The issue before us in this ERISA case is whether the district court erred in ordering the trustees of a Bank's retirement plan1 to make a lump sum payment to a long-term employee who left to work for a competing bank. The district court ordered such a lump sum payment--despite the employee's failure to pursue his administrative remedies under the Plan--after the employee's request for a lump sum payment was denied by the committee charged with approving the payment of retirement benefits. The district court ordered this payment, even though the Plan did not provide for lump sum payments as one of its regular options, because some other employees who had retired had received lump sum payments. We hold the district court erred in not applying ERISA's arbitrary and capricious legal standard to its evaluation of the Plan fiduciary's denial of lump sum benefits; accordingly, we reverse. To preserve the integrity of ERISA, we hold as a matter of law that the doctrine of exhaustion of remedies is applicable to the denial of benefits by Plan trustees. Additionally, since we believe the district court's interpretation of the evidence presented at trial to be clearly erroneous, we render judgment for the Plan.

Jack Denton, long time employee of the First National Bank of Waco (Bank), brought suit for early payment of retirement benefits, which he claimed pursuant to the retirement plan for employees of the Bank. The Plan is administered by a retirement committee appointed by the Bank's Board of Directors. The Bank sponsors the Plan and is the trustee of the Plan, but the funds held by the Bank belong irrevocably to the Plan.

Denton decided to discontinue his employment with the Bank and go to work for a competing Bank. By letter he requested a single lump sum payment of his retirement benefits. The evidence at trial2 showed that several prior employees who had left the Bank had been paid by means of a lump sum if they had requested it. It is undisputed, however, that Denton's lump sum request was over two and one-half times larger than any other lump sum payment made under the Plan. To receive approval for a lump sum request, the Plan called for signatures from five of the eight committee members charged with administering the Plan. The evidence showed that the practice was informally to circulate a lump sum request form among committee members. Three committee members initially signed, thus agreeing to Denton's lump sum request, but one of these shortly asked that her name be removed, which was done. Denton's request never received more than three approval signatures, even though one of these signatures was from the President of the Bank who earlier had attempted to convince Denton to remain at the Bank.

Denton contends that it was the hostility of the Bank's President to his leaving the Bank which was responsible for the denial of his lump sum benefit request. However, Denton offered no evidence at trial that would explain the inconsistency between his theory of the President's hostility and the fact that the President approved Denton's lump sum request.3 Moreover, it is undisputed that committee members spoke with actuaries for the Plan to determine the effect of a lump sum payment.4 The actuaries recommended that such a large lump sum distribution--almost $135,000--not be made because it might impair the Plan's ability to meet the future retirement obligations of other Bank employees.5

After receiving the report of the actuaries, the committee, at a formal meeting, turned down Denton's request for a lump sum payment. The committee asked Denton to choose among the various options for payment which were specified in the Plan--a copy of which Denton, at all times, had in his possession.6 After the committee's decision, Denton's attorney sent a letter to the Bank requesting, on behalf of his client, a meeting with thecommittee to explore the reasons for its denial of the lump sum request.7 By letter the committee responded that it was willing to have such an administratively prescribed meeting and asked Denton's attorney to send a list of convenient dates on which to hold the meeting over a two to three week period. Denton never responded to the committee's letter and instead, filed suit in state court, which was removed by the Bank to federal court.

Two trials were held before the district court. After the first trial, but before judgment, the district court ordered Denton to join the pension Plan as a party to his lawsuit. The parties stipulated prior to the second trial that all evidence from the first trial would be deemed admitted in the second trial. Further briefs and record supplements followed. The Plan appeals from the district court's order to pay Denton's retirement benefits in a lump sum rather than as one of the options listed in the Plan. The Plan urges that the district court erred by not evaluating the actions of the trustees under ERISA's arbitrary and capricious standard. The court also denied attorneys' fees to all parties.

At trial Denton contended that all previous employees of the Bank who had requested lump sum benefits upon the termination of their employment had received such benefits by informal approval of the committee.8 This argument, without more, is insufficient to sustain the trial court's judgment. Realizing this, Denton maintains that the trial court's credibility decision as to whether the Bank President was mad at him, and thus masterminded the rejection of his lump sum request, should not be disturbed upon appeal. Denton maintains that this hostility on the part of the President excuses his failing to proceed with the administrative remedies specified in the Plan. In essence, on appeal he seeks to come within an exception to the exhaustion of remedies doctrine by asserting that his pursuit of administrative remedies would have been futile since the committee was composed of the same members that earlier turned down his request. We disagree.

The evidence clearly showed that the committee comprised members from inside as well as outside the Bank. Pursuing his administrative remedy after the denial of benefits would have allowed the trustees to reconsider their decision on Denton's request. The primary purposes of the exhaustion requirement are to: (1) uphold Congress' desire that ERISA trustees be responsible for their actions, not the federal courts; (2) provide a sufficiently clear record of administrative action if litigation should ensue; and (3) assure that any judicial review of fiduciary action (or inaction) is made under the arbitrary and capricious standard, not de novo. Accordingly, decisions of the trustees are disturbed only if they are arbitrary and capricious, not on the basis of what the district court would have done in the first instance. This is necessary to keep from turning every ERISA action, literally, into a federal case.

The logic behind the exhaustion requirement was set forth in Amato v. Bernard, 618 F.2d 559 (9th Cir.1980). The Amato court required benefit claimants to exhaust their administrative remedies prior to seeking federal court review of a benefit denial. The court based its decision on an examination of the legislative history of ERISA which clearly suggested that "Congress intended to grant authority to the courts to apply the exhaustion doctrine in suits arising under the Act."9

The Amato court stressed that the literal language and policies of ERISA require benefit Plans to provide administrative remedies to persons whose benefits had been denied. See ERISA Sec. 503, 29 U.S.C. Sec. 1133, 29 C.F.R. Sec. 2560.503-1. Also important to the court was Congress' intention to grant trustees the broad managerial discretion necessary to establish and operate ERISA qualified pension Plans.10 See generally ERISA Secs. 401-14, 29 U.S.C. Sec. 1101-1114.

Having charged trustees with the duty to implement this national policy, it follows that the equitable powers which a trustee exercises are fettered with meaningful standards, implicit in the references to "remedies, sanctions, and ready access to the federal court."

Thus, a court may intervene in the administration of an employee benefit plan, but should intervene only when the trustees transgress their fiduciary duties by acting in an arbitrary and capricious manner.... This standard strikes a balance between excessive judicial intervention in the discharge of trustees' duties, on the one hand, and abdication of traditional judicial control of fiduciaries' actions, on the other....

Morse v. Stanley, 732 F.2d 1139, 1145 (2d Cir.1984). Thus, Congress' ERISA fiduciary framework mandates the exhaustion requirement. The Ninth Circuit fully illuminated this point when it said:

the institution of such administrative claim-resolution procedures was apparently intended by Congress to help reduce the number of frivolous lawsuits under ERISA; to promote the consistent treatment of claims for benefits; to provide a nonadversarial method claims settlement; and to minimize the cost of claims settlement for all concerned. It would certainly be anomalous if the same good reasons that presumably led Congress and the Secretary to require covered plans to provide administrative remedies for aggrieved claimants did not lead the court to see that those remedies are regularly used. Moreover, the trustees of covered benefit plans are granted broad fiduciary rights and responsibilities under ERISA, Sections 401 through 414, 29 U.S.C. Secs. 1101-1114, and implementation of the exhaustion requirement will enhance their ability to expertly and efficiently manage their funds by preventing premature judicial intervention in their decision-making processes.

Amato v. Bernard, 618 F.2d at 567.

Section 503 of ERISA provides, in relevant part, that:

In accordance with regulations of the Secretary, every employee benefit Plan shall

* * *

* * *afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim.

29 U.S.C. Sec. 1133. See 29 C.F.R. Sec. 2560.503-1. Pursuant to this congressional mandate, the Bank's Plan provided the following specific administrative remedies to a Plan participant who was denied his benefits:

Within 90 days after receipt of a notice of denial of benefits as provided above, the claimant or his authorized representative may request, in writing, to appear before the retirement committee for a review of his claim. In conducting its review, the retirement committee shall consider any written statement or other evidence presented by the claimant or his authorized representative in support of his claim. The retirement committee shall give the claimant and his authorized representative reasonable access to all pertinent documents necessary for the preparation of his claim.

Within 60 days after the receipt by the retirement committee of a written request for review of his claim, or in the event of special circumstances which require an extension of time for processing such application for review, but no later than 120 days after receipt of such application, the retirement committee shall notify the claimant of its decision by delivery or by certified or registered mail to his last known address. The decision of the retirement committee shall be in writing and shall include the specific reasons for the decision presented in a manner calculated to be understood by the claimant and shall contain references to all relevant Plan provisions on which the decision was based. The decision of the committee shall be final and conclusive.

There was no question that Denton was fully aware of his appeal rights from his Plan description provided to him as required by ERISA Secs. 102(a)(1) and (b) and 104(b)(1), 29 U.S.C. Secs. 1022(a)(1) and (b), 1024(b)(1). Further, Denton and his counsel admit that they intentionally did not seek or use the administrative remedies provided under the Plan. After the committee had denied his claim for a lump sum payment of benefits, Denton, through his counsel, sent a letter to the committee requesting "the right to appear before the retirement committee for a review" of the committee's decision "in accordance with paragraph 4.11 of the amended and restated retirement Plan." The committee invited Denton to suggest times for such a review and, simultaneously, assured him that the committee "shall make every effort possible to set a hearing time at your convenience with the committee." Denton simply chose to ignore the review process he had initiated.

Denton seeks to rely on the futility exception to the exhaustion requirement. The trial court accepted his claim that review by the committee would have been futile. However, we believe this finding to be clearly erroneous. The evidence does not show that the committee was hostile or bitter toward Denton. In order to convince the committee to honor his request for a lump sum payment, Denton had only to convince five of the eight committee members to support his cause. See Plan Sec. 6.3. The attitudes of three of the eight committee members toward Denton and his claim were never discussed in the trial record. The attitude of the remaining five members of the committee were the subject of some discussion at trial, but that discussion is hardly helpful to Denton.11 In these circumstances, where it is clear that Denton had appeal rights, knew he had appeal rights, invoked these rights in a letter referring to the appeals provisions of the Plan, and was invited by the committee to exercise those rights at the time most convenient to him, it is impossible to find, as Denton contends, that no review process existed.

Amato also considered a claim that a participant had not exhausted the remedies provided by the Plan because it would have been futile to do so. In language singularly applicable to our case, Amato stated:

Despite Amato's arguments to the contrary, we see no inadequacy in the administrative appeal procedures available under the terms of the pension Plan here in question to claimants whose applications for benefits have been initially denied. No claim is made that those procedures failed to comply, either in theory or in practice, with the terms of Sec. 503 of ERISA or with the regulations laid down in 29 C.F.R. Sec. 2560.503-1. The procedures are clearly defined in the Plan; they are simple; they are supposed to work quickly and there is no evidence that they do not; they can result in a claimant's receiving all the relief he is entitled to under the Plan; and there is no evidence that they are not accessible to aggrieved claimants in general or to Amato in particular.... Finally, the appeal procedures are not inadequate simply because they are administered by the trustees themselves, rather than some "neutral arbitrator." The internal administration of such procedures is the very thing contemplated by Sec. 503 of ERISA....12

If Denton's view of exhaustion were to prevail, no plaintiff who knew how to claim "bitterness or hostility" on the part of the Plan's review committee could be compelled to submit his claim for administrative review of the denial of benefits prior to the filing of a federal lawsuit. Accordingly, benefit disputes would not only be more numerous and more often frivolous, but less defined as a result of this evasion of the congressionally mandated administrative process. We agree with Amato that Congress, in enacting ERISA, clearly wanted potential plaintiffs to first exhaust their administrative remedies before resorting to the federal courts.13

In an ERISA action, the trial court's role is sharply limited.

[T]he clear weight of federal authority mandates that the trustee's determinations ... are to be upheld unless arbitrary or capricious.

Paris v. Profit Sharing Plan for Employees of Howard B. Wolf, Inc., 637 F.2d 357, 362 (5th Cir.1981), cert. denied, 454 U.S. 836, 102 S. Ct. 140, 70 L. Ed. 2d 117 (1981); Bayles v. Central States, Southeast and Southwest Areas Pension Fund, 602 F.2d 97, 99 and 100 n. 3 (5th Cir.1979); Dennard v. Richards Groups, Inc. 681 F.2d 306 (5th Cir.1982) (Brown, J.). Such deference to the trustee's decision is absolutely necessary to ensure that Plan fiduciaries retain the primary responsibility for claims processing that Congress intended.

In reviewing a decision under the arbitrary and capricious standard, the trial court must focus on the evidence that was before the Plan committee when the final benefit determination was made. Here, the district court engaged in an effort to determine, not the rationality of the committee's action, but the manner in which the court would have resolved the issue in the light of the information presented at trial had it been administering the Plan. This is evident from the trial court's examination of the letters from the Plan's actuaries, the Wyatt Company. By those letters, the actuaries advised the committee that it would not be in the best interest of the Plan to pay Denton's early retirement benefits in a lump sum payment. The district court's inquiry should have been whether it was reasonable for the committee to have relied upon the opinion of its expert actuaries, rather than second guessing the correctness of the letters.14

We have defined the arbitrary and capricious standard of review in Bayles and Dennard. In Dennard, we held that the trial court should engage in a two step process. First, the court must determine the correct interpretation of the Plan's provisions. Second, the court must determine whether the Plan administrators acted arbitrarily or capriciously in light of the interpretation they gave the Plan in the particular instance. Here, Denton never argued that the Plan's provisions were ambiguous or that the committee had applied the provisions of the Plan in contradiction to its terms. Dennard further developed the factors which the trial court should consider in evaluating conduct under the arbitrary and capricious standard.

In Bayles, we indicated certain factors to be considered in applying the arbitrary and capricious standard: (1) uniformity of construction; (2) "fair reading" and reasonableness of that reading; and (3) unanticipated costs.... Along with the determination of the "legally" correct meaning of the Plan provision in question, we also view as probative of the good faith of a trustee or administrator the following factors: (1) internal consistency of a Plan under the interpretation given by the administrators or trustees; (2) any relevant regulations formulated by appropriate administrative agencies ... and (3) factual background of the determination by a Plan and inferences of lack of good faith, if any. The fact that a trustee's interpretation is not the correct one as determined by a district court does not establish in itself arbitrary and capricious action, but is a factor in that determination.

(emphasis added). Dennard v. Richard Group, Inc., 681 F.2d at 314 (Brown, J.). See also, Ganze v. Dart Industries, 741 F.2d 790 (5th Cir.1984) (Brown, J.).

We conclude that the trial court erred in conducting a de novo evaluation of the committee's actions rather than reviewing those actions under the arbitrary and capricious standard. The trial court should have focused upon the Dennard-Bayles criteria.

Further, the trial judge incorrectly seized upon Section E of the first supplement to the Plan to justify Denton's lump sum request. This is an error of law. While the trial court concluded that Section E of the Plan supports a lump sum payment to Mr. Denton, Section E only exists because the Plan allowed employee contributions in 1958 and before. ERISA does not allow any employee contributions. Upon adoption of the restatement of the Plan in 1976, the Plan, as required by 26 U.S.C. Sec. 411(c)(2)(C) and ERISA Sec. 204(c)(2)(C), 29 U.S.C. Sec. 1054(c)(2)(C), gave contributor participants the right to receive these pre-1959 employee contributions, plus interest, in a lump sum at retirement. Most significantly, Section E applies only to employee contributions to the Plan made before, and the cash value of annuity contracts held on, December 27, 1958. It does not apply to payments of employer funded retirement benefits.

Denton presented no evidence that he had made personal contributions to the Plan before December 27, 1958. The trustees concede, of course, that had Denton been entitled to any benefits under Section E, he could have elected to receive those specific benefits in a lump sum and his benefits under Section 2.3 would have been reduced on an actuarily equivalent basis by the Section E payment.15 Since Denton offered no such proof at trial, this issue is not before us. Any such offer of proof can, of course, be made to the Plan trustees when Denton selects a payment option under the Plan.

We are convinced that Denton does not come within the futility exception to the exhaustion of remedies doctrine. Further, we hold that the district court erred in not judging the committee's action in denying Denton's lump sum request under the arbitrary and capricious standard. Given two trials and the clear record before us, we believe it would serve no purpose to remand in order for Denton to pursue his administrative remedies. See Offutt v. Prudential Ins. Co., 735 F.2d 948, 950 (5th Cir.1984). Accordingly, we reverse the district court's determination and hold in favor of the appellants. We leave intact the district court's denial of attorney's fees to both parties.16 Denton is, of course, now free to elect one of the payment options specified in the Plan.

REVERSED and RENDERED.