Health insurance and hospital employees are increasingly filing lawsuits against their employers for alleged inability to effectively manage their retirement accounts.
According to the US Chamber of Commerce, workers have filed 25 complaints against their employers this year, at least 11 of which involve the healthcare industry, including companies such as Centene Corp., DaVita Inc. and Boston Children’s Hospital.
This year has already surpassed the nine pension benefit cases filed by workers against healthcare companies in 2021 and is poised to beat 2020’s record of 33 cases filed against healthcare industry employers, said Chantel Sheaks, vice president the chamber for pension policy. “It’s not if, it’s when,” she said.
The Chamber has stepped up its legal campaign against these cases, filing amicus briefs in support of Chicago’s Commonspirit Health, Humana and the American Red Cross, alleging that a small group of law firms are filing class-action lawsuits to seek class-action status and… Cherry to Obtain -Picking market data to track important settlements. The plaintiffs’ law firms, meanwhile, say the settlements are responsible for lowering workers’ pension contributions and ensuring robust and transparent management of their investment portfolios.
The plaintiffs’ success in settlement negotiations with healthcare employers could set a dangerous legal precedent for the industry, said William Sweeney, practice chair of Polsinelli’s social security practice, which represents employers.
“These recent cookie cutter complaints were not about the extent of the verification of what actually took place,” Sweeney said. “It’s really just trying to claim that investment performance makes the day, and if it doesn’t do that well, damages have to be paid.”
The father of the 401(k) case
The administration of employee pension plans is governed by the Employee Retirement Income Security Act of 1974, which states that trustees must act prudently, charge reasonable fees and cannot guarantee investment performance. The Department of Labor has tended to regulate through enforcement, with most lawsuits allegedly involving excessive fees, improper investments, and fiduciary conflicts of interest, according to research from Boston College’s Center for Retirement Research.
The first lawsuits were filed by attorney Jerry Schlichter, who is widely credited with developing the body of law surrounding ERISA. A federal judge hearing a case brought by Arbitrator against insurer Cigna in 2013 commended him and the firm in court filings for acting as “private attorney general” in enforcing ERISA while “risking a staggering amount of time and money and… in doing so, overcame many obstacles for the benefit of employees and retirees.” U.S. District Judge Harold Baker of the Central District of Illinois awarded Cigna workers $35 million, Schlichter’s company $12.7 million, and directed Cigna to update its records and fee services .
By focusing on “jumbo plans” with large numbers of employees, arbitrators and other law firms have been able to accumulate jumbo settlements, Sheaks said.
Schlichter’s law firm represents employees in a number of pending cases, including lawsuits against Novant Health in North Carolina and New York University’s Langone Medical Center.
“We are very, very proud of what we have achieved,” said Schlichter.
A late January decision by the U.S. Supreme Court in an ERISA case in which Arbitrator represented workers against Northwestern University — including its medical school — has the potential to increase the legal liability of employers, including healthcare organizations, Sweeney said. The court ruled that the availability of several lower-cost annuity investment options for employees did not excuse a plan mismanagement that required excessive fees. The case was returned and is currently pending in the US Circuit Court of Appeals for the Seventh Circuit.
“[Plaintiffs lawyers] just look at the negative bottom line and almost make that jump or assume it must be the result of a breach of trust,” Sweeney said. “I think that’s a dangerous standard because these trustees and committees don’t have a crystal ball about the proposed company.”
According to a study by Boston College’s Center for Retirement Research, such cases have led to a decrease in participants’ investment fees, increased transparency by employers regarding the interest rates charged, and a decrease in instances of conflicts of interest among trustees who recommend clients to invest in theirs invest in products. The researchers also found that the increasing legal threat has led to more passive investment by employers and fears of litigation that could hamper innovation among plan sponsors.
The Next Employer Targets of the 401(k) Legal Madness? Smaller healthcare companies that offer employee pension plans, Sheaks said, citing the case filed against Molina Healthcare late last month as an example. Seven former employers filed a lawsuit against the insurer seeking class action status, alleging that the company’s trustees charged excessive fees and failed to properly administer the $740.9 million plan.
She said she also expects multiple employer plans sponsored by state hospital associations to become targets, as well as pooled plans from service providers like Aon Hewitt.
Firms can protect themselves by thoroughly documenting their investment and trustee selection process, policies and procedures for evaluating their investments, and their benchmark goals, Sheaks said.
“ERISA does not require a specific outcome,” she said. “It doesn’t mean you have to have the best investment or the cheapest service provider. You just have to walk a prudent path.”
Finding target companies can be easy, since each pension plan must submit information to the Department of Labor about the plan’s assets, number of participants, investment providers, independent audits, and more. The reports are published annually on the Department of Labor’s website and can be downloaded free of charge.
The healthcare industry is a natural target for these cases because healthcare is such a large part of the economy and its organizations tend to be larger than most companies, said James Miller, partner at law firm Miller Shah.
Miller’s law firm represents workers in about 2,000 ERISA cases nationwide, about 35% of them against healthcare companies, including Yale New Haven Health System in Connecticut, Beth Israel Deaconess Medical Center in Boston and Prime Healthcare in California.
“Healthcare is obviously a very important part of the economy,” he said. “Participants are more likely to make a claim based on math.”