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Sixth Circuit Joins Six Other Circuits in Ruling Exhaustion of Plan’s Administrative Procedures Not Required When Asserting Statutory Violations

On Tuesday, March 14, 2017, in Hitchcock v. Cumberland University, No. 3:15-cv-01215, 2017 WL 971790 (6th Cir. Mar. 14, 2017), the Sixth Circuit Court of Appeals joined six other federal circuits in ruling that Employee Retirement Income Security Act (“ERISA”) plan beneficiaries are not required to exhaust administrative remedies prior to filing suit when asserting statutory violations as opposed to claims for benefits.


Plaintiffs, former employees of Cumberland University (the “University”), were participants in a defined contribution pension plan (the “Plan”) sponsored by the University for its employees.  In 2009, the University adopted a five percent matching contribution, whereby the University would match an employee’s contributions to the Plan up to five percent of the employee’s salary.  On October 9, 2014, the University amended the Plan retroactively to 2013 to replace the match with a discretionary match, whereby the University would determine the amount of the employer’s matching contribution on a yearly basis.  The University also announced that the employer matching contribution for the 2013-14 year, and for the 2014-15 year, would be zero percent.


On November 12, 2015, Plaintiffs filed a class action complaint against Defendants alleging (1) wrongful denial of benefits; (2) violation of ERISA’s anti-cutback provisions; (3) failure to provide notice to participants and beneficiaries; and (4) breach of fiduciary duty.


The Middle District of Tennessee dismissed the first, second and fourth claims for failure to exhaust administrative remedies and dismissed the third claim for failure to state a claim.  The workers then appealed.   


The Sixth Circuit panel reversed and remanded, ruling that the district court erred by ordering the workers to pursue a “futile” administrative process before bringing their suit in court.  In so holding, the court stated as follows:


[I]n cases where the plaintiff challenges the legality of a plan’s methodology, the claimant typically concedes that her benefit was properly calculated under the terms of the plan as written, but argues that the plan itself is illegal in some respect. Because the question of legality is one within the expertise of the courts[,] the decision to require such a claimant to exhaust administrative remedies in order to recalculate a benefit she concedes was already properly calculated under the terms of the plan as written, misses the point of the dispute. In situations where a claimant concedes her benefit was properly calculated under the terms of the plan as written, exhaustion wastes resources rather than conserves them. Consequently, we have held that, in an ERISA case, when the plaintiff’s suit is directed to the legality of a plan, not to a mere interpretation of it, exhaustion of the plan’s administrative remedies would be futile. (emphasis in original) (citations omitted).


The court also highlighted that “[i]f such exhaustion were required for those statutory claims, in order for Plaintiffs to receive proper resolution from the plan administrator, the administrator would need to determine whether the retroactive amendment was properly instituted in the first place, i.e., whether the amendment was legal.” The Sixth Circuit held this not to be the administrator’s role, but the role of the courts.


The decision aligns the Sixth Circuit with the Third, Fourth, Fifth, Ninth, Tenth, and D.C. circuits, which have already ruled that participants and beneficiaries need not exhaust the administrative process when suing plan fiduciaries on the basis of an alleged violation of duties imposed by statute, while the Seventh and Eleventh circuits have held to the contrary.


Notably, the Sixth Circuit included an important caveat pointing out that this exception to the exhaustion requirement does not apply to “plan-based claims artfully dressed in statutory clothing, such as where a plaintiff seeks to avoid the exhaustion requirement by recharacterizing a claim for benefits as a claim for breach of fiduciary duty.” (citations omitted).


The Hitchcock decision is likely to drive further disputes within the Sixth Circuit as to whether a claim is truly an assertion of a statutory right, thereby falling within the exception, or is simply a disguised benefits claim requiring administrative review.