the majority also questioned whether the employer satisfied the Ninth Circuit's "meaningful dialogue" standard regarding claims denial letters, as articulated in Booton v. Lockheed Med. Benefit Plan, 110 F.3d 1461, 1465 (9th Cir. 1997) ("[w]hat we got here … is a failure to communicate"). However, the Ninth Circuit left this issue for the district court to consider on remand.
In a vigorous dissent, one judge described the majority's burden-shifting rule as invented, ad hoc, and in "direct conflict" with the applicable abuse of discretion review. The judge noted that under the deferential abuse of discretion standard, the participant would be required to demonstrate only that the plan's decision was illogical, implausible, or unsupported by inferences that could be drawn from the facts in the record.
For employers facing benefits litigation in the Ninth Circuit, the burden-shifting rule announced in this decision may be a game-changer. On remand, if the participant can make a prima facie case that he is entitled to benefits, the defendants will bear the burden of production regarding whether the participant worked sufficient hours for participating employers. This determination would involve records from several decades ago. As the dissenting judge notes, the plan administrator in this case could therefore be forced to provide benefits to the participant even though it did not abuse its discretion under established ERISA caselaw.
Although the dissent hopes that the majority's burden-shifting rule will be limited to the facts of this case, the rationale underlying this rule would seem to apply in non-pension benefits litigation contexts, also.