The Dec. 1 death of retired U.S. Supreme Court Justice Sandra Day O'Connor, the first female member of the court, allows us to reflect on her impact on the Employee Retirement Income Security Act as we look ahead to the statute's 50th anniversary later this year.

Justice O'Connor's ERISA decisions still prove to be instructive and hold up as good law. Two common themes in these cases are reliance on the principles of trust law and faithful adherence to the language in the controlling plan documents.

Other ERISA issues shaped by Justice O'Connor's reasoning include the formal processes of plan operations, amendments to plans, vesting and nonforfeitable rights, welfare plans, interplay between ERISA and employment law, and finally, ERISA preemption.

The following highlights focus on several ERISA cases where Justice O'Connor delivered the opinion of the court.

Firestone Discretion

In Firestone Tire & Rubber Co. v. Bruch, a seminal ruling from 1989, Justice O'Connor delivered the unanimous opinion.[1] In it, the Supreme Court held that a denial of benefits that is challenged under ERISA Section 1132(a)(1)(B) "is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan."[2]

Justice O'Connor rejected adopting the "arbitrary and capricious" standard used in disputes under the Taft-Hartley Act. She reasoned that the Taft-Hartley standard was a means to assert jurisdiction over suits under Title 29 of the U.S. Code, Section 186, for benefit denials.

Judicial review of a trustee's decision is not found in Taft-Hartley. Thus, the federal courts adopted this standard to assert jurisdiction over a trustee's decision.

However, no jurisdictional basis is needed in ERISA, as it explicitly authorizes suits against fiduciaries and plan sponsors to address any statutory violations.[3]

As the Supreme Court has done on other occasions, Justice O'Connor found some authority under trust law principles. She wrote that "over a century ago we remarked that '[w]hen trustees are in existence, and capable of acting, a court of equity will not interfere to control them in the exercise of a discretion vested in them by the instrument under which they act.'"[4] Trust law points to a de novo review unless the plan's terms expressly provide for discretion.

Ever since, ERISA practitioners have consistently ensured that the ERISA plan document includes the special Firestone language: "The plan fiduciary or administrator has the power and authority, and in its sole and absolute discretion, to determine eligibility for benefits or interpret the terms of the plan."

This language allows for a fiduciary's decisions to be reviewed under an abuse of discretion or "arbitrary and capricious" standard. Without this language, a fiduciary's decisions will be reviewed de novo, with no deference.

Before Firestone, the arbitrary and capricious standard was being used in ERISA cases by lower courts. In 1982, a bill was introduced in Congress, but was never enacted, that required a de novo review of benefits denial claims.[5] The petitioner in the Firestone case argued that Congress was apparently satisfied with the arbitrary and capricious standard.

Justice O'Connor remarked that the bill's demise may have been for a slew of reasons and was not indicative of Congress' views on or acquiescence to the standard. Thus, the court remarked: "'The views of a subsequent Congress form a hazardous basis for inferring the intent of an earlier one.'"[6] In recent years, bills in Congress to abandon the arbitrary and capricious standard have also met their demise.[7]

Amending Plan Documents

Along with ERISA's fundamental principle of following the terms of plan, ERISA specifically requires that every plan "provide a procedure for amending such plan, and for identifying the persons who have authority to amend the plan."[8]

In Curtiss-Wright Corp. v. Schoonejongen in 1995, Justice O'Connor delivered another unanimous opinion, overturning the lower courts' decisions and allowing the plan sponsor to amend a plan to eliminate retiree health benefits.[9]

The language in the plan said that "the Company reserves the right at any time to amend the plan."[10] The U.S. District Court for the District of New Jersey found that language was void ab initio, or from the beginning, since this provision did not contain a valid procedure or identified persons with authority to amend the plan. The U.S. Court of Appeals for the Third Circuit affirmed this decision, adding that the provision was too vague to constitute an amendment procedure.

The Supreme Court disagreed. Led by Justice O'Connor, the court held that this provision met the requirements of ERISA, and that "persons" includes companies under ERISA.[11] Further, by naming the company with this authority, principles of corporate law will govern what these procedures would entail: express or implied delegation to officers or agents on behalf of a corporation.

The statute does not require a specific level of detail as to what the procedure is; it merely requires that an amendment procedure exist. Here, the court found that it did.

ERISA Preemption

Justice O'Connor was also involved in the early developments of ERISA preemption jurisprudence. ERISA's preemption provision is beloved by many, but described by others as "a veritable Sargasso Sea of obfuscation"[12] or, as Justice O'Connor reportedly once said, "tedious."[13] She nonetheless found the provision to be "conspicuous for its breadth."[14]

Congress intended ERISA's preemption provision to be broad in scope to "ensure that plans and plan sponsors would be subject to a uniform body of benefit law; the goal was to minimize the administrative and financial burden of complying" not only with ERISA but also with potentially conflicting state laws.[15] As such, ERISA supersedes or preempts any state law that may "relate to" an employee benefit plan.[16]

The courts have preempted state laws that fall into two categories: (1) state laws that have a reference to ERISA plans[17] and (2) state laws that have an impermissible connection with the administration of ERISA plans.[18] One exception to ERISA preemption is under the savings clause, which saves from preemption state laws that regulate insurance.[19]

In Pilot Life Insurance Co. v. Dedeaux in 1987,[20] Justice O'Connor took an expansive view of ERISA preemption. Writing for a unanimous court, she held that Mississippi causes of action for breach of contract and tort against an insurance company for the improper processing of claims were preempted by ERISA. Those state causes of action did not regulate insurance and thus were not included within ERISA's exception to preemption.

The analysis in Pilot Life focused on the bad faith claim as it applies in the usual insurance context. Justice O'Connor, in using a commonsense approach to the language of the saving clause, found that the bad faith claim was rooted in tort and contract law, and that these claims do not "regulate insurance."[21]

This, as well as Congress' clear intent for ERISA's carefully integrated civil enforcement scheme set forth in Section 502 to be exclusive, led the court to conclude that ERISA preempted the challenge to the improper processing of claims.[22]

ERISA's Interplay With Employment Law

Another ERISA preemption case, Ingersoll-Rand Co. v. McClendon in 1990, involved the Texas Supreme Court's judicially created cause of action for wrongful termination for employees who could demonstrate that their termination was due to their employer's desire to avoid paying benefits under an employee benefit plan.[23]

In holding that this cause of action is preempted by ERISA, Justice O'Connor, relying on the commonsense approach from Pilot Life, stated that if a state law relates to a benefit plan, even indirectly, it is preempted.

The court made it clear that they were not dealing with a statute with general applicability with no reference to a plan or a plan's operations. Indeed, the court found "the existence of a pension plan is a critical factor in establishing liability under the State's wrongful discharge law … [which] not merely [relates] to pension benefits, but to the essence of the pension plan itself."[24]

In Ingersoll-Rand, the court further found that the Texas cause of action would also be preempted on the grounds that it directly conflicted with another section of ERISA. Under ERISA Section 510,

it shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant … for exercising any right to which he [or she] is entitled under the provisions of an employee benefit plan … or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan.[25]

The court stated that this section directly protects participants from being fired due to an employer's desire to prevent a participant's pension benefits from vesting. In relying on Pilot's Life examination of ERISA's civil enforcement scheme, the court held that the state cause of action must yield to ERISA.[26]

Continuing to define the scope of Section 510, the Supreme Court in Inter-Modal Rail Employees Association v. Atchison, Topeka & Santa Fe Railway Co.[27] addressed Section 510's applicability to not only pension plans but also welfare plans.[28]

In this unanimous 1997 decision, Justice O'Connor found that welfare plans are not subject to ERISA vesting requirements.[29] Citing her own decision in Curtiss-Wright, she acknowledged that the employer retains the right to amend or terminate its welfare benefit plan.

Nonetheless, Section 510 counterbalances this right by requiring companies to follow a formal amendment process and ensuring companies keep their promises. This, the court concluded, will avoid "'absurd or glaringly unjust' result[s],"[30] and held that Section 510's bar to interference with benefits rights applies to both pension and welfare plans.

While interference with an employee's vesting of a pension benefit may give rise to liability under ERISA Section 510, it does not necessarily give rise to liability under the Age Discrimination in Employment Act. In Hazen Paper Co. v. Biggins in 1993,[31] Justice O'Connor held that interference with an employee's pension that would have vested based on years of service does not violate the ADEA.

This is so because age is the factor examined for ADEA purposes, and years of service is distinct from age. However, the court noted that liability under the ADEA may exist if the employer is using pension status as a proxy for age.

Conclusion

Through her scrupulous statutory construction, Justice O'Connor articulated the fundamental principles that formed the cornerstones of ERISA jurisprudence. Her decisions have survived the test of time.

By looking at Justice O'Connor's opinions, we clearly see that ERISA is a comprehensive statute with a well-crafted civil enforcement regime. Justice O'Connor explained that ERISA requires employee benefit plans to have formal processes in its operations, as well as requiring fiduciaries to follow the express terms of plans. Her work taught us that interfering with employee rights to benefits under a pension or welfare plan is not allowed and that state law causes of action that relate to a plan are subject to ERISA preemption challenges.

In celebrating ERISA's 50th anniversary, let us raise a glass in tribute to Justice O'Connor's remarkable contributions to this law's enduring success.

[1] Firestone Tire & Rubber Co. v. Bruch , 489 U.S. 101 (1989).

[2] 489 U.S. at 115.

[3] 489 U.S. at 109-110.

[4] 489 U.S. at 111.

[5] 489 U.S. at 114.

[6] Id.

[7] H.R. 7780 passed the U.S. House of Representatives in September 2022 but remained in abeyance in the U.S. Senate.

[8] 29 U.S.C Section 1102(b)(3).

[9] Curtiss-Wright Corp. v. Schoonejongen , 514 U.S. 73 (1995).

[10] 514 U.S. 73, 75, (1995)

[11] 29 U.S.C. Section 1002(9).

[12] Travelers Insurance Co. v. Cuomo , 14 F.3d 708, 717 (2d Cir. 1993).

[13] Justice O'Connor also advised Justice Ruth Bader Ginsberg on her first opinion assignment, which was no other than an ERISA assignment. Justice O'Conner said to Justice Ginsburg: "Just do it … and, if you can, circulate your draft opinion before [Chief Justice Rehnquist] makes the next set of assignments. Otherwise, you will risk receiving another tedious case."  Ruth Bader Ginsburg, Reflections on Arizona's Pace-Setting Justices: William Hubbs Rehnquist and Sandra Day O'Connor, 49 Ariz. L. Rev. 1, *6-7 (2007).

[14] FMC Corp. v. Holliday , 498 U.S. 52, 58 (1990).

[15] Ingersoll-Rand Co. v. McClendon , 498 U.S. 133, 142 (1990).

[16] 29 U.S.C. §1144(a).

[17] California Division of Labor Standards Enforcement v. Dillingham Construction N.A. Inc. , 519 U.S. 316, 325 (1997) ("[w]here a State's law acts immediately and exclusively upon ERISA plans ... or where the existence of ERISA plans is essential to the law's operation ..., that 'reference' will result in preemption.").

[18] Egelhoff v. Egelhoff , 532 U.S. 142, 148 (2001) (Preemption of a state law that "governs ... a central matter of plan administration" or "interferes with nationally uniform plan administration.").

[19] 29 U.S.C. Section 1144(b)(2)(A).

[20] Pilot Life Insurance Co. v. Dedeaux , 481 U.S. 41 (1987).

[21] 481 U.S. at 50.

[22] 481 U.S. at 57.

[23] Ingersoll-Rand Co. v. McClendon , 498 U.S. 133 (1990).

[24] 498 U.S. at 139-40.

[25] 29 U.S.C. Section 1140.

[26] Ingersoll-Rand Co. v. McClendon , 498 U.S. 133, 145.

[27] Inter-Modal Rail Employees Association v. Atchison, Topeka & Santa Fe Ry. Co. , 520 U.S. 510 (1997).

[28] 29 U.S.C. Section 1002(1) states that

"employee welfare benefit plan" and "welfare plan" mean any plan, fund, or program ... established or maintained by an employer ... for the purpose of providing for its participants ... medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services

[29] 29 USC Section 1051.

[30] Inter-Modal Rail Emps. Ass'n v. Atchison, Topeka & Santa Fe Ry. Co. , 520 U.S. 510, 516.

[31] Hazen Paper Co. V. Biggins , 507 U.S. 604 (1993).

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