Smoke ‘Em One By One … Navigating the Wave of Tobacco Surcharge Lawsuits

/in , , , , , , ,

by Alex Smith

Over the past several months, numerous large employers and their health plan fiduciaries have faced lawsuits regarding their health plan’s tobacco surcharge. A tobacco surcharge wellness program typically charges a higher monthly premium to employees and covered dependents who smoke or otherwise use tobacco products to account for some of the higher medical costs associated with tobacco use. Tobacco users can typically avoid the surcharge by completing a smoking cessation program, regardless of whether they actually quit.

This wave of putative class action lawsuits began earlier this year even though employer health plan tobacco surcharges have been around for years and the HIPAA regulations permitting the surcharges were last updated in 2013. Since then, numerous lawsuits challenging employer health plan tobacco surcharge programs have been filed. Courts have yet to rule on the recently filed lawsuits, with the plaintiffs voluntarily dismissing one of the lawsuits prior to the court ruling on the employer’s motion to dismiss. Read more

Heads California, Tails Carolina… Employer Considerations Following Wave of 401(k) Forfeiture Lawsuits

/in , , , , , , , ,

by Alex Smith

Over the past year, numerous employers and their 401(k) plan fiduciaries have faced lawsuits regarding how forfeited employer contributions to their 401(k) plan are utilized.  This wave of lawsuits began approximately a year ago when a plaintiff’s law firm filed putative class action lawsuits raising this novel claim against multiple large employers, including Intuit, Clorox, and Thermo Fisher Scientific in California federal courts.  Since then, this claim has been included in numerous 401(k) plan lawsuits even though none of these lawsuits have reached a final judgment on the merits and only five have had decisions on motions to dismiss.

These lawsuits allege that the employer and its 401(k) plan fiduciaries breached their fiduciary duties under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), by using forfeited employer contributions to the 401(k) plan to offset future employer contributions instead of using the forfeited amounts to offset 401(k) plan expenses that were charged to participant accounts.  The plaintiff’s counsel alleges that the employer and 401(k) plan fiduciaries are violating ERISA’s fiduciary requirements to make decisions for the benefit of plan participant because the employer benefits from a reduction in its future employer contributions at the expense of plan participants who have to pay for certain expenses that are charged to their 401(k) accounts. Read more

Hole in the Bottle… Employer Considerations After Another Lawsuit Against an Employer Health Plan

/in , , , , , ,

by Alex Smith

Last week, former Wells Fargo employees filed a class action lawsuit against Wells Fargo and its health plan fiduciaries alleging that Wells Fargo’s self-funded health plan violated ERISA by paying its pharmacy benefits manager (PBM) excessive administrative fees and excessive fees for prescription drugs. This lawsuit appears to be similar to a lawsuit filed against Johnson & Johnson and its health plan fiduciaries earlier this year. Both lawsuits allege that the health plan paid its PBM exponentially more for certain prescription drugs than the price charged by certain retail pharmacies for the same drugs. Coincidentally, both lawsuits indicate the health plans are funded through a voluntary employees’ beneficiary association (VEBA) trust. See our prior blog post for more information on the heightened health plan fiduciary standards that may be driving these lawsuits. Read more

Vacation, All I Ever Wanted – But Don’t Forget Your July Compliance Deadlines

/in , , , , , , , , ,

by Benjamin Gibbons

Congratulations! You made it to summer, that wonderful time of year when things at work (hopefully) slow down a bit and you’re able to take some well-deserved time off. Though before you Go-Go(‘s) (do you see what I did there?), be sure your July employee benefits compliance deadlines are covered.

July 29 – Summary of Material Modifications (SMM) – Were any of your organization’s plans materially amended last year? If so, you may be required to furnish an SMM to participants (or a revised summary plan description). Those SMMs must be provided no later than 210 days after the end of the plan year in which the change was adopted. So, for a 2023 change, the SMM deadline would fall on July 29 (you get an extra day this year because 210 days falls on July 28, a weekend). Read more

Go Your Own Way (Or Maybe Not): New Heightened Fiduciary Standards are Coming to Group Health Plans

/in , , , , , , , , , , , , , ,

by Bret Busacker

There has been a shift taking place in ERISA litigation and compliance that could significantly impact group health plan fiduciary requirements. We anticipate group health plan fiduciary standards will evolve along the same lines as what occurred in the 401(k) industry after the ERISA 408(b)(2) rules became effective in 2012.

401(k) plans for years have been subject to fee disclosure and relatively well-defined fiduciary standards of conduct. Much of the improvement in 401(k) fiduciary practices over the past decade can be attributed to the ERISA 401(k) fee disclosure requirements that went into effect in 2012 under ERISA 408(b)(2) and the resulting fee litigation fueled by the ERISA 408(b)(2) fee disclosure rules. As a result of the ERISA 408(b)(2) and the related litigation, employers and plan fiduciaries, often with the aid of counsel, have become significantly more proficient in monitoring fees and negotiating agreements with 401(k) plan TPAs and investment service providers.

The Consolidated Appropriations Act (CAA) in 2021 extended the ERISA 408(b)(2) fee disclosure requirements to group health plans. Based on what took place in the 401(k) industry after 2012 when the ERISA 408(b)(2) disclosure went into effect, we anticipate the ERISA 408(b)(2) fee disclosure requirement, now also applicable to group health plans, will make it easier for plan participants to bring breach of fiduciary duty claims against employer and plan fiduciaries. There are already several such cases currently making their way through the courts.

In addition to the ERISA 408(b)(2) fee disclosure requirement, group health plan fiduciaries now have a better line of sight into the structure and economics of their group health plans than ever before. This insight comes in the form of a series of new disclosure requirements that require plans to obtain and publish network and out of network payment rates, and to report plan drug and service cost information to HHS. Further, the CAA now requires employers to prepare periodic reports demonstrating compliance with the Mental Health Parity rules. These new rules give employers and plan fiduciaries unprecedented leverage with their service providers through increased transparency and improved awareness of the structure and economics of their group health plans.

With this greater knowledge and understanding comes more risk of criticism that an employer or plan fiduciary could have looked closer—and should have looked closer—at fees and plan design in carrying out their fiduciary responsibilities. We think these new group health plan transparency and disclosure rules will drive new litigation against group health plan fiduciaries similar to what occurred in the retirement plan industry after ERISA 408(b)(2) became effective for 401(k) plans.

Employers and plan fiduciaries should be considering now how to formalize appropriate compliance structures to ensure that reasonable fiduciary standards are being applied to group health plan administration. Our general recommendation is to adopt similar group health plan governance structures and practices that are now common in 401(k) plan administration. These governance structures may take on different forms than what we see in the 401(k) industry, but employers should be thinking now how best to match step with the shifting fiduciary standards applicable to group health plans.

The Time Has Come, A Fact’s A Fact: Consider Adding a Welfare Plan Committee

/in , , , , , , , , ,

by Brenda Berg

The time may have come to add a welfare plan committee to your company’s governance of employee benefit plans. New legal obligations and other developments impose fiduciary risks for welfare plans similar to what already exist for retirement plans.

Most employers that sponsor a 401(k) plan or other retirement plan set up a committee to administer and oversee the plan. This is generally a best practice to ensure that the plan is properly administered in compliance with employee benefits laws and, for plans subject to the Employee Retirement Security Act of 1974 (ERISA), to have a process for following ERISA fiduciary duties. Fiduciary duties include acting prudently and in the best interests of participants, such as in overseeing service providers and monitoring plan fees. Read more

Should I Pay Or Should I No(t) Now: Which Expenses Can be Paid with Plan Assets?

/in , , , , , , , ,

by Brenda Berg

One question that often comes up is whether an expense related to an ERISA plan can be paid with plan assets. The decision of whether to use ERISA plan assets to pay an expense is an ERISA fiduciary decision. With the recent IRS guidance clarifying the timing of use of forfeitures, this question may come up even more.[1] Using plan assets inappropriately is a fiduciary breach and subject to possible DOL and IRS penalties. It is important to have a fiduciary process in place for reviewing expenses and determining whether a payment is proper. Read more

It Doesn’t Have To Be That Way: Negotiating Good Service Provider Agreements Is More Important than Ever

/in , , , , , , , , , , , , , , , , , ,

by Bret F. Busacker

It may be an understatement to say that compliance with benefit plan laws and regulations is becoming increasingly more complicated. In my experience, the COVID era has brought about some of the widest-sweeping changes on the burden of administering benefit plans in some time.

There has been major evolution around service provider fee disclosure, DOL reporting and disclosure on mental health parity and disclosure of plan costs, new claims procedure rights, expanded expectations around Cyber Security protections, and expansion of the use of ESG and crypto currency (and on-again, off-again regulatory efforts). Read more

You Spin Me QPAM Baby QPAM: DOL’s Proposed QPAM Rule May Mean Changes to Collective Trust Agreements for Plan Sponsors

/in , , , , , , , , , , , , ,

by Bret F. Busacker

The DOL published on July 27, 2022 a proposed change to the QPAM Exemption (“Proposed QPAM Amendment”) that may require retirement plan sponsors to update their collective trust agreements in order to satisfy the new DOL requirements.  Collective trusts have become an increasingly common way for qualified retirement plan committees/plan sponsors to achieve lower investment expenses for some of the investment options in their plans.

These collective trusts are managed by investment managers who often engage other financial institutions to execute trades involving the pension assets held by the collective trust. These trades involving retirement plan assets may at times be executed by a financial institution that is also providing services (such as recordkeeping services) to the same retirement plan.  Absent an exemption, these sorts of related party transactions may violate the ERISA prohibited transaction rules.   Read more

How Much is that (Investment) in the Window…A Higher Level of Fiduciary Oversight Could be Required for 401(k) Plan Brokerage Windows

/in , , , , , , , , ,

by Brenda Berg

Fiduciaries of 401(k) plans and other retirement plans know that they must prudently monitor the investment options available to participants in the plan, but are they monitoring participants’ investments made through a plan’s brokerage window? Recent commentary from the Department of Labor (DOL) on cryptocurrency investments suggests maybe fiduciaries should be – and that the DOL may check in on that soon.[i]

A “brokerage window” or “self-directed brokerage account” can allow participants access to a broad array of investments beyond the regular investment menu under the plan. Most plan fiduciaries have not paid much attention to the actual brokerage window investments. This is not surprising given the DOL’s relative lack of focus on the matter. The DOL had issued guidance in 2012 that the investment disclosure portion of the fee disclosure rules could apply to brokerage window investments in certain cases but after pushback due to the administrative burdens, the DOL withdrew that guidance. In 2014 the DOL issued a Request for Information about brokerage window practices but no further guidance was issued. Read more