Recent Class Action Lawsuit Challenges Health Plan Fiduciary Fees

Employer-sponsored health and welfare plans often hire independent administrators to manage the plan as fiduciaries. In fact, plans may employ various fiduciaries, including plan trustees, plan administrators, and plan investment committee members who shoulder many responsibilities. They also need to charge for their services. However, disagreements over health plan fiduciary fees have spawned a number of lawsuits, including a recent class action lawsuit.

Shore vs. Charlotte-Mecklenburg Hospital Authority

The plaintiffs in this litigation are a class of participants and beneficiaries of benefits plans offered by the Charlotte-Mecklenburg Hospital Authority (known as “Atrium”). The federal lawsuit’s primary issue is whether Atrium’s pension, 401(k), and health and welfare plans were improperly designated as governmental entity plans, making them exempt from the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).

However, health-plan fiduciaries may be concerned about another aspect of the lawsuit. Plaintiffs allege that Atrium hired an expensive third party administrator (“MedCost”), then failed to see that MedCost’s fiduciary fees were reasonable.

In addition, Atrium reportedly owns 50% of MedCost. The plaintiffs allege that Atrium paid MedCost “far greater amounts” for services than other fiduciaries would have charged. Finally, hiring MedCost could have been a violation of ERISA prohibited transaction provisions.

Misclassification as a governmental entity plan aside, fiduciaries should be concerned about the lawsuit’s challenge of the amount of fees paid and the business relationship between Atrium and MedCost.

ERISA Fiduciary Requirements

By definition, the term fiduciary means someone in whom another person has placed his or her trust. Under ERISA, fiduciaries are expected to;

  • manage the plan solely for the benefit of the participants;
  • act prudently,
  • diversify plan investments,
  • follow the plan terms if consistent with ERISA,
  • avoid conflicts of interest.

Shore vs. Charlotte-Mecklenburg Hospital Authority was filed on November 19, 2018. As it has just begun its journey through the federal court system, it is difficult to predict what impact this case may have on fiduciary fees.

Can You Protect Against Challenges to Health Plan Fiduciary Fees?

Proving “reasonableness of fees” involves complicated analysis. Hall Benefits Law works with many employers to design a fiduciary legal compliance paradigm that significantly mitigates the risk of costly and time-consuming fiduciary breach lawsuits. Generally, courts want to see if fiduciaries could have chosen less expensive, but comparable, services. Still, fiduciaries have good reason to be concerned about when a class action lawsuit challenges health plan fiduciary fees.

The attorneys at Hall Benefits Law have the keen understanding of fiduciary laws and regulations related to employee benefit plans. In fact, we work extensively with employee benefit plans including MEPs and MEWAs. Please call 678-439-6236 to discuss your concerns with an experienced attorney. Our website contains more information about our firm, a Contact Form, and free resources for your review. From our home office in Georgia, we assist clients throughout the United States, from North Carolina to Oregon.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.
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