Health insurance and hospital employees are increasingly filing lawsuits against their employers for alleged failure to effectively manage their retirement accounts.
Workers have filed 25 complaints against their employers this year, including at least 11 in the healthcare sector, including companies like Centene Corp., DaVita Inc. and Boston Children’s Hospital, according to the US Chamber of Commerce.
This year has already surpassed the nine pension benefit cases filed by workers against healthcare companies in 2021 and is on course to break the 2020 record of 33 cases filed against healthcare employers, Chantel said. Sheaks, the chamber’s vice president for retirement policy. “It’s not if, it’s when,” she said.
The chamber has stepped up its legal campaign against the cases and filed amicus briefs in support of Commonspirit Health in Chicago, Humana and the American Red Cross, saying a small group of law firms are suing. against copy to obtain class action status and cherry-picking market data in pursuit of major settlements. The plaintiffs’ law firms, meanwhile, say the settlements are responsible for lowering workers’ retirement costs and ensuring sound and transparent management of their investment portfolios.
The plaintiffs’ success in negotiating settlements with healthcare employers could set a dangerous legal precedent for the industry, said William Sweeney, chairman of Polsinelli’s benefits practice, which represents employers.
“These most recent sweeping complaints weren’t about the level of scrutiny of what actually happened,” Sweeney said. “It’s just trying to assert that investment performance is the rule of the day, and if it hasn’t performed as well, there are damages to be paid.”
The father of the 401(k) business
The administration of employee pension schemes is governed by the Employees Retirement Income Security Act 1974, which states that trustees must act with care, charge reasonable fees and cannot guarantee the return on investments. The Department of Labor has tended to regulate through enforcement, with most actions alleging excessive fees, improper investments and fiduciary conflicts of interest, according to a study by 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 around ERISA. A federal judge, who heard a 2013 case filed by Schlichter against insurer Cigna, praised him and the firm in court filings for acting as a “private attorney general” in the case. application of ERISA, while “risking mind-boggling amounts of time and money while overcoming many hurdles”. for 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 ordered Cigna to update its record keeping and fees.
By focusing on “giant plans” made up of large numbers of employees, Schlichter and other law firms were able to collect giant settlements, Sheaks said.
Schlichter’s firm represents workers 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 has been accomplished,” Schlichter said.
A U.S. Supreme Court ruling in late January in an ERISA case where Schlichter was representing workers against Northwestern University— including its medical school — has the potential to strengthen the legal liability of employers, including health care organizations, Sweeney said. The court ruled that the availability of several lower-cost retirement investment options for employees did not excuse poor management of plans that charged excessive fees. The case was remanded and is currently pending before the United States Court of Appeals for the Seventh Circuit.
“[Plaintiffs lawyers] just look at the negative end result, and almost take that leap, or assume it must be the result of a fiduciary breach,” Sweeney said. “I think that’s a dangerous standard because these trustees and plan committees that companies have put in place don’t have a crystal ball.”
Such cases have inspired lower investment fees for participants, increased transparency from employers about rates charged, and fewer instances of conflicts of interest among trustees recommending clients invest in their products, research finds. from the Center for Retirement Research at Boston College. The researchers also noted that the growing legal threat has led to more passive investments by employers and a fear of litigation that could stifle innovation among plan sponsors.
The next business targets of the 401(k) legal frenzy? Small health care companies that offer employee retirement plans, Sheaks said, citing the case filed late last month against Molina Healthcare as an example. Seven former employers have filed a complaint against the insurer apply for class action statusalleging that the company’s trustees charged excessive fees and mismanaged the $740.9 million plan.
She said she also expects several employer plans sponsored by state hospital associations to become targets, as well as bundled plans from service providers like Aon Hewitt.
Companies can protect themselves by thoroughly documenting their process for choosing investments and trustees, the policies and procedures for evaluating their investments, and their benchmarks, Sheaks said.
“ERISA does not require a particular result,” she said. “It doesn’t mean you have to have the best investment or the cheapest service provider. You just have to follow a careful path.”
Finding companies to target can be easy since every retirement plan must file information with the Department of Labor about plan assets, number of participants, investment providers, independent audits and more. The reports are published annually on the Ministry of Labor 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 businesses, said firm partner James Miller. of attorneys Miller Shah.
Miller’s firm represents workers in about 2,000 ERISA cases nationwide, with about 35% against health care 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, by virtue of math, to pursue a claim.”