Latest ERISA Lawsuit News – 401k Mismanagement Lawsuits Going Strong, New Settlement in Treatment Denial Case

Los Angeles, CAThree ERISA lawsuits – two in the District Court for the Central District of California and two in the Northern District of California – show that ERISA can be a powerful tool to protect workers’ rights. Plan participants who claim that their 401k accounts were mismanaged are on a lawsuit hot streak, and patients who have had coverage denied for medical treatments deemed too “investigational” are beginning to see some success, as well.

Here’s what’s new.

Terraza v. Safeway Inc. and Lorenz v. Safeway Inc.

Safeway has now agreed to settle a pair of similar class action lawsuits that claim that the company mismanaged participant accounts in the Safeway 401k Plan (the “Plan”) by keeping high-cost investment options in the plan and overpaying third-party service providers.

Ms. Terraza’s lawsuit alleged that Safeway breached its ERISA fiduciary duties to plan participants in seven different ways. The deadly sins are:

• allowing for the payment of grossly excessive fees;
• offering a disproportionate number of non-transparent investment options in the form of common trusts and separately managed accounts;
• offering excessively priced and poorly performing investment options;
• failing to offer a diversified investment portfolio that included a complement of passively managed funds;
• failing to accurately disclose information to Plan participants about fees, including revenue-sharing fees made to service providers like JP Morgan Retirement Plan Services and Great–West;
• failing to accurately disclose information about the level of risk associated with certain investment options; and
• allowing the Plan's relationship with JP Morgan Chase Bank, the trustee of the Plan, to inappropriately influence the Plan's investment options.

Mr. Lorenz’s lawsuit similarly claims that Safeway plan fiduciaries “breached their fiduciary duty of prudence by selecting funds that charged higher fees than comparable, readily-available funds, and which had no meaningful record of performance so as to indicate that higher performance would offset this difference in fees; and entering into and maintaining a revenue-sharing agreement with the plan’s recordkeepers … that resulted in excessive compensation to those entities.”

In addition, Lorenz claims that the revenue-sharing agreement was a form of self-dealing for which Safeway and Great-West would both have been liable under slightly different sections of the law.

Ybarra v. Board of Trustees of Supplemental Income Trust Fund

The Ybarra lawsuit garnered particular attention because it involved a multiemployer union plan with $922 million in assets and more than 27,000 participants. The proposed class of affected parties was much larger, though, topping out at roughly 40,000.

Even in a world of big numbers, these are really big. When the dam breaks on multiemployer 401k plan fiduciary lawsuits, the landscape could really change. Trustees of the plan have now offered $8.75 million in settlement, pending court approval.

Like Terraza and Lorenz, Ybarra alleged that plan fiduciaries breached their ERISA fiduciary duties by offering expensive mutual funds and record-keeping services that wasted participants' savings. More specifically, it claimed that the fiduciaries:

• offered retail class mutual fund shares when identical lower cost institutional class shares were available; and
• overpaid for record keeping by paying the Plan record keeper, John Hancock Retirement Plan Services and its predecessor, New York Life Insurance Company, excessive fees through revenue sharing arrangements with the mutual funds offered as investment options under the plan.

That’s the latest ERISA news on the 401k side of the law, but ERISA also protects the rights of health plan participants.

Hill v. UnitedHealthcare Insurance Co.

In yet another settlement, UnitedHealth Group Inc. has agreed to settle an ERISA class action lawsuit brought by patients denied coverage for lumbar artificial disc replacement surgery. The surgery claims were denied despite the fact that the procedure has FDA FDA approval under appropriate circumstances.

The health insurer will reprocess claims submitted for the surgery under new guidelines agreed to several months ago. The new guidelines cannot be cannot be changed unless it is justified by a change in medical literature.

Health plan claimants have long struggled to get health plan coverage for effective, FDA-approved treatments once thought to be innovative, but now widely accepted. These include microprocessor enhanced artificial knees. Amputees have been on the forefront of the struggle lately. Mental health advocates have fought in this arena for years.

Where are we today?

For many years, ERISA has been thought to be an employer-friendly law. But it did not start out that way. The original goal was to protect the interests of participants and their beneficiaries in employee benefit plans. A highly controversial 1989 Supreme Court decision, Firestone Tire and Rubber v. Bruch, tilted protections originally intended for employees toward employers under the ruse of protecting the trust fund. The undoing of this harm has been long and torturous.

So far, the corrective moves have been glancing –specific decisions about the mismanagement of funds in specific investment situations or the affirmation of entitlement to benefits in specific medical situations. The victories tend to come via settlement, which may meet the needs of litigants, but creates no legal precedent. A larger corrective may yet be in the offing.