Compliance March 4, 2021

American Red Cross Faces ERISA Lawsuit

Plaintiffs say the failure to issue an effective RFP for recordkeeping and a rebranding process for investments led to additional costs for participants.

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An Employee Retirement Income Security Act (ERISA) lawsuit has been filed on behalf of participants in the American Red Cross Savings Plan against the American National Red Cross, its Board of Governors, members of the board, its Benefit Plan Administration Committee and members of the committee for breaches of their fiduciary duties.

According to the complaint, the plan’s assets under management (AUM) qualify it as a jumbo plan in the defined contribution (DC) plan marketplace and among the largest plans in the United States. As such, it had substantial bargaining power regarding the fees and expenses that were charged against participants’ investments. The plaintiffs accuse the defendants, however, of not trying to reduce the plan’s expenses or exercising appropriate judgment to scrutinize each investment option that was offered in the plan to ensure it was prudent. The complaint cites data from BrightScope that found the Red Cross plan fell in the category of plans with the highest total plan cost for plans with more than $500 million in assets.

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The lawsuit says the defendants breached the duties they owed to the plan and its participants by (1) failing to objectively and adequately review the plan’s investment portfolio with due care to ensure that each investment option was prudent, in terms of cost; (2) maintaining certain funds in the plan despite the availability of identical or similar investment options with lower costs and/or better performance histories; and (3) failing to control the plan’s recordkeeping costs. The plaintiffs say the actions of the defendants cost the plan and its participants millions of dollars.

For example, according to the lawsuit, the use of revenue sharing to pay for recordkeeping resulted in a worst-case scenario for the plan’s participants because it saddled them with above-market recordkeeping fees.

The lawsuit cites an NEPC survey which found that the majority of plans with more than 15,000 participants paid slightly more than $40 per participant in recordkeeping, trust and custody fees. Per participant fees in the Red Cross plan ranged from $126.89 in 2015 to $207.67 in 2019.

Although the plan changed its recordkeeper in 2016, recordkeeping costs were higher after the change. The plaintiffs say this strongly suggests that the defendants failed to conduct a proper and effective request for proposals (RFP) at any time prior to 2015 through the present to determine whether the plan could obtain better recordkeeping and administrative fee pricing from other service providers.

The defendants are also accused of failing to timely consider available collective investment trusts (CITs) that were identical to the funds offered by the plan and lower in cost. The complaint explains that the plan has engaged in a rebranding process in which it contracts with providers of CITs to offer each provider’s CIT bearing the Red Cross name with the only difference being additional cost. In its March 2020 fee disclosure, the plan detailed how its rebranding process works: The plan “adds basis points to the expense ratio of funds to cover administrative fees.” The 2020 fee disclosure further states that “15 basis points (0.15%) have been included in the expense ratio of each listed investment for administrative expenses.”

There is no difference between the underlying CITs and the rebranded Red Cross product, the complaint argues. The funds hold identical investments and have the same managers, risk return profiles and investment strategy. “Because the underlying funds are otherwise identical to the Red Cross version, but with lower fees, a prudent fiduciary would know immediately that a switch is necessary,” the lawsuit states. “Had the plan’s fiduciaries prudently undertaken their fiduciary responsibility for oversight of the plan, determining the appropriateness of the plan’s investment strategy and monitoring investment performance, the plan would have moved to the unbranded versions of the identical fund.”

In a statement, the American Red Cross told PLANSPONSOR, “We don’t believe there is any validity to the claims that the American Red Cross 401(k) plan has been mismanaged. To the contrary, we believe that the Red Cross 401(k) plan has been well managed and provides a valuable benefit to our employees. We do not believe any litigation against our plan would have any merit and plan to defend vigorously. Plaintiff law firms have been very active in soliciting participants in company 401(k) plans to pursue litigation against plans and employers, and this is part of an uptick in litigation in this area. Many of these lawsuits have been shown to be without merit.”

Benefits March 3, 2021

How Companies Successfully Ran Virtual Open Enrollment in 2020

Many are continuing the practice in 2021 and continuing to use different types of communications to reach employees.

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Plan sponsors learned valuable lessons from holding virtual open enrollments last year.

“2020 was a year like no other on a personal level, professional level, emotional level and physical level,” said Gabrielle Marroig, vice president, enterprise, large markets and health insights, at Benefitfocus, during a webinar hosted by the firm. “When everything is uncertain, everything that is important becomes clear. Human resources [HR] professionals quickly realized that communication to participants would be key and that they would need to be adaptive and creative to succeed in that.”

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Jessica Borchik, senior director, benefit catalog advisors, at Benefitfocus, said that in spite of the financial pressures many companies experienced in 2020 due to the pandemic, they made it a priority to secure best-in-class insurance products for their employees. “They wanted to ensure that they were offering the right benefits to their employees,” she said. She added that Benefitfocus suggested that companies use positive themes for their 2020 virtual open enrollment efforts, such as “thrive” and “flourish.”

That certainly was the case last year at American Eagle Outfitters. Tammy Fennessy, director of benefits at the retailer, said the company wanted to ensure that its associates working in 1,000 locations in North America and Asia knew that the company cared about them. “One of our bigger messages last year was on keeping premiums flat for a second year in a row,” Fennessy said. “We also wanted them to know we were offering virtual telehealth at 100% coverage.”

American Eagle used virtual open enrollment and held live webinars to educate its associates about the options available to them, she said. For those working in stores without access to a computer at work, American Eagle taped short videos they could then view on their own time, she added.

This year, American Eagle is continuing its virtual benefits fair and, like last year, making accessibility to signing up for benefits available year-round.

As far as what advice she would give to other HR professionals, Fennessy said, “Be nimble and use different media to reach different populations.”

Baptist Health in Montgomery, Alabama, decided to keep its benefits consistent in a tumultuous year, said Anna Dempsey, human resources team lead. “As the health care industry was incredibly hard hit by the pandemic, our most important objective as we went into open enrollment was to present our 5,000 team members with something that wasn’t going to change and that was consistent and familiar. Consistency became our main objective—not rolling out something big, new or unknown.”

Baptist Health promoted its virtual open enrollment with email blasts every two to three days and with posters in the elevators and reminder cards on top of the tables in every break room, Dempsey noted.

“We also made it a point to reach out to the managers to alert them if an employee hadn’t signed into the open enrollment,” she said.

Borchik agreed that sponsors should use different types of media to reach different demographic groups and noted that while “human resource teams sometimes feel that a text message might be a little invasive, text messages have become a key means of communicating and are a medium HR teams should seriously consider.”

She said companies also might consider small perks to entice people to virtually enroll in their benefits, such as a $5 Starbucks gift card or a T-shirt.

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