Burden of Proof

Art by Tim BowerA recent case that defense attorneys likely believe is an example of the maxim “bad facts make bad law” is Estate of Barton v. ADT Security Services Pension Plan, for which a request for rehearing was recently denied.

The facts of the case are straightforward. Barton worked for American District Telegraph Co. (ADT) and its affiliates for approximately 20 years, between 1967 and 1986. In 2010, at age 65, he applied for pension benefits, was told that no information could be found with respect to his employment by ADT and was therefore advised to provide documentation. In response, Barton supplied the retirement plan committee with a November 1977 letter on ADT letterhead congratulating him on completion of 10 years of service, along with pay stubs and W-2s from the 1980s and documentation from the Social Security Administration (SSA) summarizing FICA (Federal Insurance Contribution Act) withholding from 1968 to 1980. Despite this documentation, the committee denied the claim for benefits, finding that his documentation was insufficient to override the plan’s records. Barton appealed to the U.S. District Court for the Central District of California, which, applying existing 9th Circuit precedent, affirmed the committee’s denial of benefits.

Barton appealed again, and the Court of Appeals for the 9th Circuit reversed. It explained that the District Court had “faithfully applied” 9th Circuit precedent in reviewing the committee’s denial of benefits but had “incorrectly placed the burden of proof on Barton for matters within defendants’ control.”

It acknowledged the general rule that a claimant bears the burden of proving entitlement to Employee Retirement Income Security Act (ERISA) benefits. However, “in other contexts, the defending entity solely controls the information that determines entitlement, leaving the claimant with no meaningful way to meet his burden of proof.” It indicated that if the defendants lacked the records to establish who were participating employees, it would be “illogical and unfair of us to require Barton to close this gap,” and nothing in ERISA supported a “Kafkaesque regime where corporate restructuring can license a plan administrator to throw up his hands and say ‘not my problem.’”

Similarly, requiring Barton “to prove his hours over the course of two decades is unreasonable and inconsistent with the goals of ERISA. That is especially so where, as here, nothing indicates that Barton was warned at the start of his career to retain a log of his hours to obtain pension benefits.”

The 9th Circuit’s formal conclusion was “that where a claimant has made a prima facie case that he is entitled to a pension benefit but lacks access to the key information about hours worked, the burden shifts to the defendant to produce this information.” To establish a prima facie case, a plaintiff must provide objective evidence, such as Social Security records, W-2 statements, income tax returns and pay stubs.

It would be highly unlikely that these types of issues could arise and be presented at court under a welfare plan or a typical defined contribution (DC) plan. They generally will arise only in the context of larger defined benefit (DB) plans that have been involved in frequent mergers and acquisitions activity.

The most analogous circumstance is a former plan participant receiving a letter from the SSA indicating that he might be entitled to a pension benefit. The plan sponsor may have no record of such an individual and may reasonably believe that he had received a distribution under an earlier version of the plan, or under the plan of an entity the plan sponsor’s employer had acquired, even though it has no record of such distribution being made. Most plan sponsors believe, in that situation, that it is the participant’s burden of proof. However, in such circumstances, the plan administrator may be in a better position than the SSA to produce the required documentation—i.e., evidence of payment­—but it is not information that is in the sole control of the plan sponsor. Therefore, even if Estate of Baron were applicable, this fact pattern is distinguishable.

ERISA Section 209 requires employers to maintain records sufficient to determine the benefits due, or that may become due, to a participant in the plan, but that section does not mandate retention of records for all payments made to plan participants, although that would be a best practice.

Finally, just as plans have recently been modified to include reasonable internal statutes of limitations and favorable venue provisions, plans may also be amended to provide that, in all circumstances, the burden of production and burden of persuasion is on the claimant. This is not a magic bullet because a plan participant may challenge such a provision as contrary to public policy, but that is a difficult proposition for a plaintiff to establish.

Marcia Wagner is an expert in a variety of employee benefits and executive compensation issues, including qualified and non-qualified retirement plans, and welfare benefit arrangements. She is a summa cum laude graduate of Cornell University and Harvard Law School and has practiced law for 29 years. Wagner is a frequent lecturer and has authored numerous books and articles.