DOL Enforces Tobacco Surcharge, Claims Administration, and Missing Participant Requirements 

Last week, the U.S. Department of Labor (DOL) filed suit against Flying Food Group, LLC (FFG), the plan administrator of a self-funded health plan, alleging violations of ERISA's wellness program rules by improperly charging higher premiums to plan participants using tobacco products. Su v. Flying Food Group, LLC, No. 1:23-cv-06583 (N.D. Ill, Aug. 30, 2023). The lawsuit also asserts that FFG breached its fiduciary duties by applying a deductible to certain services contrary to the terms of the plan. 

According to the amended complaint, FFG charged participants premiums that varied depending on whether they reported using tobacco products on their enrollment form. Those participants who reported tobacco use were charged a "tobacco surcharge" of $20 per month. However, the plan did not provide any alternative standard by which participants reporting tobacco use could obtain the discounted premium that was offered to participants who did not report tobacco use, as required by ERISA § 702(b) and related regulations that prohibit discrimination based on a health status-related factor. The lawsuit faults FFG for not having a reasonable alternative standard to qualify for the discounted premium, for failing to give notice to participants of an alternative standard, and for charging participants the higher premium based on tobacco use – a health status-related factor.

DOL also alleges that FFG failed to prudently administer the plan or to administer it in accordance with plan documents when it applied a deductible to certain outpatient diagnostic services and mammograms in contravention of the plan documents, including the certificate coverage indicating these services were not subject to a deductible. 

Along with the amended complaint, the DOL filed an unopposed motion to approve a consent order and judgment that would resolve the litigation. According to the terms of that proposed order, if adopted by the court, FFG will pay $134,222.70 to participants directly for the amounts applied to their deductibles or charged to them as tobacco surcharges. For missing or lost participants, FFG agreed to adopt a missing participant search policy described in the consent order, including utilizing reputable search engines, reviewing personnel files for contact information, using other "reasonable" internet search or locator tools, and employing other efforts, all of which may vary depending on the amount owed to the missing participant. If the participant remains missing after one year, FFG will escheat the amounts owed to the appropriate state as unclaimed property. In addition, DOL will assess a civil monetary penalty against FFG in the amount of $13,422.27. This lawsuit signals that DOL remains concerned with locating missing participants and examining wellness program violations, despite its heavy enforcement focus on mental health parity and No Surprises Act (NSA) compliance. 

Meanwhile, DOL's long-running litigation against Macy's Inc., which also involves allegations of ERISA § 702(b) violations stemming from a tobacco surcharge, remains pending in federal court in Ohio. The parties await the court's ruling on Macy's motion to dismiss the DOL's second amended complaint, which DOL filed after dismissal of the prior complaint and denial of its motion for reconsideration. 

Judge Tosses APA Challenge to DOL Cryptocurrency Guidance

A federal district court in Washington, DC, recently dismissed a complaint filed by ForUsAll, Inc., an administrative services provider to retirement plans, challenging DOL's March 2022 Compliance Assistance Release (CAR) entitled "401(k) Plan Investments in Cryptocurrencies." ForUsAll, Inc. v. U.S. Department of Labor, No. 22-cv-1551 (D.D.C., Aug. 29, 2023). The court held not only that ForUsAll lacked standing to bring the lawsuit, but also that the CAR was not final agency action subject to judicial review.

ForUsAll, which the court wrote was the first company to announce it would make cryptocurrency available to 401(k) plan participants through a self-directed window, alleged in its complaint that the CAR violated the Administrative Procedure Act (APA) because DOL issued it without notice and comment and because it contained a heightened "extreme care" standard for fiduciaries related to cryptocurrency that improperly supplanted ERISA's duty of prudence standard. ForUsAll asked the court to vacate the CAR and declare that DOL was not authorized to seek adherence to substantive rules that it did not set forth in regulatory guidance or use its investigative authority for purposes other than to investigate violations of Title I of ERISA.

On the question of standing, the district court focused its analysis on whether ForUsAll suffered an injury that was redressable by the court and held that it had not:

Whether the [CAR] stands or falls, retirement plans are unlikely to jump back into business with ForUsAll, at least on this score, because they will remain bound by fiduciary duties that will be enforced by a Department that is skeptical of cryptocurrency and likely to bring enforcement actions in this area. Under these circumstances, and without evidence to the contrary, it is doubtful that any relief this Court could provide would repair ForUsAll's dashed business prospects. ForUsAll therefore has failed to establish redressability and lacks standing to proceed.

Holding that the CAR was not final agency action, the court emphasized that it did not bind regulated entities or declare that a fiduciary violates ERISA by offering cryptocurrency options. According to the court, "[w]hile [the CAR] warns plan fiduciaries that it may be difficult to square offerings in cryptocurrency with their obligations under ERISA, it does not prevent these companies from taking a different view of the matter." The court found that the CAR was "purely informational" and that no legal consequences flow from it. 

In an interesting twist, ForUsAll asked the court for an order dismissing its complaint that would also bind DOL to statements the agency made in its reply brief on its motion to dismiss or, in the alternative, striking the reply from the court's record. ForUsAll sought to bind DOL to statements in the reply indicating that the CAR was not binding, cannot be the predicate for enforcement actions, and imposes no new legal obligations. The court denied ForUsAll's request for such an order and issued an order dismissing the case.

Upcoming Speaking Engagements

Joanne Roskey will present, "What the New Mental Health Parity Guidance Means for You - Part Two," the second part of an American Benefits Council Benefits Briefing webinar series on September 11.

On October 17, Joanne Roskey will present, "Headaches, Heartburn, and Anxiety - Mental Health Parity Policy Implications," to members of the ERISA Industry Committee.

On October 31, Joanne Roskey and Dawn Murphy-Johnson will present, "State Legislative Activities Impacting Employee Benefits," an American Staffing Association webinar.

Recent Publication

Joanne Roskey's article, "Are You Ready for Class Action Health Care Plan Fee Litigation?" appeared in PlanAdviser on September 1.

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