Labor & Employment Articles by James K. Estabrook

On Monday, Jan. 24, 2022, in the case Hughes vs. Northwestern, the U.S. Supreme Court ruled that a fiduciary’s duty to monitor investments in defined contribution retirement plans means the plan cannot include non-prudent investments. In reaching this conclusion, the Court recognized that fiduciaries have an ongoing obligation to monitor plan investments. Simply offering participants a diverse menu of investment options is not sufficient to insulate fiduciaries from potential liability.

The Holding in Hughes v. Northwestern.

In Hughes, employees of Northwestern University participated in two defined contribution 401(k) plans offered by the University. The employees alleged that the trustees of the plans breached their fiduciary duty to the participants by “(1) failing to monitor and control recordkeeping fees, resulting in unreasonably high costs to plan participants; (2) offering mutual funds and annuities in the form of “retail” share classes that carried higher fees than those charged for otherwise identical share classes (institutional share class) of the same investments; and (3) offering investment options that were likely to confuse investors.” Both the trial court and the Seventh Circuit Court of Appeals accepted Northwestern’s argument that even if some options were not prudent, there was no violation of ERISA’s prudence standard because the plans offered a diverse menu of investment options that the plaintiffs agreed were prudent.

On October 29, 2020, the Department of Health and Human Services (“HHS”), the Department of Labor (“DOL”), and Department of Treasury (“DOT”) collaborated to issue a final “transparency rule” aimed at providing greater information to consumers, thereby allowing them to explore different healthcare options and avoid surprise billing for services rendered.  Additionally, the rule requires the public disclosure of negotiated rates for in-network providers and amounts allowed for out-of-network providers.

Disclosure of Provider Rates

Under the rule, non-grandfathered health plans and insurers must publish their negotiated rates and allowable out-of-network charges on a public website, which is to be updated monthly through three machine-readable files.  The website must be publicly available, accessible without charge, and cannot require a user account, password, or other credentials, or submission of personally identifiable information to access the files.  Specifically, the files will reflect negotiated rates for in-network services, historical payments to and billed charges from out-of-network providers, and in-network negotiated rates.  The files must also show historical net prices for covered prescription drugs at the pharmacy level.

On May 21, 2020, the U.S. Department of Labor (“DOL”) announced a final rule allowing employers to post retirement plan disclosures online or furnish them to workers via email.  The rule is aimed at reducing administrative expenses for employers and making information more readily available to workers.

ERISA-covered retirement plans must furnish multiple disclosures each year to participants and beneficiaries. The exact number of disclosures per year depends on the specific type of retirement plan, its features, and in some cases the plan’s funding status.  To deliver these disclosures electronically, plan administrators were previously required to comply with the regulatory safe harbor established in 2002 under 29 CFR 2520.104b-1(c), which required that disclosures be reasonably calculated to ensure that workers actually received the information, including confirmation that the transmitted information was actually received (e.g., using return-receipt or notice of undelivered electronic mail features, conducting periodic reviews or surveys to confirm receipt of the transmitted information).

On August 31, 2018, Executive Order 13847, entitled Strengthening Retirement Security in America, was issued. The Order directed the DOL to review whether regulatory or other actions could be taken to make retirement plan disclosures more understandable for participants and beneficiaries and to focus on reducing the production and distribution costs that retirement plan disclosures impose on employers.  In October 2019, the Department published a proposed regulation with a solicitation for public comment.  In response to the commentary received, a final rule creating a new voluntary safe harbor was established.  The new safe harbor permits the following two optional methods for electronic delivery:

The Department of Labor (“DOL”) and other federal agencies released updated model COBRA notices and expanded COBRA deadlines in an effort to reduce the risk of participants and beneficiaries losing benefits during the COVID-19 pandemic.

Updated Model COBRA Notices

Under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), an individual who was covered by a group health plan on the day before the occurrence of a qualification event, i.e. termination of employment or a reduction in hours that results in loss of coverage under the plan, may be able to elect COBRA continuation coverage upon that qualifying event. Under COBRA, group health plans must provide covered employees and their families certain notices explaining their COBRA rights. The first is a written notice of COBRA rights, called a “general notice,” which is given to an employee and spouse at the time of commencement of coverage. A group health plan must also provide an employee and spouse with an “election notice” upon a qualifying event, which outlines how to make an election under COBRA continuation coverage. The DOL has created model notices, which plans can use to satisfy these requirements under COBRA.