Court: Blue Cross Violated ERISA

Detroit, MIA recent ERISA lawsuit highlights the ways in which plan fiduciaries can get into trouble when they charge administrative fees to clients or ERISA plan beneficiaries. The lawsuit, which involved allegations that Blue Cross violated ERISA (Employee Retirement Income Security Act) laws, was recently found in favor of the plaintiffs.

According to Bloomberg BNA (9/11/12), prior to 1993, Blue Cross charged an "access fee" from employers who contracted with the company for certain services. After customers left the company because of the fees, Blue Cross allegedly hid the fee under hospital claims. So, for example, if the employer was charged a $500 hospital fee, Blue Cross allegedly added a fee to that $500 which it took for itself as an administrative fee. In June 2011, a lawsuit was filed against Blue Cross, alleging the company violated ERISA rules by hiding the fees in the billing statements. Furthermore, the plaintiffs—Burroughs Corp. and Hi-Lex Controls Inc., alleged Blue Cross engaged in illegal transactions.

Judge Victoria A. Roberts found that Blue Cross was a fiduciary under ERISA laws but violated those laws when it unilaterally decided the amount of fees it would pay itself. The lawsuit (Borroughs Corp. v. Blue Cross Blue Shield of Michigan, E.D. Mich., No. 2:11-cv-12557-VAR-PJK) will now go to trial to determine how much Blue Cross must pay the plaintiffs and whether the lawsuit was filed in a timely manner, before the statute of limitations ran out.

Under ERISA, people and companies that have discretionary control over an ERISA plan can be considered plan fiduciaries, meaning they are liable for upholding ERISA regulations in how they administer the plan. Fees can be a source of contention in dealing with ERISA plans because hidden fees and administrative fees can eat up a great deal of a plan's assets. As a result of complaints about ERISA plan fees, new regulations have come into effect that set out how fiduciaries must disclose ERISA plan fees.

This includes ERISA plan participants having information on all fees charged directly to their accounts and an explanation of any fees, including legal and accounting fees. Furthermore, administrators must now send out statements at least quarterly that show the dollar amount that is being spent on fees and plan expenses.