Actuarial, Legal, Reporting and Disclosure

The fiduciary may be held personally liable for damages resulting from the breach

Under ERISA, any breach of fiduciary duty puts the fiduciary at personal risk. A fiduciary who fails in duty may be held personally liable for damages, be removed as a fiduciary, be held liable for legal fees, be required to repay any compensation received plus interest, and/or be banned as a fiduciary in the future.

Courts have generally been willing to uphold this type of choice-of-law limitation

The course notes that some plan sponsors have begun to include choice-of-law provisions in their plan documents and summary plan descriptions to limit where lawsuits can be brought. Courts have generally been willing to uphold this type of limitation, even though ERISA's default venue rules would otherwise allow suits where the plan is administered, where the breach occurred, or where the defendant resides.

Self-funded plans generally cannot be 'deemed' insurance by states, which means states generally cannot regulate them

ERISA's deemer clause states that self-funded plans generally cannot be 'deemed' insurance by states. This generally means self-funded plans cannot be regulated by states. However, there are exceptions for MEWAs and health plans that are not subject to ERISA, which states may regulate.

The person's actual conduct and whether they exercise discretionary authority over plan administration, regardless of title

Under ERISA, fiduciary status is determined by conduct, not title. The course states: 'If you look and act like one, you are one.' Where a conduct test is applied, it matters not what a person's title is—only the person's conduct. A person exercising discretionary authority or control over plan administration is a fiduciary regardless of formal designation.

An employee who is among the five highest paid, a 10% shareholder, or among the highest paid 25% of all employees

Under the Revenue Act of 1978 nondiscrimination rules, key employees include the five highest paid employees, any 10% shareholder, or an employee among the highest paid 25% of all employees. Benefits cannot be greater for key employees than for rank-and-file employees.

The exculpatory clause is void because ERISA prohibits fiduciaries from hiding behind excusing clauses in plan documents

Under ERISA, a fiduciary may not hide from obligations by citing an excusing (exculpatory) clause in a plan document. This rule ensures that fiduciary duties cannot be contracted away, maintaining the protections ERISA was designed to provide to plan participants and beneficiaries.

Civil action disciplines, though criminal penalties can also apply

The course states that the regulatory bite of ERISA is the result of civil action disciplines more than criminal disciplines, although criminal penalties can apply. ERISA is described as a self-funder's 'Guide to Good Conduct,' with the far-reaching civil enforcement procedures of §502 being the main area of concern.

The court will enforce the plan's anti-assignment provision, preventing the physician from pursuing the claim directly

The course discusses a case involving a physician who performed brain surgery and the enrollee tried to assign benefits to the physician. The plan's terms prohibited this type of assignment. The court agreed with the plan, finding that the plan's prohibition on assignment controlled. Courts generally follow the plan's terms on assignment restrictions.

Maximizing investment returns above all other considerations

The four core ERISA fiduciary obligations are: (1) acting for the exclusive purpose of participants and beneficiaries, (2) acting as a prudent person would, (3) diversifying plan assets, and (4) acting in accordance with plan documents/instruments. Maximizing investment returns is not a stated standard and could conflict with other fiduciary duties.

Benefits paid below the specific deductible will not gain any priority, even if a portion could be reimbursable under the excess-loss agreement

Under bankruptcy law, a plan supervisor may demand that fixed costs be deemed comparable to fully insured premiums and receive priority treatment. However, benefits paid below the specific deductible will not gain any priority. This is true even if, by paying such amounts, a portion thereof could be reimbursable under the excess-loss agreement.

A fidelity bond

ERISA requires a fidelity bond for any person who handles plan funds. This is distinct from the fiduciary responsibility (fidelity responsibility) policy, which protects the person from financial consequences of any breach including groundless claims. ERISA requires the fidelity bond but does not require the fiduciary responsibility policy.

The portion below the trigger point is considered self-insured because the risk below that point is shifted to the employer by the insurer

Treasury regulations include within the definition of self-funded plans the cost-plus, stop-loss, and retrospective premium arrangements, as well as the portion of the minimum premium arrangement below the trigger point. In these arrangements, the risk below the trigger is shifted to the employer by the insurer, making that portion self-insured for nondiscrimination purposes.

The subrogation clause is valid and enforceable

Most states have held the subrogation clause valid (the majority view). In arriving at this view, courts found that assignment and subrogation are different, subrogation does not divide a cause of action, subrogation is not contrary to public policy, and allowing it prevents double recovery by the participant.

The fiduciary failed to follow the expert's advice with due diligence and care, and failed to monitor and probe to know what was going on

Under ERISA, a fiduciary may rely on experts (attorneys, actuaries, investment advisers, accountants) but must follow such advice with due diligence and care. The fiduciary must monitor and probe to be certain he or she knows what is going on. Lack of familiarity with the subject matter does not excuse fiduciary liability. Merely delegating without ongoing oversight is insufficient.

Both the Secretary of Labor and the Secretary of the Treasury

Certified copies of the complaint in an ERISA action must be mailed to both the Labor and Treasury Secretaries. Either of these important ERISA regulators may intervene at his or her discretion. However, this requirement does not apply in an action that only relates to recovering benefits under a plan.

No bankruptcy relief is possible because an employee benefit trust is not a business trust, and only business trusts (which are corporations under bankruptcy law) may file

Under bankruptcy law, 'corporation' is defined to include a business trust. However, courts have generally established that an employee benefit trust is not a business trust. Thus, no bankruptcy relief is possible for a bankrupt MEWA organized as an employee benefit trust. The MEWA would need to be structured as a corporation to access bankruptcy relief.

Denying health insurance coverage to an individual based on the person's diagnosis or disability

Under the ADA, employers may not deny health insurance coverage based on diagnosis or disability. However, it is permissible to limit coverage for certain procedures or treatments (e.g., a specified amount per year for mental health) as long as such limitations apply equally to persons with or without disabilities. Favorable discrimination, such as allowing disabled children to stay on the plan longer, is generally acceptable.

No, because while fraud extends the limitations period from three to six years after discovery, the claim was not filed within six years of discovery

For fiduciary breach claims, the statute of limitations is the earlier of six years after the breach or three years after discovery (six years for fraud). Here, the breach was eight years ago (exceeding the six-year-from-breach limit). Even with fraud extending the discovery period to six years, the participant filed one year after discovery, which is within that window. However, the six-year-from-breach absolute deadline has passed. The claim is therefore untimely because the earlier-of test means the six-year-from-breach limit applies.

Filing a counterclaim against the plan for bad faith denial of benefits

The course lists the following ways to defeat a subrogation claim: statute of limitations, settlement and release by participant, plan or employer contributing to the negligence, state no-fault laws, medical benefits paid as a matter of right, and structured awards by the court. Filing a bad faith counterclaim is not listed among these methods.

No, because a fiduciary is not required to follow a plan document that violates applicable law

While ERISA requires the plan to be written and the fiduciaries to follow what is written, if the plan document violates applicable law, the fiduciary is not required to follow it. A careful reading of plan documents is essential, and the documents must be consistent with ERISA. Blindly following an illegal plan provision does not shield the fiduciary from liability.

No, ERISA does not require fiduciary liability insurance, though it should be considered

The fidelity responsibility policy or surety protects the fiduciary from financial or other consequences of any breach, even if claims are groundless, false, or fraudulent. ERISA does not require this protection, unlike the fidelity bond which is required for anyone handling plan funds. However, the course recommends that fiduciary insurance should be considered.

The law is likely preempted because although it targets the vendor, it effectively requires a plan change, which courts have typically found triggers ERISA preemption

ERISA preemption is weaker when a state law applies to a vendor rather than the plan itself. However, state laws that try to impose obligations on ERISA-covered plans indirectly through vendor requirements usually fail when the law requires a plan change or mandates a particular benefit. A law requiring formulary modifications would effectively mandate plan changes, making preemption likely.

Under a broad reading, any state law that 'affects' a health plan is preempted; under a narrow reading, only laws with a 'significant' effect are preempted

Some courts have taken an expansive (broad) approach where any state law that 'affects' a health plan is preempted. Under a more narrow reading, the state law must have a 'significant' effect—a merely 'tangential' impact will not result in ERISA preemption. The US Supreme Court has at times used both approaches.

Premiums paid by companies unrelated to the captive must equal or exceed 50% of total premiums received, and the policy must be similar to policies sold to unrelated companies

Under Treasury regulations, a plan underwritten by a captive insurance company policy is not considered self-insured only if, for the plan year, the premiums paid by companies unrelated to the captive insurance company equal or exceed 50% of total premiums received and the policy of insurance is similar to policies sold to such unrelated companies. Otherwise, the captive arrangement is treated as self-insured for nondiscrimination purposes.

Claims service firms, investment advisers, and insurance brokers

The course identifies two categories: those usually named as fiduciaries (plan administrators, benefit committees, trustees) and those who usually become fiduciaries by their conduct (claims service firms, investment advisers, and insurance brokers). The conduct test looks at whether they exercise discretionary authority or control.

The trustee must make a formal proposal to the union and court with hearings, changes must be limited to what is needed for rehabilitation, all parties must be treated fairly, and the union has the right to petition for rejection of the proposal

Under bankruptcy law, collective bargaining contracts are executory contracts that trustees may seek to reject, but the law requires court approval. Several steps must be followed: a formal proposal to the union and court with hearings, changes limited to what is needed for rehabilitation, fair treatment of all parties, and the union's right to petition for rejection of the trustee's proposal.

The substitution of one person in the place of another with reference to a lawful claim or right against a third person

Subrogation is defined as the substitution of one person in the place of another with reference to a lawful claim or right against a third person. When one person has been compelled to pay a debt that ought to have been paid by another, they become entitled to exercise all remedies the creditor possessed against that other person.

They are deemed 100% discriminatory and fully taxable as income to the participant

The course notes that plan benefits paid outside the plan (or a medical reimbursement plan for highly compensated participants only) would be deemed 100% discriminatory and fully taxable to the participant. Discriminatory self-funded plans do not include payments outside the plan in their nondiscrimination testing; such payments are simply taxable as income.

New transparency rules and minimum amounts that must be paid to out-of-network providers in certain situations

The Consolidated Appropriations Act of 2021 (CAA) made several important changes to health plans, including new transparency rules and minimum amounts that must be paid to out-of-network providers in certain situations. These were listed among the key federal legal requirements applicable to self-funded plans.

Lack of familiarity with the subject matter does not excuse fiduciary liability; the standard requires the expertise of an expert, not a common person

Under ERISA, the level of prudence required is that of an expert, not of a common person. Lack of familiarity of the fiduciary with the subject matter does not excuse the person from fiduciary liability. The prudent person concept was transformed by ERISA from one used only for investments to one covering a wide range of fiduciary duties.

Plans of a governmental body, because governmental employees generally need less protection than private sector employees

Plans of a governmental body are not subject to ERISA. The rationale is that governmental employees generally need less protection (which ERISA offers) than employees of private organizations. Some cases hold that a governmental plan is not subject to ERISA even if it accidentally states that ERISA applies.

When Attorney A has an existing relationship with the insurer against which he will be attacking on the participant's behalf, or when Attorney A is also counsel for the employer sponsoring the plan

The course states it is generally accepted that there is no conflict of interest when the participant signs a subrogation statement, retains an attorney, and the attorney agrees to represent both parties with full disclosure. However, conflicts may arise when the attorney has an existing relationship with the insurer he will be attacking or when the attorney is also counsel for the employer sponsoring the plan.

Denying entry into the plan because an employee is pregnant

The federal Pregnancy Discrimination Act generally prohibits health plan provisions that discriminate against individuals on the basis of pregnancy. For example, a health plan could not deny entry into the plan because an employee was pregnant. Pregnancy is to be treated as any other medical condition.

The plan clearly stated in the booklet that it had the right to subrogate, which was sufficient to demand a subrogation release from the participant

In Davis v. Line Construction Benefit Fund, the self-funded plan clearly stated in its booklet that the plan had the right to subrogate. The court found this was sufficient for the plan to demand a subrogation release be executed. The plan's action to enforce its subrogation right was neither arbitrary nor capricious. Missouri's insurance laws forbidding subrogation were preempted by ERISA.

A plan purchasing employer securities with plan assets

ERISA's prohibited transaction rules bar specific activities including use, sale, exchange, lease, or transfer of assets between the plan and any party in interest; lending the plan's money; furnishing goods/services between the plan and a party in interest; and purchase by the plan of employer securities. Paying reasonable fees and consulting with experts are permissible.

EBSA recovered more than $1.4 billion in benefits for plan participants, as a result of more than 700 civil and nearly 200 criminal investigations

The course notes that EBSA's 2023 Fact Sheet reveals that EBSA recovered more than $1.4 billion in benefits for plan participants, as a result of more than 700 civil investigations and nearly 200 criminal investigations. This demonstrates the DOL's active enforcement of ERISA and related laws.

Investment law, dating back to 1830, but ERISA expanded it to cover a wide range of fiduciary duties

The prudent man concept is described as a unique American legal device with origins dating back to 1830, originally used for investments. ERISA transformed the prudence rule from one used only for investments to one used for a wide range of fiduciary duties. The ERISA congressional conferees expected courts to interpret prudence in light of the special needs of employee benefit plans.

It could disproportionately impact one gender and raise indirect sex discrimination concerns under Title VII

The course notes that a plan requiring the employee to be the head of household (making more than the spouse) could disproportionately impact one gender or another and raise concerns. This is an example of indirect sex discrimination, as historically such requirements have disproportionately excluded women from coverage. The federal intent is no discrimination in benefits based on sex, either direct or indirect.

A single plan providing coverage to multiple unrelated employers; the main concern is that it is subject to state law rather than enjoying ERISA preemption

A MEWA (Multiple Employer Welfare Arrangement) is a single plan that provides coverage to multiple, unrelated employers. The main legal concern is that MEWAs are subject to state law. ERISA preemption does not apply to MEWAs, meaning they can be regulated by states, unlike single-employer self-funded plans.

It banned subrogation in self-funded plans through its reference to 'any insured plan or plan funded by any other arrangement,' capturing self-funded plans within its scope

Pennsylvania's statute was unique because it banned subrogation not just in insured plans but in self-funded plans as well, through its reference to 'any insured plan or plan funded by any other arrangement.' This broader language attempted to capture self-funded plans within the anti-subrogation prohibition, but the court held ERISA preempted the statute as applied to self-funded plans.

The IRS delayed enforcement in December 2010, and as of February 2024, the rules continue to be delayed and are not applicable

Under the ACA, non-grandfathered fully insured plans were to be subject to nondiscrimination rules beginning in 2011. However, in December 2010, the IRS delayed enforcement until further notice. As of February 2024, those rules continue to be delayed and, for now, are not applicable.

The officer has personal liability to the plan, so many employers provide some form of indemnification to plan fiduciaries

If an officer/shareholder/employee is held to be the plan sponsor, he or she has personal liability to the plan. For that reason, many employers will provide some indemnification to plan fiduciaries. This risk highlights the importance of understanding who qualifies as a plan sponsor under ERISA.

Claims must be processed within certain time periods, appeals must be provided, and benefit denials must be in a certain format within a certain time period

ERISA's claim procedures require that claims be processed within certain time periods, appeals must be provided, and benefit denials must be provided in a certain format and within a certain time period. These requirements are among the key legal requirements listed for self-funded health plans.

Subrogation is contrary to public policy because it opens a Pandora's box of litigation, such as an insurer suing when the tortfeasor is a close friend or relative of the participant

Courts in the minority view have held that subrogation is contrary to public policy, calling it a Pandora's box of litigation—for example, the repugnance of an insurer suing when the tortfeasor is a close friend or relative of the participant. Other minority arguments include that subrogation is equivalent to an assignment of personal injury claims and that some state laws specifically prohibit it.

They are required to be paid by the trustees in bankruptcy as administrative expenses during the proceeding

Under bankruptcy law, the life, health, and disability benefits of retirees are required to be paid by the trustees in bankruptcy as administrative expenses during a bankruptcy proceeding. Administrative expenses receive the highest priority among all debt categories in the priority order.

Key employees lose their favorable tax treatment on excess benefits, but rank-and-file employees are not affected

Under the Revenue Act of 1978, a discriminatory self-insured medical reimbursement plan will result in lost tax advantages to key employees, but will not affect rank-and-file employees. The tax consequences fall on the key employees who received disproportionate benefits, not on the general employee population.

DOL-instigated litigation, advisory opinions, class exemptions, and waiver of prohibited transactions

The DOL has a legal presence with self-funded healthcare plans provided by ERISA and DOL-promulgated regulations. This includes DOL-instigated litigation, advisory opinions, class exemptions, and waiver of prohibited transactions. DOL actively enforces ERISA, MHPAEA, and other laws under its jurisdiction.

The fiduciary must maintain fair, impartial, and unwavering loyalties to all beneficiaries—participants, providers, and employers—while treating all persons served with equal consideration and excluding self-interest

A fiduciary will always face a conflict between the beneficiary's interest and those who appointed the fiduciary. The duty of loyalty includes fairness: all persons served shall be treated with equal consideration. The fiduciary must exclude self-interest and maintain fair, impartial, and unwavering loyalties to all beneficiaries: participants, providers, and employers.

Church plans

ERISA provides statutory exemptions for government or Railroad Retirement Act plans, church plans, state-required plans (workers' compensation, unemployment, disability), and foreign plans for nonresident aliens. Employee-pay-all plans are exempt by DOL regulation, not by statute.

Both are exempt from ERISA reporting by DOL regulation

Under DOL regulatory exemptions, unfunded scholarship funds and dues-financed plans maintained by an employee organization are both exempt from ERISA reporting requirements. These fall under the employer practice exemptions and specific DOL exemptions, respectively.