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The ERISA Edit: Unqualified Expert Tanks 401(k) Fee Class Action

Employee Benefits Alert

Court Rejects Expert's Apples-to-Oranges Comparisons in Excessive-Fee Case

On cross-motions for summary judgment in an ERISA excessive-fee class action suit, Huang v. TriNet HR III, Inc., No. 20-cv-2293 (M.D. Fla. Apr. 26, 2023), the plaintiffs alleged that the retirement committee (Committee) charged with administering a multiple employer plan (Plan) offered by TriNet Group, Inc. (TriNet) overpaid for recordkeeper services. In support, the plaintiffs offered expert testimony that the Plan's recordkeeping fees were unreasonable and that the Committee and its outside advisors were "imprudent and likely negligent" when they conducted a 2015 request for proposals (RFP) for recordkeeping services because the pool of potential vendors did not include any "independent" recordkeepers. 

The court rejected the expert's testimony in its entirety, denied plaintiffs' motion, and granted judgment in favor of the TriNet defendants. In a decision devoted almost entirely to the TriNet defendants' Daubert motion, the court concluded that the plaintiffs' expert was not qualified to testify competently regarding the 2015 RFP because he admitted he had never conducted an RFP, had not responded to an RFP in nearly 40 years, and acknowledged that he would have to rely on the expertise of a consultant to determine how the defendants should have conducted the RFP process. Further, the expert's method of generating his "reasonable" fee was unreliable because he did not explain how his knowledge and experience led to his calculations, or why those numbers were reasonable in light of any Plan features – especially given that many of the comparator plans listed in his report were not actually comparable in size or type to the Plan. Indeed, the expert did not compare the Plan to any other Multiple Employer Plans (MEPs), and instead relied on single and multiemployer plans as comparators, "despite recognizing that such plans are not, in fact, comparable to MEPs" in terms of administrative costs. 

Having excluded the expert's testimony, the court determined that the plaintiffs could not prove their recordkeeping claim and, in fact, held that the undisputed evidence established the opposite: the Committee had affirmatively monitored the Plan's recordkeeping fees, conducted competitive searches for recordkeepers, and engaged in regular benchmarking exercises. "At best," the plaintiffs had demonstrated that "a different type of retirement plan could have paid lower recordkeeping fees for a different package of services." Though the court very much focused on the plaintiffs' failure to make their case, as opposed to TriNet's affirmative evidence, the summary judgment decision noted not only that the 2015 RFP resulted in price negotiations that reduced the per-participant recordkeeping fees, but also that the defendants' expert established that the Plan "paid some of the lowest recordkeeping fees of any MEP in the market."

Court Kicks Out Cross-Plan Offsetting Lawsuit on Standing Grounds

The U.S. District Court for the District of Minnesota dismissed a complaint against United Health Group (United) alleging that the practice of cross-plan offsetting violated ERISA, finding that the plaintiffs, who failed to establish they were harmed by the payment practice, lacked standing to sue. Smith v. UnitedHealth Group, Inc., No. 22-cv-1658 (May 5, 2023, D. Minn.). The court, like the Eight Circuit before it, arrived at this holding without reaching the merits of whether the practice is legal under ERISA. This case also presents another instance where the holding in Thole v. U.S. Bank N.A., 140 S. Ct. 1615 (2020), a defined benefit plan case, has been applied to deny standing in ERISA health and welfare plan litigation.

Cross-plan offsetting is a health plan payment practice whereby a plan administrator of multiple plans corrects a mistaken overpayment to an out-of-network healthcare provider from one plan by offsetting a future payment to the same provider on a claim of a participant in a different plan. The Smith plaintiffs objected to this practice, claiming that United, the third-party administrator of their self-funded plans, underpaid or failed to pay benefits owed on their behalf, exposing them to balance billing for the offset amounts. Both plaintiffs had claims subjected to cross-plan offsetting whereby United recouped amounts it mistakenly paid to providers from plans it insured by directing self-funded plans' payments on plaintiffs' claims, in full or in part, to itself to offset its prior overpayments. These actions, plaintiffs alleged, constituted a breach in ERISA's duty of loyalty and conflicted self-dealing by United, whose bottom line benefited from the offsets. Neither plaintiff, however, was balanced billed by their healthcare provider.

Relying on Thole, the district court held that plaintiffs had not suffered a denial of benefits or any pocketbook injury, because their plans expressly permitted cross-plan offsetting and their benefits were paid in full with "debt cancellation" or a mix of cash and "debt cancellation." The court also rejected plaintiffs' argument that the risk of balance billing was a sufficient injury to support standing to sue, stating that plaintiffs "have not identified any provider who has ever balance‐billed any patient for a cross‐plan offset, despite alleging that United recouped $405 million in overpayments in 2020 and $599 million in 2019." According to the court, plaintiffs needed to show that they were injured by the cross‐plan offsets, "even if United breached its fiduciary duties when it employed them."  

The district court's dismissal on standing grounds does not equate to a clean bill of health for the practice of cross-plan offsetting, even in cases, like Smith, where plan documents contain express provisions referencing the controversial payment practice. When the Eight Circuit discussed the practice in Peterson v. UnitedHealth Group Inc., 913 F.3d 769 (8th Cir. 2019), it expressed skepticism about the propriety of the practice but left resolution of the ERISA merits issues for another day. Id. at 776-77 (stating that cross-plan offsetting is in tension with ERISA fiduciary duties because, among other things, it "may constitute a transfer of money from one plan to another in violation of ERISA's "exclusive purpose" requirement."). The U.S. Department of Labor (DOL) expressed its position that cross-plan offsetting violates ERISA in an amicus brief in Peterson

Cross-plan offsetting, which has been the subject of a handful of lawsuits over the past five years, will continue to be an important issue to monitor as more lawsuits are expected from plaintiffs, such as providers or even self-funded plans, who may more readily establish a financial injury from the practice. Insurers who administer their own insured, as well as self-funded, plans find the practice an efficient and cost-effective method for recovering overpayments from out-of-network providers. Employers, who are often given the option to adopt cross-plan offsetting when setting up their plans, should be aware of this practice and how it impacts their plans and participants. 

IRS To Issue Guidance on EPCRS

At the ABA May Tax Meeting last week, IRS officials indicated that the agency will soon issue guidance to clarify the effective date and other parts of SECURE 2.0's expanded self-correction provisions in the Employee Plan Compliance Resolution System (EPCRS). Section 305 of SECURE 2.0 expands EPCRS to (1) allow more types of errors to be corrected internally through self-correction, (2) apply to inadvertent IRA errors, and (3) exempt certain failures to make required minimum distributions from the otherwise applicable excise tax. Practitioners have raised questions about whether errors that predate the provision's enactment are covered by the new provisions, and whether plans needed to wait for the IRS to revise EPCRS program guidance, including Revenue Procedure 2021-30, before plans can self-correct under the new standards. According to IRS officials, the agency recognizes that the meaning of certain statutory terms and phrases, such as "reasonable period after [a] failure," "identif[ication] by the Secretary" of a failure and "specific commitment to implement self-correction" are also in need of clarification. The anticipated guidance is expected to address these questions.

In the News

In an article for BenefitsPRO, Joanne Roskey discussed the recent court decision in Braidwood Mgmt., Inc. v. Becerra, that upended the certainty employers and health plan participants were accustomed to regarding which items and services fall under the Affordable Care Act (ACA) preventive services mandate and who pays for them.

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