ERISA Fiduciary Rules for Health and Welfare Plans: Compliance...

ERISA Fiduciary Rules for Health and Welfare

Plans: Compliance Requirements and Litigation

Risks for Plan SponsorsMinimizing Liability of Health Plan Operations, Prohibited Transactions, and Conflicts of Interest

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THURSDAY, DECEMBER 19, 2019

Presenting a live 90-minute webinar with interactive Q&A

Laura Miller Andrew, Counsel, Smith Gambrell & Russell, Atlanta and Jacksonville

Allison Crowe, Associate, McDermott Will & Emery, New York

J. Christian (Chris) Nemeth, Partner, McDermott Will & Emery, Chicago

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© 2019 Smith, Gambrell & Russell, LLP, All Rights Reserved © 2019 Smith, Gambrell & Russell, LLP, All Rights Reserved

ERISA Fiduciary Rules & Duties

for Health and Welfare Plans

Laura Miller Andrew

[email protected]

904-598-6135

mailto:[email protected]

© 2019 Smith, Gambrell & Russell, LLP, All Rights Reserved

Overview• ERISA Fiduciary Duties

• Definition of a Fiduciary Under ERISA

• Fiduciary v. Settlor

• Fiduciary Duties

• Roadmap for Fiduciary Compliance

• DOL Position on Fiduciary Duties for Health and Welfare Plans

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Fiduciary Duties

• The Employee Retirement Income Security Act of 1974, as amended (“ERISA”), imposes specific duties and obligations on fiduciaries and others providing services with respect to employee benefit plans.

• Many focus on fiduciary requirements in the retirement plan context.

• These concepts apply to health and welfare plans as well.

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Definition of a Fiduciary Under ERISA

•A fiduciary is broadly defined under ERISA as any person who satisfies one of the following conditions with respect to an employee benefit plan subject to the fiduciary duty provisions of ERISA:

• exercises any discretionary authority or control over the management of an employee benefit plan;

• exercises any authority or control (discretionary or otherwise) over the management or disposition of plan assets;

• provides investment advice regarding plan assets for a fee or other compensation, whether direct or indirect, or has any authority or responsibility to do so; or

• has any discretionary authority or responsibility in the administration of the plan.

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Who is a Fiduciary?

• Some titles by their very nature carry the authority to perform fiduciary function, and therefore are considered a fiduciary.

• A Plan Trustee or a “Named Fiduciary”.

• ERISA requires a “Named Fiduciary” in the plan document or appointed by a procedure described in the plan document:

• an individual, a committee, a third party, or the plan sponsor

• there can be multiple Named Fiduciaries

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Who is a Fiduciary?

• ERISA allows fiduciary duties to be allocated among the Named Fiduciary and others.

• Unlike other fiduciaries, the Named Fiduciary has the authority under ERISA to designate another fiduciary and also to appoint an investment manager.

• Service providers can be, but do not necessarily have to be, fiduciaries.

• If service providers exercise discretion over the plan, they can be fiduciaries. This is true regardless of what the service provider contract says.

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Functional Test For Fiduciary Status

• Individuals can be deemed fiduciaries if they exercise discretion within the meaning of ERISA.

• This determination is made based on the nature of their actions and decisions.

• A formal authorization or designation as a fiduciary is not necessary to be deemed a fiduciary.

• The final decision making authority does not need to rest with the individual.

• The person may not even explicitly know that he/she is a fiduciary (such as a third partyadministrator who make claim decisions).

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Fiduciary v. Settlor

• The acts relating to establishing amending or terminating a plan constitute "settlor" functions that are not subject to the fiduciary responsibility provisions of ERISA.

• When making settlor decisions, an individual may act in the best interest of the employer without regard to fiduciary responsibilities to plan participants.

• Investment decisions and claims review would be considered fiduciary functions.

• A person serving as fiduciary may also serve as settlor.

• It is important for the individual to be clear about when he/she is acting in a settlor capacity versus a fiduciary capacity.

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Fiduciary Duties Under ERISA

• Fiduciaries must know and understand their duties under ERISA-

• They can be held personally liable for breaching their duties, even if they do so unintentionally.

• ERISA imposes four primary fiduciary duties:• the duty of undivided loyalty to plan participants;

• the duty of prudence;

• the duty to diversify the investments of the plan; and

• the duty to administer the plan in conformity with the plan documents.

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Duty of Loyalty (Exclusive Benefit Rule)

• The obligation to discharge fiduciary duties solely in the interest of plan participants and beneficiaries. A fiduciary must:

• act for the exclusive purpose of providing benefits to participants and beneficiaries; and

• pay plan expenses that are reasonable and relate only to plan activities.

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• Conflicts of Interest• Fiduciaries must also avoid conflicts of interest – they

may not engage in transactions on behalf of the plan that benefit parties related to the plan, such as:

• Other fiduciaries;

• Service providers; or

• The plan sponsor.

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• A duty to disclose information is a derivative fiduciary duty of the duty of loyalty.

• Must effectively protect participants in a plan by disclosing certain plan and investment related information to participants.

• In connection with the duty to disclose, a fiduciary should also not mislead participants about the the nature of their benefits.

• Fiduciaries should consider affirmatively disclosing material changes that have been decided by the plan sponsor with certainty.

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Duty of Prudence

• A fiduciary must act with the same care, skill, prudence and diligence under the circumstances that a prudent fiduciary acting in “a similar capacity and familiar with these matters” would use in a similar plan with the same goals.

• The ERISA prudence standard considers: • the relevant facts and circumstances, and

• looks to what a hypothetical comparable fiduciary would do under comparable circumstances, not simply what a prudent person would do.

• Therefore ERISA’s prudence standard is often referred to as a prudent "expert" rule.

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Duty of Prudence

• This standard imposes on fiduciaries an active duty to understand what is going on.

• Fiduciaries without sufficient understanding of an area have the responsibility to hire people with the background and experience to give appropriate advice.

• They cannot rely solely on following the advice of experts.

• Must ask questions, consider the advice, and then act prudently.

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Procedural Prudence

• Determining whether fiduciaries satisfy ERISA’s prudence standard involves an analysis of the procedures that the fiduciaries establish and follow.

• Procedural prudence emphasizes the fiduciary decision-making process instead of focusing solely on the results.

• The procedures adopted by fiduciaries and the process of going through a specific protocol or policy are important.

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Procedural Prudence

• Based on the allocation of different fiduciary functions:

• the respective areas of responsibility of the different fiduciaries should be identified, and

• the process and procedures they will follow in implementing the responsibilities should be addressed.

• When developing their procedures, fiduciaries should consider the type of plan involved and the variety of its assets.

• By establishing a process and following a constant methodology, fiduciaries will increase the likelihood of performing their duties in accordance with ERISA’s fiduciary standards.

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Procedural Prudence

• To demonstrate their procedural prudence, fiduciaries should document:

• their activities, including minutes of all meetings and discussions;

• the advice received from experts;

• any legal opinions;

• deliberations based on the advice received; and

• the actions eventually taken.

• In addition, fiduciaries should maintain files of the relevant documents that they reviewed, such as:

• financial statements;

• actuarial reports; and

• auditor and other reports on fund and plan operations.

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Duty to Follow Plan Documents

• Fiduciaries must act in accordance with applicable plan documents if the documents are consistent with ERISA.

• Fiduciaries must ensure that the plan documents are followed correctly.

• But fiduciaries cannot follow plan provisions that violate ERISA.

• Every ERISA plan must be in writing and contain all required sections and provisions.

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Fiduciary Duty and Plan Operations

• Employee Contributions:

• If a plan provides for salary reductions from employees paychecks, a trust must be used:

• unless the salary reductions are through Section 125 (cafeteria) plan; or

• if participant contributions are used to pay insurance premiums within 90 days of receipt.

• A Fiduciary must be careful regarding offsets of premiums or contributions of any kind in health and welfare plans.

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• Medical Loss Ratio(MLR)• Under the Affordable Care Act, insurance

companies must rebate a portion of insurance premiums to policyholders (including health plans).

• Do participants have a right to the rebates?• Factors include whether the plan or plan

sponsor is the policyholder.• Terms of the plan.• Whether any portion of the premium is paid

by plan participants.

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• MLR (cont.)

• If any part of the MLR is a plan asset, the decision on how to apply is a fiduciary function.

• Determining allocation methods:

• distribution to participants;

• enhancing plan benefits; and/or

• reducing future premiums.

• A Fiduciary must weigh the costs and benefits of each option.

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• Hiring service providers is a fiduciary function.

• When selecting a service provider, a fiduciary needs to:

• get information from more than one provider;

• compare firms based on the same information;

• obtain information about the firms; and

• evaluate information with no bias.

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• Fees charged to the plan need to be “reasonable.”

• The plans’ fees and expenses should be monitored to determine whether they continue to be reasonable.

• Investigate whether services provider receives fees from third parties (commissions, revenue sharing, etc.).

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Roadmap for Fiduciary Compliance Regarding Service Providers

• Regular review of third-party administrator (TPA) and insurance broker’s services and fees, including their effectiveness and scope.

• Annual meetings with the TPA, broker and individual trustee, including reviewing each of their annual reports.

• An annual plan audit performed by an outside accounting firm (if a trust is involved).

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Roadmap for Fiduciary Compliance Regarding Service Providers

• Outside legal counsel’s review of service provider contracts.

• Periodic monitoring of the plan’s administrative and claims procedures.

• Informal market information collection on service provider options and alternatives by talking to other service providers at conferences and gauging their fees, even if formal, written requests for proposals (RFPs) were not undertaken.

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Health Plan Fees and Expenses

• The U.S. Department of Labor (DOL) has taken the position that plan sponsors and administrators must know the costs of the services they procure on behalf of the plan and apply due diligence to minimize the costs relative to the level of services desired.

• Employers sponsoring self-funded welfare programs have difficulty obtaining the actual amounts insurance carriers or third-party administrators (TPAs) pay to medical and other health care providers.

• Insurance carriers and TPAs are often reluctant to disclose information that they consider proprietary (or that is encumbered by non-disclosure agreements with third-parties).

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DOL Position on Fiduciary Duties for Health and Welfare Plans

• In 2012, the DOL indicated in the Final Regulations on Fee Disclosures for Retirement Plans (408(b)(2)) that it “believes that fiduciaries and service providers to welfare benefit plans would benefit from regulatory guidance in this area.”

• Based on public comment and testimony, the DOL acknowledged that there are significant differences between service and compensation arrangements of welfare plans and those involving pension plans.

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DOL Position on Fiduciary Duties for Health and Welfare Plans

• The final rule regarding retirement plan fee disclosures reserved a section in the regulation for a comprehensive disclosure framework applicable to reasonable contracts or arrangements for services to welfare plans, to be issued at a later time.

• The DOL stated that until that time, ERISA section 404(a) continues to obligate fiduciaries to “obtain and consider information relating to the cost of plan services and potential conflicts of interest presented by such [health and welfare plan] service arrangements.”

• NO regulations have been issued yet.

32


Laura Miller Andrew

Smith, Gambrell & Russell, LLP

[email protected]

www.sgrlaw.com

Follow my blog at http://www.sgrlaw.com/category/health-care/

Follow my Twitter Account at @sgr_healthlaw

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mailto:[email protected]

http://www.sgrlaw.com/

http://www.sgrlaw.com/category/health-care/

mwe.com

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ERISA FIDUCIARY CONSIDERATIONS FOR HEALTH AND WELFARE PLANS

Service Provider Contracts, Prohibited Transactions,

and Recent Litigation

12/19/2019

J. Christian Nemeth

Allison S. Crowe

mwe.com

AGENDA

• Prohibited Transaction Rules

– Interested Party Prohibited Transactions

– Self-Dealing Prohibited Transactions

– Exemptions

• Health Plan Service Providers as Fiduciaries: Recent Litigation

• Affiliated Service Providers

– Recent Litigation

– Prohibited Transaction Exemptions

– DOL Individual Exemptions

• Duty to Monitor: Recent Litigation

• Other Year-End Considerations

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ISSUES WITH SERVICE PROVIDER CONTRACTS

• As previously discussed, plan fiduciaries have fiduciary duty of prudence, among other ERISA fiduciary duties

• A part of that duty includes ensuring the fees and compensation the plan pays to service providers are reasonable

• ERISA also prohibits plan fiduciaries from engaging in certain enumerated prohibited transactions

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PROHIBITED TRANSACTIONS – TWO TYPES

• Fiduciaries many not cause the plan to enter into transactions:

– With “parties in interest” to the plan (ERISA Section 406(a)); or

– That involve conflicts of interest or self-dealing by the fiduciary (ERISA

Section 406(b))

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406(A) PROHIBITED “INTERESTED PARTY” TRANSACTIONS

• “Parties in interest” generally include:

– The employer and employee organizations

– The paid service providers of the plan

– A 50% owner of the employer or employee organization

– Any entity of which any of the foregoing or a fiduciary own 50% or more of

– The employees, officers, directors, and 10% shareholders, partners and

joint venturers of each of the foregoing

– The fiduciaries of the plan

– Certain relatives of any of the foregoing

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406(A) PROHIBITED “INTERESTED PARTY” TRANSACTIONS

• A fiduciary may not knowingly cause a plan to engage in direct or indirect:

– Sales, exchanges or leasing of property between a plan and a party in

interest

– Loan or extension of credit between a plan and a party in interest

– Furnishing of goods, services, or facilities between a plan and a party

in interest

– Transfer of plan assets to or for the benefit of a party in interest

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406(B) SELF-DEALING TRANSACTIONS

• A plan fiduciary may not:

– Deal with the assets of the plan in his own interest or for his own account;

– Act in any transaction involving the plan on behalf of a party with an

adverse interest to the plan, its participants, or beneficiaries; or

– Receive consideration from any party dealing with such plan in connection

with a transaction involving the assets of the plan.

• In other words, the fiduciary cannot engage in a transaction that would benefit itself or another entity in which it has an interest that could impact the exercise of its best judgment

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EXEMPTION FROM 406(A) FOR SERVICE PROVIDERS

• ERISA Section 408 provides a number of exemptions to the “party in interest” prohibitions under Section 406(a)

• One of these exemptions, Section 408(b)(2), provides that a plan fiduciary may contract with a party in interest to provide services as long as:

– The services are necessary for the establishment or operation of the plan;

– The contract is reasonable; and

– No more than reasonable compensation is paid for the services

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EXEMPTION FROM 406(A) FOR SERVICE PROVIDERS: DOL REGULATIONS

• A service is “necessary” as long as it is appropriate and helpful in carrying out the plan’s purpose or objective

• A contract is “reasonable” when services may be cancelled without penalty by the plan on reasonably short notice under the circumstances

– As already discussed, DOL promulgated regulations under the provision of

408(b)(2) regarding fee disclosure regulations (for retirement plans only)

but did not issue any regarding termination of contracts

– A contract providing the ability to remove a trustee only for misfeasance or

incapacity would not be consistent with this rule (DOL Op. 85-14A)

– But limited terms for “a specified number of years that are reasonable

under the circumstances” would be consistent (DOL Op. 99-17A )

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REASONABLE COMPENSATION

• Regulations state that whether compensation is “reasonable” will depend on “the particular facts and circumstances of each case”

• What is “reasonable?”

• Most administrative fees to service providers are outlined in the services contract

• But it may be difficult for plan fiduciaries to understand the full compensation picture due to potential indirect forms of compensation

• For example:

– TPA “provider access” fees (Hi-Lex Controls, Inc. v. Blue Cross Blue Shield

of Mich.)

– PBM “clawbacks” or “spread” / rebates

• The amount of these indirect forms of compensation is generally not disclosed to the employer-sponsor of the group health plan, or the contract is difficult to understand

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FIDUCIARY ISSUES INVOLVING SERVICE PROVIDER CONTRACTS

• Service providers themselves are generally not fiduciaries when setting their own compensation—the fiduciary analysis may depend on specific responsibilities contained in the contract

• Service provider must have committed a fiduciary act and possessed or exercised discretionary authority when committing it

• Service provider is fiduciary when it exercises any authority or control over plan assets

• Whether service provider is fiduciary will depend on individual facts and circumstances and the language of the service contract and plan

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FIDUCIARY STATUS OF HEALTH & WELFARE PLAN SERVICE PROVIDERS

• Hi-Lex Controls, Inc. v. Blue Cross Blue Shield of Mich., 751 F.3d 740 (6th

Cir. 2014)

• Involved “provider access” fees that BCBSM charged to its self-insured clients (including plaintiff Hi-Lex) by marking up claims

• Court found BCBSM acted as fiduciary when setting compensation because it sometimes waived the fees for certain self-insured clients, had the flexibility to determine how/when access fees were charged

• Employer funds Hi-Lex sent to BCBSM were plan assets because plan language indicated participants had “beneficial ownership interest” in the money once transferred

– Hi-Lex did not use zero-balance account in its own name

• By marking up claims and keeping the “spread,” BCBSM dealt with plan assets in violation of 406(b)(1)

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• In re UnitedHealth Group, Inc. PBM Litigation, No. 16-cv-3352, 2017 WL 512222 (D. Minn. Dec. 19, 2017)

• PBM not a fiduciary

• Negotiating prices with providers is not a fiduciary function, but rather the administration of a network administrator’s business

• Performing instantaneous calculations based on plan terms does not constitute a fiduciary action

• “Spreads” collected on participant co-payments are not plan assets over which the PBM exercised authority or control

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• In re Express Scripts/Anthem ERISA Litig., 285 F. Supp. 3d 655 (S.D.N.Y. 2018) (appeal pending)

• Lawsuit was brought by both participants and self-funded group health plan fiduciaries

• PBM not a fiduciary

• PBM did not have discretion over pricing or compensation under PBMagreement and therefore plaintiffs did not allege sufficient facts to support a finding that PBM acted as a fiduciary in its relevant conduct

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• In re Express Scripts, Inc., PBM Litig., No. 4:05-MD-1672-SNL, 2008 WL 2952787 (E.D. Mo. Jul. 30, 2008)

• Lawsuit brought on behalf of class of participants and self-funded group health plans

• PBM not a fiduciary in establishing “ceiling prices” for generics, determining drug prices by selecting a pricing source, negotiating rebates with drug manufacturers, selecting or modifying formulary content or making drug-switching decisions, or in generating and retaining interest on rebates

• PBM was a fiduciary in controlling and disposing of certain “savings” owed to the plan

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• Negron v. Cigna Health and Life Ins. Co. and OptumRx, Inc., 300 F.Supp.3d 341 (D. Conn. Mar. 12, 2018) (case is currently proceeding through discovery)

• Complaint pled sufficient facts that PBM was fiduciary for purposes of motion to dismiss

– PBM determined the amount pharmacies charged patients for prescription

drugs and required pharmacies to charge more than required under the

plan

– Exercised authority that was not contemplated by the plan

– Exercised authority and control over plan assets, including participant cost-

sharing payments and spread amounts recouped by the pharmacies, in a

manner not authorized by the agreement

– Inflating cost-sharing payments in contravention of plan terms

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• In re: EpiPen ERISA Litig., 341 F.Supp.3d 1015 (D. Minn. 2018) (case is currently proceeding through discovery)

– On motion to dismiss, court did not want to “construe the complicated and

multi-faceted agreements at issue here as a matter of law”

– Accepted at face value plaintiffs’ allegations that the arms’-length

bargaining between the PBMs and the manufacturer “was in fact a

concerted effort to raise the price for EpiPens” to the detriment of plan

participants

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• TPA is fiduciary when administering claims and must follow terms of plan

• Peterson v. UnitedHealth Group Inc., 913 F.3d 769 (8th Cir. 2019) (cert. petition dismissed Oct. 22, 2019)

– Involved UnitedHealth’s practice of “cross-plan offsetting”

– Court found that plan language did not specifically authorize the

practice—a broad, generic grant of “administrative authority” was not

enough

– Evidence showed UnitedHealth “repaid” fully-insured plans first

▪ Court did not find cross-plan offsetting violated ERISA but noted it was “in

tension” with ERISA and “questionable at very least”

▪ When service provider is fiduciary to multiple plans, each plan is separate

entity and service provider’s duties run separately to each plan

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REASONABLE COMPENSATION—PLAN FIDUCIARY LIABILITY

• Cases illustrate that some courts have blessed theories of liability against service providers for unreasonable or hidden fees

• Plan fiduciaries may also be liable for breach of fiduciary duty for causing plan to pay unreasonable fees

• Unreasonable fee litigation has mostly focused on the retirement plan/401(k) space

• Recent cases show trend moving to health and welfare space, especially if plan uses affiliated service providers

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AFFILIATED SERVICE PROVIDERS

• Hospital systems or other health care industry providers that sponsor group health plans may seek to reduce or manage costs by causing the plan to contract directly or indirectly with itself or its affiliates.

• If hospital system acts as fiduciary when selecting affiliated entities to provide services to plan, the costs of which will be reimbursed using or paid out of plan assets, risk arrangement may be viewed as violating 406(b)

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AFFILIATED SERVICE PROVIDERS

• Shore v. Charlotte-Mecklenburg Hospital Authority et al., Case No. 1:18-cv-00961 (W.D.N.C.)

– Plan was self-insured plan that engaged network and service providers

that were 50% or more owned by plan sponsor

– Complaint alleged plan fiduciaries selected affiliated network providers

that resulted in excessive co-payments and deductibles to plan

participants, which would have been less if a different network provider

had been selected

– Complaint alleged plan fiduciaries selected affiliated service provider to

provide administrative services

– Arrangements allegedly violated 406(a)(1)(D) and 406(b)(1)

– Case dismissed on grounds that plan was government plan not

regulated by ERISA

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DIRECT SERVICES EXEMPTION TO 406(B) PROHIBITED TRANSACTIONS

• “Reasonable contract” exemption previously discussed does not apply to 406(b) self-dealing prohibited transactions

• DOL regulations provide:

– If a fiduciary furnishes services to a plan without receipt of compensation

or other consideration, other than for reimbursement of direct expenses

properly and actually incurred in the performance of services, the provision

of those services (and related reimbursement) does not, in and of itself,

constitute self-dealing

– “Direct expenses” are expenses that would not otherwise be incurred if

services were not being provided to the plan—“but for” test, based on facts

and circumstances

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ADMINISTRATIVE EXEMPTIONS

• DOL has authority to grant individual administrative exemptions from the prohibited transaction provisions

• In order to grant an administrative exemption, the DOL must determine that the exemption is:

– Administratively feasible;

– In the interest of the plan and its participants and beneficiaries; and

– Protective of the rights of plan participants and beneficiaries

• Individual exemptions involve case-by-case determinations as to whether the specific facts represented by an applicant concerning a specific transaction support a finding by DOL that the requirements for relief from the prohibited transaction provisions have been satisfied

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ADMINISTRATIVE EXEMPTIONS

• Some health care industry providers have sought individual exemptions for affiliated arrangements (Emory University, PTE 93-62; Retail Clerks, PTE 2006-12)

• DOL has granted exemptions subject to conditions:

– 50% of providers in network may not be affiliated

– An independent fiduciary must negotiate all fees charged by affiliated

providers or be involved with determining which affiliates will participate in

network

– Arrangements with affiliates can be no less favorable than arrangements

with unaffiliated providers

– Plan fiduciaries annually examine whether exemption conditions have

been met

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• Individual exemption requirements underscore importance of process for fiduciary decisions, as do recent cases involving plan sponsor duty to monitor

• Acosta v. Chimes District of Columbia, Inc., et al., 2019 WL 931710 (D. Md. Feb. 26, 2019)

• DOL sued health plan alleging plan fees were not properly monitored

– Administrative expenses of TPA (non-affiliate) too high

– Excessive administrative fees violated 406(a)(1)(C) and 406(a)(1)(D) that

did not meet 408(b)(2) exemption because fees were not “reasonable

compensation”

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• Acosta v. Chimes District of Columbia, Inc., et al., 2019 WL 931710 (D. Md. Feb. 26, 2019)

• Court held for the plan and found that the plan fiduciaries:

– regularly reviewed the prudence of the selection of TPA;

– monitored service providers at conferences and periodically spoke with peer

organizations to gauge their fees;

– renegotiated fees to the plan’s benefit;

– held annual meetings with TPA and the trustee;

– reviewed annual reports;

– required outside auditing of the plan;

– monitored the administrative and claims processes;

– were prudent in relying on advisors and external sources, such as industry materials

and informal information, to assess the TPA.

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• Documenting process is critical for all fiduciary decisions, regardless of whether service providers are affiliates

• Documentation should reflect:

– Understanding of fiduciary requirements and individual terms of plan

– Regular review and evaluation of service provider options

– Selection of service providers based on specific needs of plan

– Periodic review of service provider’s performance, including

administrative fees, understanding of how fees are calculated and

whether plan assets are used to pay fees

– Renegotiation of fees if needed

– Understanding of marketplace, and where service provider’s fees and

performance fall within the marketplace

– Consideration of whether expert consultants necessary to help and

understanding of expert advice

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OTHER CONSIDERATIONS

• End of year can be a good time to review plan and revise and/or amend plan provisions regarding:

– Arbitration/class action waiver

▪ Requires all disputes to be settled in arbitration and not in court, including

administrative claims disputes

– Anti-assignment

▪ Prevents participant or beneficiary from assigning rights, claims, or causes of

action to third parties, critical to defending claims brought by out-of-network

providers

– Limitations periods

▪ Limits the time to bring plan claims, starts “clock” based on certain events, such

as claim denial, accrual or claim or injury, etc.

– Forum selection

▪ Limits litigation to a particular federal district court or state court

– Indemnification

▪ Entitles individual, natural-person plan fiduciaries and administrators to defense

and indemnification, can be used with insurance

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OTHER CONSIDERATIONS

• Enforceability of arbitration provisions

• Dorman v. Charles Schwab Corp., 934 F.3d 1107 (9th Cir. 2019)

– “ERISA contains no congressional command against arbitration, therefore

an agreement to arbitrate ERISA claims is generally enforceable.”

– Plaintiff required to arbitrate individual claims and could not pursue class

action

– This only means that arbitration agreements in ERISA plans are not

unenforceable as a matter of law

• Language of agreement itself may not mandate claims brought on behalf of the plan, Munro v. Univ. Southern Cal., 896 F.3d 1088 (9th Cir. 2018)

• If plan is amended to include arbitration provision after participants are no longer employed, arbitration provision may not apply to them, Casey v. Reliance Trust Co., No. 4:18-cv-00424

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This material is for general information purposes only and should not be construed as legal advice or any other advice on any specific facts or circumstances.

No one should act or refrain from acting based upon any information herein without seeking professional legal advice. McDermott Will & Emery* (McDermott)

makes no warranties, representations, or claims of any kind concerning the content herein. McDermott and the contributing presenters or authors expressly

disclaim all liability to any person in respect of the consequences of anything done or not done in reliance upon the use of contents included herein.

*For a complete list of McDermott entities visit mwe.com/legalnotices.

©2019 McDermott Will & Emery. All rights reserved. Any use of these materials including reproduction, modification, distribution or republication, without the prior

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QUESTIONS?

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J. CHRISTIAN NEMETH: [email protected]

ALLISON CROWE: [email protected]

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