The Ninth Circuit Court of Appeals recently ruled that an employee’s benefit elections under an ERISA plan need not strictly comply with all of the plan’s requirements as long as the employee substantially complies. The case is a sad story with a hopeful outcome.
In Liu v. Kaiser Permanente Employee Pension Plan, Ya-Xia Liu received a serious cancer diagnosis. While hospitalized, she filed a form with her pension plan designating her sister as the beneficiary who would receive the lump-sum distribution of her earned pension benefits if she failed to make it through treatment. She passed away shortly after.
After her death, the sister tried to claim the benefits. But the pension plan refused to pay.
The Plan said that Liu failed to finish designating her sister as the beneficiary. No one disputed that Liu properly completed the right paperwork. But the Plan argued Liu failed to complete a second requirement: confirming her election. This requirement was never disclosed to Liu or other employees participating in the ERISA plan.
In the ensuing lawsuit, Liu’s sister argued that Liu had “substantially complied” with the plan’s rules for designating her as the beneficiary. Completing the form told the plan that Liu wanted her sister to get the benefit if she passed away. That should have been good enough even if Liu didn’t take the second step of confirming that the form meant what it said.
The district court disagreed and ruled against Liu’s sister. It held that ERISA plan rules must be complied with strictly. “Substantial compliance” (a general legal principle that boils down to “close enough”) was insufficient. It dismissed the case.
The Ninth Circuit agreed with Liu’s sister and reversed the dismissal. The appellate court ruled that “substantial compliance” is a viable path to claiming benefits under an ERISA plan.
The court reasoned that the circumstances fit the rationale for permitting substantial compliance. The rule is designed to avoid the harsh results that can happen from rigidly enforcing overly technical requirements. That rule, the court said, should apply especially where a person would otherwise forfeit benefits they would otherwise be entitled to.
Since Liu did everything reasonably required of her to designate her sister as the beneficiary of her pension benefits, the Ninth Circuit ruled that her sister’s lawsuit should not have been dismissed. The ruling is a good outcome for employees who do their best to avail themselves of the benefits they earned through their labor even when they fail to check every box.
