ERISA Litigation Roundup: Seventh Circuit Confirms DOL’s Broad Subpoena Power

 In Walsh v. Alight Solutions, LLC, — F.4th —, 2022 WL 3334450 (7th Cir. Aug. 12, 2022), the Seventh Circuit affirmed a district court order requiring Alight Solutions to produce documents in response to a Department of Labor (“DOL”) subpoena, confirming that the DOL has broad authority to issue subpoenas to investigate possible ERISA violations, even against non-fiduciaries.

Alight provides recordkeeping services for employers who sponsor ERISA-governed health and welfare and retirement plans. In 2019, the DOL began investigating Alight on the basis of alleged cybersecurity breaches that resulted in unauthorized distributions of plan benefits from plans for which Alight provides recordkeeping services. The DOL served Alight with an administrative subpoena duces tecum requesting 32 categories of documents dating back to 2015.

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Stay Tuned – the DOL Regulatory Agenda

The Department of Labor (“DOL”) recently published its Spring 2022 Regulatory Agenda, and here is a summary of several big ticket items:

ESG & ERISA: Plan sponsors and investment professionals have been waiting for final rules on the permissible use of environmental, social, and governance (“ESG”) considerations under ERISA when selecting plan investments and exercising shareholder rights with respect to plan assets. Based on the updated regulatory agenda, the DOL is planning to issue final ESG rules in December 2022.

Fiduciary Rule: Plan advisors and investment professionals have also been awaiting guidance on the DOL’s fiduciary rule re-write. The Trump era “fiduciary rule” is currently in effect and is a combination of a new and expansive definition of fiduciary advice and an exemption – PTE 2020-02 – from the prohibitions of ERISA and the Internal Revenue Code for certain conflicts of interest arising from nondiscretionary fiduciary recommendations. However, last year, the Biden administration announced that it is revisiting the definition of fiduciary investment advice and the requirements of various prohibited transaction exemptions. Based on the Agenda, we can expect a new proposed fiduciary rule in December 2022.

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ERISA Litigation Roundup: Second Circuit Holds Disability Benefit Claim Must Be Fully Determined on Internal Appeal Review Within 45 Days

On June 7, 2022, the Second Circuit decided McQuillin v. Hartford Life and Accident Insurance Co., No. 21-1514, holding that under ERISA and Department of Labor (DOL) regulations governing administrative benefit claims and appeals (29 C.F.R. § 2560.503-1), when considering an appeal of a denied disability claim, a plan administrator must make full determination of benefits. In doing so, the Second Circuit rejected the claim administrator’s argument that reversing the claim denial and remanding the claim internally for reevaluation satisfied the regulations — instead, a decision on whether or not benefits would be awarded was required.

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Deadline Approaches for Employers to Post Machine-Readable Files on a Public Website

The July 1st deadline is quickly approaching for non-grandfathered group health plans and issuers to publicly disclose, in accordance with the Transparency in Coverage Final Rules, price information in machine-readable files for the plan year beginning on or after January 1, 2022.   The two machine-readable files must show (1) in-network negotiated provider rates for covered items and services and (2) out-of-network allowed amounts and billed charges for covered items and services.

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Federal District Court Invalidates Some Surprise Billing Rules: What It Means for the No Surprises Act

On February 23, 2022, the United States District Court for the Eastern District of Texas invalidated portions of Part II of the interim final rule (“IFR”) issued by the U.S. Departments of Health and Human Services, Labor, and Treasury (“Tri-Agencies”), implementing the dispute resolution provisions of the No Surprises Act (“NSA”).  While the ruling in the case, Texas Medical Association v. U.S. Department of Health & Human Services, may impact medical plan costs, it does not substantively affect the consumer protections against surprise medical billing added by the NSA, which took effect in 2022.

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New COVID-19 Guidance: Government Requires Health Plans to Cover At-Home COVID-19 Tests

On January 10, 2022, the Departments of Health and Human Services, Labor and Treasury issued guidance addressing a group health plan’s obligation to cover the cost of over-the-counter, at-home COVID-19 tests starting January 15, 2022.  The new coverage requirement means that enrolled individuals can go online or to a pharmacy and buy an over-the-counter FDA-approved COVID-19 diagnostic test and either have it paid for up front by their health plan or be reimbursed by submitting a claim without any cost-sharing requirements (such as deductibles, co-payments or co-insurance).  The guidance provides that beginning January 15, 2022 through the end of the declared public health emergency, plans must cover at least eight (8) over-the-counter at-home tests per enrolled individual per 30-day (or calendar-month) period without an assessment or provider involvement.  This does not affect the obligation to provide coverage for COVID-19 tests with a provider’s involvement or prescription.

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Department of Labor Issues New Guidance on Private Equity Investments in Individual Account Plans

On December 21, 2021, the Department of Labor (DOL) issued additional guidance on the use of private equity investments in certain retirement plans, warning that most plan fiduciaries will not have enough experience to adequately evaluate such investments.

The DOL’s guidance relates to a June 3, 2020 “information letter” (which is a non-binding statement) issued by the Employee Benefits Security Administration of the DOL . In that information letter, the DOL addressed private equity investments in “designated investment alternatives” (or DIAs) offered to participants in individual account plans, like 401(k) plans, considered whether ERISA prohibits offering certain private equity investments to participants in individual account plans.

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Department of Labor Proposal Would Encourage Consideration of ESG Factors for Plan Investments

On October 13, 2021, the Department of Labor (DOL) released a new proposed regulation under ERISA that would replace the previous administration’s “pecuniary factors” rule – which is widely viewed as discouraging the use of environmental, social, and governance (ESG) factors when selecting plan investments – with one that would encourage their consideration and provide a clearer pathway for plan fiduciaries to do so.

Background

Over the years, the DOL’s stated position on the consideration of ESG and other “social” factors when selecting plan investments has toggled back and forth, largely along party lines.

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Thinking ESOPs: Court Rejects DOL Claims of ESOP Overpayment

The board of directors of Bowers + Kubota Consulting, Inc. recently won an employee stock ownership plan (ESOP) fiduciary/breach case brought against them by the Department of Labor. See Walsh v. Bowers, et al., No. 1:18-cv-00155-SOM-WRP (D. Haw. Sept. 17, 2021). After a full trial on the merits, the district-court judge entered judgment in favor of the defendants, largely based on the court’s rejection of the DOL’s critiques of the valuation upon which the trustee relied. What is perhaps most interesting about the court’s decision is the contrast between the discussion in this case of fundamental ERISA and valuation concepts, on the one hand, and the discussion of fundamental ERISA and valuation concepts in two other cases in which courts entered judgment against the defendants.

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New DOL FAQs Provide Guidance Regarding Lifetime Income Illustrations for Defined Contribution Plans

On July 26, 2021, the Department of Labor (Department) issued frequently asked questions (FAQs) regarding the interim final rule (IFR) on lifetime income illustrations (LIIs) that must be included in participants’ pension benefit statements for defined contribution plans on an annual basis. The IFR on LIIs, which we previously discussed in a client alert, will become effective on September 18, 2021. The FAQs respond to comments received in response to the IFR regarding the applicability date of the rules and method for furnishing benefit statements.

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