Significant Court Decisions Impacting ERISA Plans in 2022

Several courts issued notable decisions during the first six months of 2022 that significantly affected ERISA-governed benefit plans. 

U.S. Supreme Court Revives Workers’ Benefits Lawsuit

In January, the U.S. Supreme Court rejected Northwestern University’s argument that the workers’ ability to choose from quality investment options insulated it from claims over alleged poor or imprudent options. The high Court’s decision allowed the workers’ challenge to the university’s 401(k) plan to move forward. The case is now on remand to the U.S. Court of Appeals for the Seventh Circuit. 

As a practical matter, the Hughes decision has not had much direct impact, as it addresses a less commonly used employer defense. The Supreme Court also declined to address the pleading standard necessary to overcome a motion to dismiss in ERISA cases, claiming mismanagement of benefits plans. The relative brevity of the Court’s opinion has left much confusion in its wake as lower courts struggle to interpret its meaning. 

The case is Hughes v. Northwestern University, 142 S.Ct. 737 (2022).

First Circuit Takes Up Appeal of Challenge to Annuity Payout Calculations

In March 2022, a federal district court judge dismissed a proposed class action suit filed by Massachusetts General Hospital workers challenging the valuation of their retirement funds. The workers alleged that Partners HealthCare had undervalued their retirements by using antiquated mortality tables to calculate their annuities in violation of ERISA. 

ERISA requires that annuity payouts be actuarially equivalent to a single life annuity at normal retirement age. The text of ERISA fails to define actuarial equivalence or require reasonable assumptions, which formed the basis for the judge’s dismissal of the suit. 

The workers appealed to the U.S. Court of Appeals for the First Circuit, where the case remains pending. The appellate court recently ordered the brief submission stayed, as the parties reported that they were working toward a probable settlement of the case. The case is Belknap v. Partners Healthcare System Inc., case number 22-1188.

Federal Court Finds North Carolina’s State Health Plan Policy Denying Trans Health Care Discriminatory 

A North Carolina federal judge found that the state’s health plan policy, denying any coverage for the treatment of gender dysphoria, violates Title VII of the Civil Rights Act and the U.S. Constitution. This suit is one of many that has arisen nationwide about the necessity of employer-sponsored health plans to cover healthcare for transgender workers. Recently, a federal court in Georgia found that a county health plan’s exclusion of coverage for gender-conforming surgery violated Title VII of the Civil Rights Act. 

U.S. District Court Judge Loretta Biggs issued an injunction preventing the state health plan from enforcing the exclusion and ordered the plan to reinstate coverage for any “medically necessary services” to treat gender dysphoria. The North Carolina state health plan is the state’s largest insurer, covering about 740,000 people, including teachers and state employees. 

The court’s ruling comes after the state unsuccessfully sought dismissal of the case at the trial court level and the U.S. Court of Appeals for the Fourth Circuit. The state also sought review by the U.S. Supreme Court, which declined to hear the case.

The case is Kadel et al. v. Folwell et al., case number 1:19-cv-00272, U.S. District Court for the Middle District of North Carolina.

Sixth Circuit Refuses to Compel Arbitration of ERISA Claims

The U.S. Court of Appeals for the Sixth Circuit has denied a request for arbitration in an ERISA action challenging the proper management of the Cintas 401(k) plan. Even though the proposed class of workers signed employment agreements, including arbitration agreements, the court ruled that these agreements did not apply to ERISA claims made on behalf of the entire plan. The case is Raymond Hawkins et al. v. Cintas Corp., case number 21-3156. 

The recent ruling is one of the various cases exploring whether mandatory arbitration clauses can remove ERISA claims from litigation, which date back to the Ninth Circuit’s 2019 decision in Dorman v. Charles Schwab Corp. In Dorman, the Ninth Circuit overturned decades of court rulings denying arbitration of ERISA claims. 

ERISA Case Challenges Group of Investment Offerings in 401(k) Plan

In June, the U.S. Court of Appeals for the Third Circuit upheld class certification for more than 60,000 Universal Health Services Inc. workers who sought to challenge a group of investment offerings in their 401(k) plan. The case is Mary Boley et al. v. Universal Health Services Inc. et al., case number 21-2014.

Boley is one of the first cases to interpret the U.S. Supreme Court’s 2020 decision in Thole v. U.S. Bank, NA. In Thole, the high Court held that investors in a defined benefit plan had no standing to sue over ERISA violations that caused no losses to their retirement accounts. Based on this ruling, Universal Health Services argued that the plaintiffs, in this case, should have to be invested in each of the thirty-seven investment funds at issue to have the type of shared claims to justify class certification. 

The court disagreed, finding that the plaintiffs had to prove investments in only seven of the thirty-seven targeted funds. The court accepted the workers’ argument that the claims of various class members had enough commonality and typicality to merit class certification. 

HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.

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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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