Andrew S. Williams
Much has been written about excess fee claims involving 401(k) and 403(b) retirement plans. In fact, a St. Louis law firm has specialized in filing class action excess fee cases around the country. So, the personal risk to retirement plan fiduciaries has been well documented.
But what about the fiduciaries (employers, the employees involved in plan administration, and plan trustees) of a non-retirement (”welfare”) plan, like a group health plan? Isn’t that a different kettle of fish? Well, recent U.S. Department of Labor (DOL) claims against welfare plan fiduciaries shed some light on that.
The group health plan world is divided into two camps: (1) self-insured plans that are subject to ERISA (and DOL oversight), and (2) fully-insured plans that are subject to regulation by state insurance commissioners. Most larger employers have adopted self-insured plans so the fiduciaries of those plans need to be mindful of DOL enforcement activities.
In Acosta v. Chimes District of Columbia, Inc. et al. (DC. Md. 2019), the DOL sued fiduciaries of a plan that provided group health coverage to its employees as well as other welfare benefits. The DOL alleged that the plan fiduciaries generally failed to properly select and supervise plan service providers, which resulted in excess fees being charged to the plan. The court agreed with the DOL’s premise that welfare plan fiduciaries generally had the same duty to select and monitor the performance (and fees) of plan service providers as the fiduciaries of defined contribution retirement plans. However, on the facts presented at trial, the court found that the defendant fiduciaries had properly discharged their duties to the plan because, among other things, the fees charged to the plan were in fact “reasonable.”
Although the DOL lost the Chimes case, welfare plan fiduciaries should take little comfort. Absent an indication that the DOL has changed its enforcement posture, it follows that welfare plan fiduciaries are now exposed to claims that the performance of their fiduciary duties has been inadequate and that they are personally liable for any resulting plan losses. Also, if the DOL is successful with these kinds of claims, private attorneys may not be far behind in seeking similar relief on behalf of plan participants.
Group health plan fiduciaries may also want to consider alternative measures to reduce health claim expenses on a long-term basis. For example, consider the program offered by Inspera Health (a respected, long-time personal client), which is described on the Employee Benefits Research Institute website in a webinar titled The Problem with a One-Size-Fits-All Approach to Health Care Claims.
Welfare plan fiduciaries need to review plan operations and fees incurred on a periodic basis, and document their review process. Like any fiduciary conduct, the first line of defense is to have a documented compliance process in place. Although not required of fiduciaries by the court in Chimes, a good way to check on service provider performance and fees is a competitive bidding process with a formal request for proposal (RFP) or otherwise. This approach is recommended but not required by the DOL. Other protective measures, including maintaining fiduciary insurance, may also be warranted.
Andrew S. Williams
Deborah Innis was terminated by her employer, Telligen, Inc., after 18 years of service. She was a participant in the Telligen Employee Stock Ownership Plan (“ESOP”), and Bankers Trust was the ESOP trustee.
In connection with her discharge, Innis signed a severance agreement containing a general release (“Release”) which absolved Telligen and its stockholders and affiliates, as well as all persons acting on behalf of any of those parties, from all claims
"…of any nature whatsoever…arising from, or otherwise related to [Innis’] employment relationship with [Telligen]."
After signing the severance agreement and accepting severance compensation and outplacement services, Innis sued Bankers Trust for breach of fiduciary duty in connection with the establishment of the ESOP. Bankers Trust filed a motion for summary judgment based on the scope and validity of the Release as to the fiduciary breach claims and its applicability to Bankers Trust, a third party not related to Telligen except as trustee of its ESOP.
The U.S. District Court for the Southern District of Iowa granted Bankers Trust’s motion for summary judgment (see Innis v. Bankers Trust Co. of South Dakota, No. 4:16-cv-00650-RGE-SBJ, April 30, 2019). In doing so, the court determined that the language of the Release was so broad that it included ERISA claims, and that Bankers Trust was protected by the Release as a person “acting on behalf of” Telligen stockholders.
It is worth noting that the court interpreted the scope of the Release on the basis of state law, in this case the law of Iowa. Further, the court’s holding applied the Release to ERISA breach of fiduciary duty claims even though the Release:
- Did not specifically mention “ERISA” along with the enumerated list of other federal statutes subject to the Release
- Did not specifically identify plan fiduciaries as parties subject to the Release
- Did not mention fiduciary claims as subject to the Release
- Contained language stating in large type that the Release applied only to “known claims”
All of these potential pitfalls could be mitigated by more specific release language referencing ERISA, fiduciary claims, plan fiduciaries and unknown as well as known claims. So, even though Bankers Trust dodged a bullet in the Innis case, it is obvious that the language of its Release could have been better drafted to protect the ESOP trustee as well as other plan fiduciaries, such as employees serving on in-house retirement plan committees. Such foresight could have saved Bankers Trust its expensive trip to the courthouse.
ERISA fiduciaries, including directors, officers and employees involved in retirement plan administration, can be protected from ERISA breach of fiduciary duty claims by former employees. Properly prepared employee releases are likely to be upheld by a reviewing court. They might also head off claims by former employees and the associated cost of defense. Also bear in mind that employers may be on the hook for legal fees of independent plan service providers if the applicable service contract contains indemnification provisions. So, it makes sense to have your employee release and benefit distribution release reviewed by an ERISA lawyer to make sure plan fiduciaries are afforded the best possible contract protection.