On January 17, 2025, the ERISA Industry Committee (“ERIC”) filed a lawsuit, The ERISA Industry Committee v. United States Department of Health and Human Services et al. challenging the final Mental Health Parity and Addiction Equity Act (“MHPAEA”) rule published by the Departments of Labor, Treasury, and Health and Human Services (the “Departments”) in September 2024 (the “Final Rule”).  The complaint, filed in the United States District Court for the District of Columbia, asks the District Court to invalidate and prevent enforcement of the Final Rule, which ERIC argues was issued in violation of the federal Administrative Procedure Act (“APA”).   

The ERISA Industry Committee case comes on the heels of the Supreme Court’s landmark Loper Bright Enterprises v. Raimondo decision, which overruled the longstanding doctrine of “Chevron deference” requiring courts to defer to federal agencies’ reasonable interpretations of ambiguous statutory language.  It is one of a number of recently filed cases that will test the degree to which courts give weight to agency interpretations in a post-Loper world.

MHPAEA Regulatory Background

MHPAEA, enacted in 2008, prevents group health plans and health insurance issuers providing mental health or substance use disorder (“MH/SUD”) benefits from imposing less favorable benefit limitations on those benefits than on medical/surgical (“M/S”) benefits.  Under MHPAEA, financial requirements and treatment limitations (together “quantitative limitations”) imposed on MH/SUD benefits cannot be more restrictive than the predominant quantitative limitations applicable to M/S benefits, and plans cannot impose separate quantitative limitations on MH/SUD benefits that are not also applied to M/S benefits.  Interim final rules finalized in 2013 additionally require nonquantitative treatment limitations (“NQTLs”) applied to MH/SUD benefits to be “comparable to” and applied no more stringently than those applied to M/S benefits in the same benefit classification. 

In 2021, the Consolidated Appropriations Act, 2021 (“CAA”) imposed new obligations for plans and issuers to document and make available to the Departments upon request their comparative analyses of the design and application of NQTLs. 

On July 25, 2023, the Departments released a proposed MHPAEA rule (the “Proposed Rule”).  The Proposed Rule, among other things, proposed new requirements for comparative analyses and for determining NQTL compliance under MHPAEA.

The Final Rule   

Following a comment period on the Proposed Rule, the Departments issued the Final Rule on September 9, 2024.    

Effective January 1, 2025, the Final Rule:

  • Requires plans and issuers to provide a written list of all NQTLs to a named plan fiduciary.
  • Sets forth specific content requirements for written NQTL comparative analyses.
  • Requires comparative analyses to include a certification by a named plan fiduciary that the fiduciary has (a) engaged in a prudent process to select one or more qualified service providers to perform and document the written NQTL comparative analysis in accordance with applicable law and regulations, and (b) satisfied their duty to monitor those service providers as required under ERISA with respect to the performance and documentation of the comparative analysis.
  • Requires plans and issuers to account for revised definitions of MH/SUD and M/S conditions in assessing benefit qualifications. 

Effective January 1, 2026, the Final Rule:

  • Requires plans and issuers offering benefits for a covered MH/SUD condition to provide “meaningful benefits” for that condition in every classification in which M/S benefits are provided and to provide coverage for a core treatment of that condition.
  • Prohibits plans and issuers from relying upon factors or evidentiary standards that are biased or not objective.
  • Requires plans and issuers to collect and evaluate outcomes data and, to the extent such analysis suggests that the NQTL contributes to a “material difference in access” to MH/SUD benefits, take reasonable action to address the difference to ensure operational compliance.  Under the Final Rule, a material difference in outcomes data is considered a “strong indicator” of an MHPAEA violation.  

The Complaint

The ERISA Industry Committee complaint was brought by ERIC, a nonprofit organization that advocates for its large employer members in their capacity as benefit plan sponsors.  The complaint challenges key provisions of the Final Rule as impermissibly vague and/or unlawfully issued under the APA.  The five counts of the complaint are summarized below.

  • Count I of the complaint alleges that the Departments exceeded their statutory authority in issuing the following allegedly unlawful provisions of the Final Rule:
    • Plaintiff alleges that the “meaningful benefits” standard mandates benefits in contradiction to MHPAEA’s stipulation that it is not a benefits mandate.Plaintiff alleges that the “material differences in access” standard is unlawful because MHPAEA only requires parity in plan terms and in the application of those terms to MH/SUD and M/S benefits and does not impose a disparate impact standard for evaluating parity. 
    • Plaintiff alleges that the fiduciary certification requirement is unlawful because Congress did not authorize or mandate such a certification in its prior MHPAEA amendments.
  • Count II alleges that numerous parts of the Final Rule (the “meaningful benefits” and “material differences in access” standards, the comparative analysis and fiduciary certification requirement, and the January 1, 2025 applicability date) are “arbitrary and capricious,” citing the Departments’ alleged reliance on vague terms, incorrect assumptions, and imposition of unreasonable and unnecessary burdens on plans and fiduciaries.
  • Count III alleges that the Departments failed to comply with the APA’s notice-and-comment rulemaking requirements in issuing various parts of the Final Rule.
    • Plaintiffs allege that incorporating private third-party clinical standards into the “meaningful benefits” standard deprived parties of the opportunity to comment on the standard, given that the third-parties can alter their standards over time.
    • Plaintiffs also allege that the fiduciary certification requirement is not a “logical outgrowth” of the Proposed Rule, which would have required fiduciaries to certify that the NQTL comparative analysis complies with the requirements for such analysis, and thus provided no meaningful opportunity for parties to comment on the final certification requirement.
  • Counts IV and V invoke the APA’s requirement that courts invalidate unconstitutional agency actions. 
    • Count IV alleges that ambiguities within the “material differences in access” standard, comparative analysis requirement, and fiduciary certification requirement fail to give fiduciaries “fair notice” of the specifics of each requirement or compliance obligation and thus violate fiduciaries’ due process rights.
    • Count V alleges that defining the Final Rule’s “meaningful benefits” standard by reference to private third-party clinical standards unconstitutionally vests those parties with legislative and executive power.

As noted above, the complaint asks the District Court to invalidate the challenged provisions of the Final Rule, set aside and vacate the Final Rule (or if not the entire rule, the challenged provisions), and issue an injunction prohibiting Defendants from enforcing the Final Rule (or alternatively, the challenged provisions) against ERIC or its employer members.

The Departments have 60 days (until March 18th) to respond to the complaint. 

Thompson Hine’s Takeaways

While the Final Rule currently remains in effect, its future remains unclear.  Since the erosion of Chevron deference, the legal world has braced for a flood of challenges to federal agency actions exactly like the ERISA Industry Committee case.  Now that courts can give less weight to agency interpretations of federal statutes, plaintiffs like ERIC have a much stronger legal basis for challenging agency-issued rules like the Final Rule. Indeed, courts across the country have already begun citing Loper as a basis for limiting or preventing enforcement of other federal rules and regulations. 

A key concern noted throughout the ERISA Industry Committee complaint is that the increasingly onerous MHPAEA burdens imposed by the regulatory agencies may lead employers to cease providing coverage for MH/SUD services, a result that would directly undermine the goals of MHPAEA.  Whether and to what extent that underlying concern resonates with the District Court or the new Trump administration (which may separately repeal or limit the Final Rule) is yet to be seen.

However, unless and until the Final Rule is invalidated, enjoined, or otherwise changed, plans and issuers imposing NQTLs remain responsible for complying with the rule’s requirements. 

If you have questions about the case, compliance with the Final Rule, or MHPAEA compliance generally, please contact the authors or your regular Thompson Hine attorney. A recording of Thompson Hine’s October 23, 2024 webinar on the Final Rule, “Practical Responses to the Final Mental Health Parity Regulations” can be found here.

In a closely watched ERISA case, the United States District Court for the District of Colorado has issued an order affirming the Magistrate Judge’s ruling in Harrison v. Envision Management Holding, Inc. Board of Directors et al (Case No. 21-cv-00304), concerning the discoverability of Department of Labor (“DOL”) interview reports plaintiffs had obtained under a common interest agreement.  This decision illustrates the limited scope of the common interest doctrine, particularly in cases involving coordination between private plaintiffs and the DOL.

As discussed in our earlier post, the plaintiffs in Harrison alleged ERISA violations related to an ESOP transaction and relied on a common interest agreement with the DOL to obtain DOL investigative materials, including interview reports. The Magistrate Judge ruled that no common legal interest existed between the plaintiffs and the DOL and recommended plaintiffs be required to produce the documents they had received from the DOL.

The District Court affirmed this ruling, concluding that the plaintiffs and the DOL lacked a shared legal strategy and ordering the production of the DOL interview reports within five days.  The District Court also denied the plaintiffs’ request for a stay to allow them to seek a writ of mandamus in the 10th Circuit, effectively closing the door on further challenges at this stage and reinforcing the Magistrate Judge’s findings. The court stood firmly behind the Magistrate Judge’s “well-reasoned opinion,” highlighting the narrow application of the common interest doctrine and rejecting the plaintiffs’ arguments as insufficiently supported.

The District Court also directed criticism at the DOL for failing to file an objection to the Magistrate Judge’s ruling. Despite previously submitting a brief on the common interest issue before the Magistrate Judge, the DOL chose not to object to the ruling. The court described this silence as both dispositive and “somewhat telling,” given that the disputed work product belonged to the DOL. Additionally, the court noted that the plaintiffs had made no argument that they had standing to object on the DOL’s behalf. As we noted in our prior post, the Harrison ruling underscores the importance of early discovery efforts to uncover potential coordination between plaintiffs and the DOL.

THE BENEFIT TO AN EMPLOYER OF INCLUDING BOTH A RELEASE AND A COVENANT NOT TO SUE IN A SEPARATION OR SETTLEMENT AGREEMENT WITH AN EMPLOYEE

ERISA class actions have been plaguing corporate America for more than a decade.  There is no universally accepted application of the pleading standards for ERISA fee and performance cases, which makes prevailing on a motion to dismiss a hit or miss proposition.  Discovery is expensive, and cases often settle for seven figures (sometimes more, sometimes less).  As a result, new cases continue to be filed, and the cost of fiduciary insurance is on the rise. 

If you’ve read this far, you may be looking for additional ways to protect your company (and its benefit plan fiduciaries) from the scourge of ERISA class actions.   One easy method of improving your defensive posture is to check your normal form of settlement agreement for resolving employment issues.  Does it routinely include both the employee’s promise to release claims as well as her covenant (or promise) not to sue?   If not, you may be missing out on the unique incremental protection that a covenant not to sue can give an employer in the defense of an ERISA class action.  

Differences Between a Release and a Covenant Not to Sue

A release is often an employer’s primary “get” in a separation agreement with a departing employee.  A release is an operative provision in which an employee discharges the employer and related releasees from defined claims, legally extinguishing those claims as of the effective date.  I hereby release my claims against you.

A covenant not to sue, on the other hand, is a forward-looking promise by the employee to refrain from taking certain actions in the future, often phrased in terms of an agreement not to bring or participate in any lawsuit, arbitration or other legal proceeding with respect to any released claim.  I promise not to sue you in the future regarding the claims I released.

In many, if not most, disputes, a release and a covenant not to sue have the same practical effect, namely, preventing future legal proceedings over settled matters within their scope.  Indeed, some litigators believe that a covenant not to sue does the exact same work as a release and do not bother to include a covenant in agreements that already contain a release.  Other litigators routinely negotiate for both provisions to be included in settlement agreements, as a belt and suspenders approach; if one fails, the other holds the company’s pants up.  Who is right? 

A recent federal case suggests that a covenant not to sue performs extra work, above and beyond a release, at least in the context of preventing unwanted ERISA class actions.  See Esquivel v. Whataburger Restaurants LLC, et al., No. 5:24-cv-00310-XR (W.D. Tex. Nov. 8, 2024), appeal filed Dec. 9, 2024.

Why Focus on Agreements with Employees/Former Employees?

Before turning to the reasoning of the Whataburger case, let’s start by asking why it makes sense to focus on settlement/separation agreements resolving employment issues when trying to reduce exposure to ERISA claims. 

  • First, and foremost, the “E” in ERISA stands for “Employee.”  Almost all ERISA class actions are brought by a current or former employee or their beneficiaries.  So, a company’s employees are a target-rich environment for risk-mitigation techniques.
  • Second, though we have not seen data on this point, it certainly feels like a disproportionate number of named plaintiffs in ERISA class actions have, or have had, an employment-related dispute with the same employer, independent of their potential ERISA claim.  Such employees might be comfortable with the adversarial process and, furthermore, might be predisposed to believe their current/former employer is capable of wrongful conduct.  As such, they may be primed to say “yes” when encountering solicitation requests from ERISA plaintiff-side lawyers on social media platforms or websites touting ongoing investigations into specific retirement plans, by name, sponsor, and location.   
  • Third, when an employer and employee are already entering into a new contract – such as a settlement agreement or separation agreement – resolving some dispute or addressing terms of separation from service, it should be a non-controversial matter to include appropriate protective provisions designed to maximize finality.  A covenant not to sue is often viewed as boilerplate, and thus the employee and his or her counsel likely would not resist its inclusion in a settlement agreement that already contains a release.  

The Representative Capacity Issue

Section 502(a)(2) of ERISA allows plan participants and beneficiaries to sue plan administrators for breach of fiduciary duty under §409(a) of ERISA, which in turn makes breaching fiduciaries liable to “make good to such plan any losses to the plan resulting from each such breach.”   The combined effect of these two sections of ERISA is that an individual plan participant may bring claims for breach of fiduciary duty “in a representative capacity on behalf of the plan as a whole.”  Massachusetts Mutual Life Ins. Co. v. Russell, 473 U.S. 134, 140, n. 9 (1985).

Questions arising out of this duality of capacities – individual versus representative – have been litigated in various contexts.  If an employee, in her individual capacity, signed a separation agreement with her employer before the ERISA dispute ripened, what effect does her agreement have when she later brings an ERISA claim on behalf of the plan as a whole, i.e., in her representative capacity?  For example, if an employee, in her individual capacity, signed an employment agreement containing an arbitration clause, are the §502(a)(2) claims she seeks to bring in a representative capacity subject to mandatory arbitration?  See, e.g., Tenneco, Inc. v. Parker,  114 F.4th 786 (6th Cir. 2024) (answering no), petition for certiorari pending.  Or if she signed a separation agreement in her individual capacity releasing any and all claims arising out of her employment, including claims under ERISA, is she prohibited from asserting representative claims on behalf of the plan?  See, e.g., In re Schering Plough Corp. ERISA Litig., 589 F.3d 585, 594 (3rd Cir. 2009) (answering no).

The Whataburger Court Draws a Distinction

In the Whataburger case, an employee signed a Separation and Release Agreement, which contained both a release and a covenant not to sue.   As noted by the Court, a covenant not to sue is “separate and distinct from the release,” and the two provisions must be analyzed independently. 

As for the release, the employee agreed to release the company and fiduciaries and others affiliated with the company’s 401(k) plan from “all claims of any type,” including claims under “the Employee Retirement Income Security Act.”  The Court agreed with various other courts that, as a matter of law, “an individual cannot release a plan’s claims and accordingly a release cannot bar an individual from bringing claims on behalf of a plan under 502(a)(2).”  The Court noted that a few courts disagree with this conclusion but found their reasoning lacking.  Thus, the Court held that the plaintiff’s §502(a)(2) claims against the plan could proceed, despite the release she had signed.

The Court then turned to plaintiff’s promise not to sue contained in the same Separation and Release Agreement.  The covenant provided, in part:  “A ‘promise not to sue’ means you promise not to sue any Releasee in court.  This is different from the General Release above.  Besides releasing claims covered by the General Release, you agree never to sue any Releasee for any reasons covered by the General Release.”  The covenant went on to say that plaintiff expressly agreed not to bring “claims for damages on behalf of another person or entity.”

The Court noted there is “very little authority” on whether a covenant not to sue is enforceable in the context of a claim brought in a representative capacity under §502(a)(2).  Focusing on the language of the covenant, the Court concluded the language was clear and unambiguous:  “Plaintiff expressly promised not to sue any Releasee.  Despite the Promise, Plaintiff has sued Whataburger, The Board of Directors of Whataburger Restaurants LLC and The Whataburger 401(k) Savings Plan Administrative Committee in this Court.” (Court’s emphasis.)

Accordingly, the Court concluded that, while the Plan might have ERISA claims, Plaintiff had contracted away his right to bring those claims on behalf of the Plan.  As a result, the covenant not to sue achieved something that the release did not – it prevented Plaintiff from bringing representative claims.  Of course, the lawyers could search for another participant to replace this Plaintiff (which is not always easy), but in the meantime, this Plaintiff, by virtue of his covenant not to sue, was neutralized.

Takeaways

  1. Though a release and a covenant not to sue may be redundant in many settings, when it comes to the high-stakes arena of ERISA fiduciary duty class actions, a court might find that a covenant not to sue is enforceable against a plaintiff who tries to bring claims in a representative capacity, even if a release given by the plaintiff in the same underlying agreement is not.
  2. Therefore, it pays to include both provisions – a release and a covenant not to sue – in settlement or separation agreements resolving employment issues.  Check your standard forms to see if they should be revised accordingly.

A recently filed lawsuit is a good reminder that self-insured health plan fiduciaries have a fiduciary duty to ensure that their health plans are being administered according to the plan’s terms and in compliance with law, while defraying the reasonable expenses of administering the plan.  In discharging this responsibility, plan fiduciaries must oversee any party to which they delegate fiduciary responsibilities, like third-party administrators.  Such oversight includes performing claims audits on the plan.  If plan fiduciaries experience difficulty receiving the detailed claims data needed to perform a thorough review from their third-party administrators, they should consider whether the services agreement with the third-party administrator provides them with the means to obtain that information given recent legislative requirements, like the “gag clause” prohibition in the Consolidated Appropriations Act of 2021. 

Background

Owens & Minor, a healthcare logistics firm, recently filed a lawsuit against Anthem Health Plans of Virginia, Inc., d/b/a Anthem Blue Cross and Blue Shield (“Anthem”), accusing Anthem of breaching its fiduciary duties by mismanaging Owens & Minor’s self-funded employee health plan. 

The lawsuit claims that in 2021, Owens & Minor requested plan data from Anthem so that the company could ensure Anthem was “faithfully administering the plan’s assets.”  Anthem allegedly delayed and obstructed Owens & Minor’s requests for health plan data.  The purported lack of cooperation eventually led Owens & Minor to file a lawsuit to access its own plan information.  After Owens & Minor obtained a portion of its plan data through the original lawsuit, the company filed a subsequent lawsuit in Virginia federal court based on what Owens & Minor says the data illustrates.

The newly filed complaint likens Anthem to “a fox in the henhouse” that allegedly “used Plan assets to enrich itself.”  The complaint alleges that the following acts, among others, constituted breaches of fiduciary duty:

  • “causing the Plan to grossly overpay claims, including payments above 100% of billed charges”
  • “causing the Plan to pay for the same medical claims multiple times”
  • “improperly classifying affordable generic drugs as specialty pharmaceuticals, which resulted in the Plan paying excessive prices”
  • engaging in “spread pricing” that charged the Plan more for prescription drugs than what was billed by providers.
  • withholding pharmaceutical rebates that should have been returned to the Plan.
  • alleged mismanagement of the BlueCard program, a program that enables members of one Blue Cross and Blue Shield (“BCBS”) plan to obtain health services in another BCBS plan’s service area.  According to the complaint, Anthem permitted other BCBS entities to impose excessive fees on the Plan.
  • use of out-of-network claim processing vendors, like MultiPlan, that resulted in Anthem pocketing exorbitant, unjustified fees for out-of-network claims.

The complaint alleges that Anthem’s mismanagement has caused at least tens of millions of dollars in damages.  Owens & Minor is seeking recovery of Plan losses caused by the alleged breaches.

Thompson Hine’s Takeaways

This case underscores the importance of group health plan fiduciary’s responsibilities for overseeing their third-party administrators.  It is not only a good idea to request claims data from third-party administrators, but also to conduct claims audits and analyze the data provided to ensure the plan is being administered according to its terms and in compliance with law.  Group health plan fiduciaries need to understand their rights to obtain claims data and audit such data under the terms of their services agreements with their third-party administrators.  Third-party administrators’ use of out-of-network repricing and negotiation vendors, like MultiPlan, has received heightened scrutiny recently due to a New York Times investigation, leading to letters from Senator Amy Klobuchar and the U.S. House of Representatives Committee on Education and the Workforce to government agencies requesting them to investigate these practices further.  Additionally, group health plan fiduciaries are becoming the target of litigation themselves (see the recent blog post “Potential Constitutional Standing Hurdles to Health Plan ‘Excessive Fee’ Claims” https://www.erisalitigation.com/2024/09/2476/), making a detailed claims audit sooner rather than later a good idea for group health plan fiduciaries.

Recent Decision Places Spotlight on Coordination Between DOL and Plaintiffs’ Firms

Defending ERISA claims against an enterprising plaintiffs’ bar is challenging enough. That task becomes even more challenging when the Department of Labor (“DOL”) is working behind the scenes to support private-sector litigants.  For example, the DOL has the power to issue subpoenas for documents and testimony without any pending litigation, which private plaintiffs cannot do.  The DOL, as regulator, can exert pressure on sponsors, fiduciaries and others to sit for interviews, even if no litigation is pending.   Private plaintiffs and their lawyers do not have these advantages – unless the DOL secretly helps them.  To date, evidence of such public-private enforcement coordination has been limited.  But should defense counsel be more concerned about the possibility of the DOL supporting a private plaintiff in pending litigation?  And if such support is occurring, are defendants entitled to access all communications between plaintiffs’ counsel and the DOL about the matter?  A recent federal court ruling by a magistrate judge in the District of Colorado suggests the answer is “yes” to both questions. See Harrison v. Envision Management Holding, Inc. Board of Directors et al., D. Colo. 1:21-cv-00304-CNS-MDB.

In Harrison,the Plaintiffs were former employees of a company that was sold as part of an ESOP transaction.  The plaintiffs sued the ESOP’s fiduciaries for various ERISA violations arising out of the ESOP’s acquisition of the company.  Plaintiffs brought suit in the District of Colorado on behalf of all ESOP participants and the parties eventually proceeded to discovery.

Meanwhile, behind the scenes, the DOL had also been investigating the same transaction. Using its investigative subpoena powers, the DOL, which was not a party to any litigation related to the transaction, had obtained documents from, and conducted interviews of, among others, the ESOP trustee being sued by the private plaintiffs as part of a broader investigation of the trustee by the DOL (whose investigation also covered other transactions).  Unbeknownst to those targets, the DOL was sharing information obtained through that investigation with the private plaintiffs, pursuant to a common interest agreement.

The scheme came to light when, as part of discovery, Plaintiffs sought to obtain a demand letter sent to the ESOP’s trustee, one of the ESOP’s fiduciaries, by the DOL, presumably to get that letter, in which the DOL purportedly accused the trustee of breaching its fiduciary duties, into the record. The trustee refused to produce an unredacted copy of the letter, and Plaintiffs moved to compel its production. The scheme came crashing down when the Court subsequently learned that Plaintiffs had not only already obtained the letter directly from the DOL, but also had been receiving additional documents from the DOL throughout Plaintiffs’ litigation pursuant to the common interest agreement.  

Upon learning of Plaintiffs’ coordination with the DOL, the Court immediately ordered Plaintiffs to produce the common interest agreement and log all documents it had received from the DOL. Among these were summaries of interviews the DOL conducted as part of its own investigation into the ESOP.  When Plaintiffs asserted a common interest privilege and refused to produce these interview summaries, Defendants moved to compel their production.

The Court ultimately granted Defendants’ motion to compel. In so holding, the Court concluded that there was not a sufficiently common legal interest between Plaintiffs and the DOL and that the DOL had therefore waived privilege over the interview summaries when it shared them with Plaintiffs.

The Court’s ruling shed light on potential coordination between the DOL and private litigants and provides several key takeaways for ERISA practitioners going forward:

  • Defense Counsel Should Seek to Identify DOL Coordination at the Outset of the Case. Remarkably, it is unclear whether any of the coordination uncovered in Harrison would have ever been disclosed absent Court intervention. In fact, the Court explicitly noted its “concern[]” that Plaintiffs had failed to previously advise Defendants of his arrangement with the DOL. The ruling thus stands as a stark reminder for defense counsel to use the tools at their disposal to suss out DOL involvement at the outset, including targeted discovery requests that force plaintiffs to identify any potential coordination early in the matter.  Companies should also consider potential coordination agreements when facing DOL investigations. 
  • ERISA Does Not Broaden the Common Interest Exception.  The Court squarely rejected Plaintiffs’ argument that ERISA affords special protection to communications between the DOL and third parties. While the ERISA statute authorizes the DOL to share investigative material with those affected by an investigation, the Court declined to hold that this authority expanded the scope of the common interest doctrine or otherwise protected the DOL’s communications from discovery. To the contrary, the Court held that the DOL’s communications are subject to the same privilege and waiver analyses as any other communications.
  • Plaintiffs and the DOL Face a High Bar in Satisfying the Common Interest Exception.  The decision in Harrison also underscores the uphill battle for plaintiffs seeking to assert the common interest exception over their communications with the DOL. The Court underscored that the common interest doctrine applies narrowly and only where communications are shared in furtherance of a common legal—as opposed to financial or commercial—strategy. Thus, according to the Court, the DOL’s and Plaintiffs’ common interest in “restoring losses” was not sufficiently legal so as to protect their communications from discovery. The Court also carefully scrutinized the precise interests of each party, noting that the DOL’s interest in investigating the Defendant trustee was broader than the claims Plaintiffs were asserting in the litigation and that the DOL admitted that it had not reached any final conclusions about whether the defendant trustee had, in fact, breached their fiduciary duties—fatally undermining any claim of common interest. As the Court put it: “If the DOL has not even formed a position on the merits of this case, how can it develop a common legal strategy with Plaintiffs?” This holding essentially forecloses application of the common interest to DOL communications concerning an ongoing investigation. 

The Harrison decision has also sparked interest on Capitol Hill. Republicans on the House Committee on Education & the Workforce cited the ruling in a recent letter to the DOL’s inspector general calling for an investigation into information sharing between the DOL and outside law firms.  The findings of any investigation could provide even greater insight into the extent of DOL-plaintiff coordination in private litigation.  For its part, the DOL has commented publicly on this recent development, asserting its view that common interest agreements “are a well-established legal tool” that “are used by government and private litigants alike.”[1]  The DOL’s position – which suggests that the use of a common interest agreement in this case is not an isolated incident or out of the ordinary – further highlights the need to be mindful going forward of possible coordination.  Any target of ERISA litigation or an investigation should be sure to take the necessary steps to uncover that coordination as early as possible, and perhaps this may extend beyond cases involving ERISA.

If you have questions, please contact the authors or your regular Thompson Hine attorney.

[1] https://www.napa-net.org/news/2024/11/dol-improperly-shares-information-with-plaintiffs-bar-house-republicans-allege/

Citing resistance from health and welfare plan service providers, the DOL updated its 2021 cybersecurity guidance to clarify that it “generally applies to all employee benefit plans, including health and welfare plans.” This clarification is the only material change in the update. Despite that, the update serves as a useful impetus for employers to survey their current cybersecurity practices with respect to their benefit plans. Why? Security breaches are becoming more common, larger in scope, and resulting in larger liability (How many breach notifications have you received this year? I’m at four). In its report on 2023 breaches, ITRC, a non-profit that tracks publicly available data breach information, noted that (1) the number of breaches is up 72% from 2021 (the previous high); and (2) the breaches victimized more than 353 million people.

  1. Refresh Memory of the Guidance. Some employers may not have thought about the DOL’s cybersecurity guidance since it was released in 2021. As a refresher, the guidance consists of three different component documents, each targeted at a different audience. The first provides security tips to participants (e.g., use strong passwords). The second provides tips to an employer for vetting a potential service provider’s cybersecurity practices during an RFP process (e.g., verify service provider has cybersecurity insurance and examine its history of breaches). The third provides best practices for service providers to use as part of their cybersecurity programs. All three components are available here.
  2. Identify Ways to Incorporate Participant Tips. There is no specific disclosure requirement in the guidance as to when or how to provide the security tips to participants, but the guidance implies a fiduciary obligation to share the information with participants. A simple way to communicate the tips is to add them to other benefit plan participant communications, like summary plan descriptions or enrollment materials. The tips can also be added to a company’s intranet site dedicated to benefits or a service provider’s participant portal.  
  3. Evaluate Current RFP Practices. For companies that have standard, internal processes for conducting an RFP, evaluate what cybersecurity factors already exist (for example, the company’s InfoSec team may already have standard cybersecurity requests for RFP respondents). Then, compare such processes against the DOL guidance and determine if additional measures should be added. If a company relies on a consultant to administer an RFP process, it should require that the consultant to account for the DOL guidance as part of the process. If a company creates an ad hoc process whenever going to market for a service provider, it should identify a way to remind itself about the DOL guidance each time so the guidance is addressed as part of preparing the RFP.
  4. Secure Contractual Commitments. While an employer does not have direct control over a service provider’s cybersecurity program, it can address the DOL’s cybersecurity best practices guidance in its services agreement with the service provider. When negotiating the services agreement, consider the DOL best practices when determining what cybersecurity obligations to impose on the service provider. Likewise, obtain a requirement for the service provider to have appropriate levels of cybersecurity insurance and to indemnify the company for any cybersecurity incident, including costs incurred to protect participants affected by the breach.   

Earlier this year, current and former participants of two ERISA-governed health plans filed complaints alleging the same novel legal theory: that plan fiduciaries violated ERISA by mismanaging the plan’s prescription drug benefits.  In both complaints, plaintiffs alleged that the mismanagement was caused in part by the plans paying excessive and unreasonable fees to their respective pharmacy benefit managers (PBMs), resulting in participants paying unreasonably high prices for prescription drugs.

Although both cases are still in the early stages of litigation, the issue of constitutional standing is expected to play a key role in whether plaintiffs’ claims bypass the pleading stage.  The U.S. Constitution requires plaintiffs to establish standing to bring a claim in federal court.  This means a plaintiff must show they suffered an “injury in fact,” i.e., an injury that is (i) concrete and particularized and (ii) actual or imminent, rather than conjectural or hypothetical.  Moreover, the injury must be fairly traceable to the challenged action of the defendant and likely to be redressed by a favorable decision by the court.

Because the health plans at issue in these excessive fee cases are self-funded and the employer – not the participant – pays the cost of benefits after the participant’s deductible is met, we expect defendants to argue that the plaintiffs have not suffered injury in fact because the participant’s costs are not impacted.  In other words, to the extent excessive fees are paid to PBMs, those fees are paid by the employer, not the participants – the participants have no “skin in the game.”

Similar arguments have been made as to claims in the retirement plan and MEWA contexts, and those cases may offer useful insight into the viability of a constitutional standing argument in the excessive health plan fee cases.   For example:

  • Thole v. U.S. Bank, N.A, 590 U.S. 538 (2020) – In 2020, the Supreme Court addressed whether participants in a defined benefit pension plan had standing to bring claims alleging the plan fiduciaries’ failure to prudently manage the plan’s aggressive investment portfolio caused nearly $750 million in plan losses.  The Court concluded the plaintiffs did not have standing and affirmed the Eighth Circuit’s dismissal of the claims.  The Court reasoned that, because the plan provided for a benefit amount regardless of the plan asset performance, participants would receive the full value of their benefits even if the assets had been mismanaged; therefore, plaintiffs had not suffered an injury in fact required to bring the claims.  The Court stated that its reasoning would not apply in the context of a defined contribution plan, where participants’ benefits are tied to the value in their accounts. 
  • Winsor v. Sequoia Benefits & Ins. Servs., LLC 62 F.4th 517 (9th Cir. 2023) – In Winsor, the Ninth Circuit, relying on Thole, affirmed dismissal of the claims of MEWA participants that the MEWA fiduciaries approved payment of excessive insurer fees from the MEWA funds.  As in Thole, the Winsor complaint contained no allegations that plaintiffs did not receive their health benefits under the MEWA. The Ninth Circuit reasoned that a health plan is analogous to a defined benefit retirement plan because participants receive a set level of benefits regardless of the MEWA’s management, and that there was no allegation that the plaintiffs did not receive those benefits.  The Ninth Circuit also noted that participants failed to allege facts sufficient to tie the alleged fiduciary breaches to the allegedly higher premiums paid by the plan.
  • Knudsen v. Met Life Group, Inc., 2023 U.S. Dist. LEXIS 123293 (D.N.J. 2023) – Similar to Winsor, the District Court for the District of New Jersey dismissed for lack of standing claims challenging a health plan’s failure to use drug rebate profits to lower participant costs under the plan.  The court analogized the health plan at issue in the case to the defined benefit retirement plan at issue in Thole, noting that the plan’s benefits and annual premiums do not depend on or fluctuate with the plan’s profits or losses. Because the plaintiffs did not allege they did not receive the benefits promised under the plan, the plaintiffs lack standing.  The Knudsen plaintiffs appealed the ruling to the Third Circuit. 

In the context of claims alleging excessive PBM fees, because the costs of any allegedly excessive fees are born primarily by the employer, and because participants’ benefits under the plan do not depend on PBM fees paid, these holdings suggest that it may be difficult for plan participants to establish sufficient injury to give them constitutional injury to bring claims.

Until the law is more developed, health plan sponsors should continue to assess their risk of similar excessive fee-type claims.  Sponsors can take certain steps to mitigate those risks including:

  • Establish a welfare plan fiduciary committee (or similar structure) that meets regularly;
  • Conduct regular RFPs for service providers (including TPAs, PBMs, brokers and consultants);
  • Understand the fee structure for each plan provider and taking prudent steps to conclude that fees and expenses charged by plan providers are “reasonable”;
  • Establish structured procedures for monitoring service providers and other delegates (including TPA, PBMs, brokers and consultants);
  • Document meetings and decisions sufficient to demonstrate consideration of all important details;
  • Maintain plan claims procedures; administering claims in accordance with procedures (oversee and monitor claims administrator);
  • Oversee compliance with federal laws applicable to health and welfare plans (e.g., COBRA and HIPAA);
  • Monitor significant/high-profile regulatory developments and related enforcement;
  • Safeguard participant data through implementation of cybersecurity best practices; and
  • Consider obtaining fiduciary liability insurance.

If you have questions, please contact the authors or your regular Thompson Hine attorney.

Effective January 1, 2024, the Setting Every Community Up for Retirement 2.0 Act (“SECURE 2.0”) allows employers to make matching contributions under defined contribution plans based on employees’ qualified student loan payments.  Although student loan matching contribution programs could provide a significant new benefit for employees with student loan obligations, few employers have amended their plans to implement such programs because further regulatory guidance is needed.

Background

As borrowers in the United States have $1.75 trillion in student loans (both federal and private), the topic of student debt has come under the national microscope in recent years.[1]  In 2023, 28 million people restarted federal student loan payments after a nearly 42-month pandemic-related moratorium.[2]  Although student loan debt is typically associated with younger people, it affects individuals of all ages.  In 2024, about 8.8 million individuals aged 50 and older, including retirees, owe $380 billion in student loans.[3]

Given that student loans impact so many individuals in the workforce, SECURE 2.0’s student loan matching programs are important for employers and employees alike.  For employers, they can be a unique tool for both recruiting and retaining talented employees.  Many student borrowers may delay saving for retirement while they focus on paying down student debt, foregoing free money from employers in the form of a retirement plan matching contribution.  Student loan matching contribution programs allow employees to balance student loan obligations and retirement planning by allowing employees to take advantage of matching contributions to begin saving for retirement while also making payments toward student loans.

Statutory Framework

SECURE 2.0 provides that a defined contribution plan can provide matching contributions based on a participant’s “qualified student loan payments” on a “qualified education loan” incurred by a participant to pay “qualified higher education expenses.”   Student loan payments qualify for matching contributions only (1) to the extent that loan payments do not exceed the annual limit on elective deferrals under Code section 402(g) (reduced by any elective deferrals made under the defined contribution plan) and (2) if the employee certifies annually to the employer that loan payments have been made.  Employers may rely on the employee’s self-certification that the employee has made loan payments.

A plan implementing a student loan matching contribution program must satisfy the following criteria: 

  • The plan must provide matching contributions on elective deferrals at the same rate as contributions on qualified student loan payments;
  • The plan must provide matching contributions on qualified student loan payments only on behalf of employees otherwise eligible to receive matching contributions on elective deferrals;
  • All employees eligible to receive matching contributions on elective deferrals must also be eligible to receive matching contributions on qualified student loan payments; and
  • The plan must provide that matching contributions on qualified student loan payments vest in the same manner as matching contributions on elective deferrals.

SECURE 2.0 also addresses some nondiscrimination testing issues related to student loan programs.  Generally, loan payments are not treated as contributions under a plan, except that loan payments can be treated as elective deferrals for purposes of 401(k) safe harbor rules.  For ADP testing under Code section 401(k)(3)(A)(ii), participants receiving matching contributions on loan payments can be tested separately.

Additional Guidance Is Needed

SECURE 2.0 directs the Department of Treasury to issue regulations:

  • Permitting a plan to make matching contributions for qualified student loan payments at a different frequency than other matching contributions, provided that the frequency is not less than annually;
  • Permitting employers to adopt reasonable procedures for a participant to submit a claim for a qualified student loan payment matching contribution (e.g., a submission deadline), provided that the deadline is not earlier than 3 months after the close of each plan year; and
  • Providing a model amendment which can be adopted to implement a compliant student loan matching contribution program.

The anticipated regulations are a good starting point for guidance.  However, there are other significant administrative complexities for implementing a student loan matching contribution program that have not yet been addressed.  Further regulatory guidance regarding the following topics will assist plan sponsors in implementing student loan matching contribution programs:  

  • Annual Certification    
  • Code section 401(m)(4)(D) provides that a participant must certify annually to the employer that payments have been made on student loans, and Code section 401(m)(13)(c) provides that an employer may rely on the participant’s certification.  What type of information must the participant certify to the employer?  Must the employee register the loan with the employer prior to making payments?  Does the employer have recourse against the employee if false information is certified regarding the loan?
  • Payment of loans on behalf of an individual other than the participant
  • Code section 401(m)(4)(D) specifies that the loan must be “incurred” by the employee. If the participant guarantees, cosigns, or otherwise has responsibility with respect to a loan for the education of another individual (such as a spouse, child, or dependent), can the participant’s payments toward such obligation qualify for a student loan matching contribution?
  • Limitations on Higher Education
  • Code section 401(m)(4)(D) provides a complex definition of “eligible educational institution” which refers to other Code provisions and the Higher Education Act of 1965.  Additional guidance would help clarify what types of educational programs qualify.
    • Additionally, can employers craft limitations on the types of educational loans for which they will provide matching contributions?  For example, can employers limit their student loan matching contributions to loans for education at 4-year universities only, excluding community colleges or technical schools?  Can employers limit matching contributions to loans for education in certain fields related to the employer’s line of business?
  • Nondiscrimination Testing
  • Code section 401(m)(13)(B)(iv) specifies that the participants receiving a match related to loan payments can be tested separately for purposes of ADP testing.  However, how must employers correct nondiscrimination testing issues related to matching contributions made on behalf of qualified student loan payments, such as excess deferrals for highly compensated employees?
  • Forfeitures
  • Can employers use forfeitures to offset the cost of matching contributions made on behalf of qualified student loan payments?

Conclusion

Student loan matching contribution programs offer employers with defined contribution plans a new tool to attract and retain talented employees.  These programs will assist employees, particularly younger people, in saving for retirement while also satisfying loan obligations.  Guidance from the IRS, the timing of which is unclear, will assist plan sponsors in implementing student loan matching contribution programs to further the goals of both employers and employees.  Practitioners do expect regulatory authorities to provide guidance, but the timing for such guidance is unclear.

[1] “2024 Student Loan Debt Statistics: Average Student Loan Debt,” Forbes.com (https://www.forbes.com/advisor/student-loans/average-student-loan-debt-statistics/).

[2] “A First Look at Student Loan Repayment After the Payment Pause,” U.S. Department of Education, Homeroom Blog (https://blog.ed.gov/2023/12/a-first-look-at-student-loan-repayment-after-the-payment-pause/).

[3] “2024 Student Loan Debt Statistics: Average Student Loan Debt,” Forbes.com (https://www.forbes.com/advisor/student-loans/average-student-loan-debt-statistics/).

Believe it or not, the due date for annual Form 5500 filings is once again approaching.  As a reminder, Forms 5500 are due by the last day of the seventh month following the end of the plan year.  A 2½ month extension will automatically be granted upon filing a Form 5558.  For calendar year plans, a Form 5558 must be filed by July 31 for an extension to file Form 5500 by October 15.

Changes to Form 5500 for 2023 Filings

  • Participant-count methodology:  Previously, “active participants” included all individuals who were eligible for a plan.  Beginning with filings for the 2023 plan year, the “active participants” only includes those individuals with account balances in the plan.  This change is important for plans that are near the 100-participant threshold which requires an annual plan audit by an independent qualified public accountant (IQPA).  Keep in mind that the “80-120 participant rule,” which permits a plan to file as a small plan (thus avoiding the IQPA audit) as long as the plan filed as a small plan in the year prior, remains unchanged.
  • Financial information required on the Schedule H:  The Schedule H has always required reporting of administrative expenses; however, the reporting was limited to categories for professional fees, contract administrator fees and investment advisory and management fee and a catchall category of other fees.  Beginning with the filing for the 2023 plan year, the category of “professional fees” has been eliminated, but reporting on the following additional categories is required:
  • Salaries and allowances
  • Recordkeeping fees
  • IQPA audit fees
  • Bank or trust company trustee/custodial fees
  • Actuarial fees
  • Legal fees
  • Valuation/appraisal fees
  • Other trustee fees and expenses.

The additional categories are meant to increase transparency.  However, plan sponsors should remember that Form 5500 filings are public and the additional disclosures relating to fees paid by plans could come with additional scrutiny by the Department of Labor (DOL) or plan participants.  Thus, plan fiduciaries should continue to scrutinize fees paid by plans and ensure that fees paid are for reasonable administrative services and fees are commensurate with services provided.

  • Schedule R, new “Part VII”:  This new disclosure on Schedule R requires a plan to report whether it satisfies coverage and nondiscrimination tests through a combination with other plans under the permissive aggregation rules.  Note that a plan need not disclose whether coverage and nondiscrimination testing has passed or failed, but simply requires a statement as to whether the plan has been permissively aggregated with other plans to pass testing.  Additionally, a plan that uses a design-based safe harbor will now be required to note as much on the Form 5500 and will have to include whether the plan uses a prior year or current year ADP testing methodology.  Lastly, if a plan uses a pre-approved plan document, the date the pre-approved plan received an IRS Opinion Letter and the Opinion Letter serial number must also be reported.

DOL Review of Forms 5500

As Forms 5500 are publicly available, Forms 5500 should be reviewed and scrutinized before filing with the DOL.  The DOL routinely uses information from Forms 5500 to identify potential violations.  The DOL is currently focused on the reporting of late contributions.  The DOL’s plan asset rules require that employee deferrals and loan repayments be segregated from the employer’s general assets as soon as administratively practicable, but in no event later than the 15th business day following the end of the month in which such amounts are withheld from wages.  However, this rule is not a safe harbor and more often than not, “as soon as administratively practicable” is much sooner than the 15th business day following the end of the month in which such amounts are withheld from wages.  Plans are required to report on Form 5500, Schedule H if there has been a failure to timely transmit any participant contributions.  The DOL regularly sends letters to plan sponsors who have reported late contributions inviting them to self-correct via the DOL’s Voluntary Fiduciary Correction Program. 

Mitigation of Litigation

Forms 5500 which are publicly available include data that can be mined for potential inconsistencies and irregularities.  Fee and expense information has frequently been cited in lawsuits alleging excessive fees.  Recent lawsuits have also targeted plans related to the use of plan forfeitures using data obtained from Forms 5500.  Plan fiduciaries should be aware of the importance of the information being reported on Forms 5500 and in the annual audit reports and how such information could potentially be cited in litigation.

Conclusion

Third parties are often responsible for the preparation of the annual Forms 5500.  However, plan fiduciaries should not rely solely on outside parties to complete Forms 5500 on their own.  Forms 5500 are signed under the penalty of perjury and thus should be reviewed closely to ensure that the information reported is accurate and the signer understands the information being reported.

Imagine you’re a plan administrator who receives an angry letter from an out-of-network provider.  The letter explains that before treating a plan participant, the provider called to confirm the participant’s eligibility for out-of-network coverage and to authorize treatments at certain rates under the plan.  Now that treatment has been rendered, the provider is demanding payment for its services and threatening to bring state law breach of contract claims to recover amounts owed by the plan.

Time to pay up, right?  Not so fast; a recent Ninth Circuit case may provide a means for plans that receive such letters to avoid such claims.  In Bristol SL Holdings, Inc. v. Cigna Health & Life Ins. Co., 2024 U.S. App. LEXIS 13096 (9th Cir. 2024) (“Bristol”), the Ninth Circuit Court of Appeals held that an out-of-network provider’s state law claims for reimbursement were preempted by ERISA (and therefore could not be brought against the plan administrator) where the provider had engaged in a plan-prohibited practice called “fee forgiving,” on the grounds that the claims had both a “reference to” and a “connection with” the plan administrator’s plan.  The decision is a good reminder for plan administrators to confirm that administrative practice is consistent with plan terms or, at minimum, well-documented plan procedures, which, under the Bristol court’s reasoning, could result in preempted state law claims.

What Is Fee Forgiving?

“Fee forgiving” is a practice in which a provider charges an ERISA plan for a rendered service but does not charge the patient the copay or deductible owed for the service under the plan.  While fee forgiving may be great from a patient perspective (free health care!), it’s not always as generous as it seems.  For example, an out-of-network provider that routinely waives costs for patients may be attempting to hide the true cost of what it is billing—such as unnecessary or expensive services.  In addition, fee forgiving theoretically can drive up insurance costs by eliminating financial incentives for patients to seek cheaper care from their plans’ in-network providers.  As a result, some ERISA health plans contain language permitting insurers to deny reimbursement to providers that engage in fee forgiving.

Bristol Decision

Facts of the Case

In Bristol, a drug rehabilitation and mental health treatment center received reimbursements from an ERISA plan administrator for services the center rendered to plan participants as an out-of-network provider.  Before accepting plan participants as patients, the center would call the plan administrator to confirm participant eligibility for out-of-network benefits and to determine appropriate reimbursement rates.  The plan administrator reimbursed the center under this system until it suspected the center was “fee forgiving”—a practice directly addressed in the plan documents through language permitting the plan administrator to deny reimbursement of charges for which participants were not billed (i.e., for which fees were forgiven).  Based on the plan language, the plan administrator stopped reimbursing the center for claims suspected to involve fee forgiving.  The plan administrator sent the center a letter detailing its concerns and requesting proof of patient payment amounts owed under the plan.

Following the center’s bankruptcy, its successor-in-interest brought state law claims for breach of contract and promissory estoppel against the plan administrator, seeking reimbursement for service claims denied on account of the fee forgiving.  The Ninth Circuit Court of Appeals held that although the administered plans technically covered the patients and treatment for which plaintiff sought reimbursement, the claims “related to” the plans and were therefore preempted by ERISA.

ERISA Preemption

The Supreme Court has created two tests to determine whether a state law “relates to” an employee benefit plan and is preempted by ERISA.[1]  Under the first test, courts consider whether a state law has a “reference to” an ERISA plan.  The “reference to” test requires ERISA preemption if a state law claim is premised on the existence of an ERISA plan, the plan’s existence is essential to the claim’s survival, or the claim provides alternative enforcement mechanisms for ERISA plan obligations.  Under the second test, courts consider whether a state law has a “connection with” an ERISA plan.  The “connection with” test requires ERISA preemption if a state law governs a central matter of plan administration, interferes with nationally uniform plan administration, or if acute economic effects of the law force the plan to adopt a particular coverage scheme or restrict its choice of insurers.

Bristol Holding

In reaching its decision in Bristol, the Ninth Circuit explained that the plaintiff’s claims had both a “reference to” and an “impermissible connection” with the plans at issue and were thus preempted by ERISA.

Under the “reference to” test for ERISA preemption, the Ninth Circuit explained that by using state law claims to try to recover plan-covered payments discussed over the phone with the plan administrator, plaintiff sought to obtain a remedy that is not available under ERISA.  As a result, plaintiff’s state law claims were preempted for attempting to provide an alternative enforcement mechanism.  The Court also noted that by using plan reimbursement rates to calculate damages, plaintiff’s state law claims specifically relied on the terms of the plan administrator’s plan and thus were preempted as being premised on the existence of an ERISA plan.

Under the “connection with” test for ERISA preemption, the Ninth Circuit explained that allowing liability on the state law claims would intrude on a central matter of plan administration—specifically, the plan administrator’s system of first verifying out-of-network coverage and authorizing treatment by phone, and subsequently conditioning reimbursement on whether a provider had secured payments owed by plan participants.  The Court noted that plaintiff’s theory—which would require reimbursement based on the verification calls in clear violation of plan’s prohibition on fee forgiving—would render the prohibition moot and would impermissibly force plans to choose between their plan terms and their prior authorization programs.  Additionally, the Court reasoned that using state contract law to bind insurers to their verbal representations—rather than determining reimbursements in accordance with ERISA plan terms—would interfere with national uniform administration of ERISA plans.  For each reason, the Court determined the plaintiff’s claims had an impermissible connection with an ERISA plan and were therefore preempted.

Thompson Hine’s Takeaways

Although its holding specifically addresses ERISA’s preemption of state law claims where a plan administrator denied payment based on fee forgiving provisions, plan administrators threatened with state law litigation to recover out-of-network provider payments should consider the implications of the Bristol decision.  Plans looking to protect themselves against such claims denied on a similar basis should consider whether the plan document prohibits fee forgiving, and if not, whether such a provision should be added.  To the extent a plan does prohibit fee forgiving and plan administrators have relied on the prohibition to deny out-of-network provider reimbursements, such reliance should be well-documented.  More broadly, plan administrators should assess whether the plan reflects administrative practices in approving or denying claims and, if not, consider making necessary amendments to the plan or formalizing plan procedures; this could support ERISA preemption if a claims decision were challenged under state law. 

Plans should also keep in mind that Bristol does not eliminate all types of state law claims by out-of-network providers.  The Bristol holding itself explains that some circuits have allowed state law misrepresentation claims to proceed where providers rendered certain services based on insurers’ misrepresentations regarding participant eligibility for the services.  Similarly, some courts have held that ERISA will not preempt third-party reimbursement claims triggered by the absence of an ERISA plan (i.e., claims seeking reimbursement for costs of care provided when patients lacked ERISA plan coverage).  However, Bristol could provide a compelling preemption defense—at least in the Ninth Circuit—to ERISA plans against conflicting state-imposed liabilities that run contrary to established plan procedures, and in support of processes (such as fee forgiving exclusions, preauthorization, and benefits verification) critical to plan administration. 

Ultimately, although ERISA preemption is a largely fact-specific inquiry, the Bristol decision may serve as an additional tool for plans and plan administrators to protect themselves against state law claims for services denied in accordance with plan terms.

[1] Gobeille v. Liberty Mut. Ins. Co., 577 U.S. 312, 319 (2016).