Benefits Briefs Vol. 13 No. 2: Statute of Limitations Defense

Stifle that yawn. If a participant sues you for benefits, ye olde boring statute of limitations can be your best friend. The reason is that a participant who snoozes, loses, regardless of how culpable you might otherwise have been in refusing to pay his benefits. Because of its terminator impact, the statute of limitations defense is sometimes mitigated by the courts, such as by their holding that the time period did not start to run as soon as the employer assumed. Hence, it behooves you to be very formalistic in handling benefit claims to make sure your actions get that statute running.

Here’s an example: Carey v. IBEW Local 363 Pension Plan, 1999 U.S. App. LEXIS 32699 (2d Cir. 12/16/99). Some of the relevant facts occurred in those bad old days before ERISA when plan participants could have decades of pension service wiped out under break in service rules that permitted a plan to ignore all service earned (generally no matter how lengthy) before any break. Carey appears to have been a union member for at least 42 years and to have had a total of over 30 years of pension service. However, the pension service was interrupted by a 1974 break in service. The issue in this case, naturally, involves not Carey’s length of service, whether there was actually a break in service, etc., but simply whether he could survive the applicable six-year statute of limitations. On the surface, he appeared to be on solid ground because his only formal benefit claim (i.e., one made on the plan’s official claims form and following the plan’s formal claims procedure) was submitted to the plan in 1996, about four years after he had retired. However, the plan pointed out that in 1989 Carey had telephoned the plan to ask about his benefits. Here’s the important fact: instead of responding in the same casual manner as Carey’s inquiries, the plan treated the telephone call as a claim for benefits, followed its claims procedure, issued a written denial, and treated Carey’s follow-up letters to this denial as an appeal. Because of the plan’s actions, the court held that the statute of limitations began to run not with the plan’s denial of Carey’s first formal application for benefits but with that earlier denial. Carey effectively lost the right even to raise the fairness of whether his 30 years of pension service should have been disregarded.

The lessons from this case seem obvious: To take advantage of a statute of limitations, plan administrators should take at least three steps. First, treat all inquiries seriously, whether made in writing or orally. This is especially true when your anticipated response is negative. If the participant has only spoken with you orally, you should ask the participant to make his or her claim in writing, or you should at least write back to the participant outlining your understanding of the claim. Second, make any negative responses to a benefits inquiry in writing, and not simply by telephone or in person. Make sure your written response identifies it as a “decision” or “determination,” and not merely a “belief” or “opinion.” Third, the written response should identify any appeal right the participant has under the plan. This will require examining the plan document to make sure the particular claims procedure is accurately summarized. Although this may seem excessively formal or impersonal, a written and complete response by a plan administrator made in a timely fashion may save a considerable amount of attorneys’ fees and sleepless nights down the line.