Compliance April 15, 2021

Court Rejects Barnabas Retirement Plan Fiduciaries’ Motion to Dismiss Lawsuit

A federal judge found that the plaintiffs had sufficiently pleaded their claims in the suit alleging excessive retirement plan fees.

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Judge Kevin McNulty of the U.S. District Court for the District of New Jersey has denied the dismissal of an Employee Retirement Income Security Act (ERISA) lawsuit against Barnabas Health and various retirement plan committees and individuals alleged to be fiduciaries of the health care system’s 401(k) and 403(b) defined contribution (DC) retirement plans.

In the original complaint, the plaintiffs alleged that the plan fiduciaries chose high-cost investments when lower-cost alternatives were available by selecting and maintaining funds with high expense ratios. They also suggested plan fiduciaries selected higher-cost share classes for funds when lower-cost share classes were available. The plaintiffs also allege that there were lower-cost alternative funds that performed better over the long-term. Finally, the lawsuit alleged that the fiduciaries failed to monitor or control the plans’ recordkeeping expenses.

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In their motions to dismiss the case, the plan fiduciaries argued that the plaintiffs—participants in the plans—invested in only some of the funds cited, and that they lacked standing to press claims based on the funds in which they did not invest. McNulty found that the participants have alleged an injury to their own investments by virtue of the fiduciaries’ mismanagement, which is sufficient to create a case or controversy for Article III purposes. ERISA then grants them a cause of action to sue on behalf of the plans. “So it follows that ‘a plaintiff with Article III standing’ may sue on behalf of the plan and ‘may seek relief under Section 1132(a)(2) that sweeps beyond [that plaintiff’s] own injury,’” McNulty said, citing a section of ERISA.

“The fiduciaries misconstrue the complaint,” McNulty wrote in his opinion. “The participants allege that the fiduciaries mismanaged the plans. The participants thus allege plan-wide injuries, and as participants in the plans, they may sue to course-correct the plans’ management. For those reasons, I find that the participants have standing to challenge the plans’ management and thereby bring their ERISA claims.”

The judge next turned to whether the plaintiffs have plausibly pleaded a breach of duty of prudence. Because participants usually do not have direct evidence of how fiduciaries reached their decisions, he said the complaint need only provide an inference of mismanagement by “circumstantial evidence,” rather than direct allegations of matters observed firsthand. “The complaint need only plausibly plead that the fiduciary could have reduced costs, and the court will leave to a later day whether the fiduciary should have done so, considering all the circumstances. The necessary allegations are present,” McNulty found.

He said the complaint’s allegations—taken together—create an inference of mismanagement, so he found that the participants have stated a claim for breach of the duty of prudence. McNulty denied the fiduciaries’ motion to dismiss the duty of prudence claim.

Turning to the breach of duty of loyalty claims, McNulty found there are enough allegations to show that the participants could have saved costs had the fiduciaries chosen a different recordkeeper or compensation plan. “This need not imply that the fiduciaries were not acting solely in the participants’ interests, but it could,” he wrote in his opinion. “The fiduciaries may well be able to show why using Fidelity was reasonable; but as allegations, these suffice.”

McNulty denied the fiduciaries’ motion to dismiss the duty of loyalty claim.
Benefits April 15, 2021

The Role of HSAs in Financial Wellness and Retirement

Plan sponsors can promote the HSA benefit as a part of employees’ financial wellness and liken its importance to other financial planning tools.

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Health savings accounts (HSAs) have long been utilized to pay for current medical expenses, but more employers and workers are now investing their account balances to establish better retirement security.

Experts at the 2021 PLANSPONSOR HSA Conference discussed the confluence of financial wellness and retirement, and how employers can maximize HSAs to achieve both financial wellness and retirement security.

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First, plan sponsors should converge both categories into one and discuss the two during the same season. “Plan sponsors think of retirement at one point in the year and health care in the other part of the year,” said Greg Puig, vice president of Benefits Consulting Services at Sentinel Benefits and Financial Group. “We need to bring the strategic initiative at an employer level, but also add benefits and education within that equation.”

The solution is to add retirement planning as part of the benefit, and not as its own separate category, noted Puig. Then, providing an HSA benefit offers a bridge strategy for workers in every age demographic, but especially for longer-tenured ones. This is because it aligns the thought process on health care and retirement for older employees, and also prepares them for it, Puig says.

Additionally, HSAs can serve as a cushion if a retiree needs to resolve issues with Medicare insurance. “A lot of people think Medicare as an entitlement policy, and then when they get to retirement, they believe that they made it,” explained Puig. “They go on Medicare and realize they didn’t sign up the right way and didn’t know about the donut holes that exist. With the HSA vehicle, they have this buffer to help them with retirement.”

Amy Ray, director, Advice and Wellness Product Development, Transamerica, spoke on the importance of integrating both retirement and HSA benefits, and especially on the same online platform. The idea is that every time a participant logs onto a site to view their retirement or HSA, they’re seeing both benefits side-by-side. Not only are participants integrating the two together, but memorizing one portal, login and password can incentivize them to engage with the benefits, Ray added.

The advantages to managing one single platform extend to the employer too, as plan sponsors can offer their benefits all in one space. Also, receiving different materials from several providers, rather than one, can be difficult for the plan sponsor to integrate and work with. By working with one provider, “you can analyze the trends and get engaged with how [participants] are using the different benefits,” Ray commented.

Ray remarked on the open enrollment process, and how the limited time affects how both participants and employers make decisions. For example, during open enrollment season, both groups have multiple decisions to consider during the process, including the type of health insurance to select and any other voluntary benefit options.

But, if an employer is looking to change HSA providers, they can choose to do so during a different time, Ray pointed out. This eliminates another stressor during open enrollment season and makes room for additional education and communication on HSAs. “The benefit of doing it off cycle is that you get more time to focus on education, the rollout and what makes most sense for your employees,” she said. “They are not bogged down with all of the things that are going around during open enrollment season.”

Offering an HSA may also mitigate common stressors seen during the pandemic, including employee burnout. Data from MetLife found that 19% of employees who participated in an HSA were likely to feel overall reduced financial stress. With the addition of flexible work environments including remote work, this translated into employees feeling more financially and physically healthy and having an overall sense of their wellbeing and benefits with their employer, added Juliane Kowalski, senior vice president of Product Development at MetLife. “These actionable steps can contribute to a feeling of resiliency in a workforce and combat those concerns of wellness,” she stated.

During the panel, experts also provided to-do lists when integrating an HSA to a plan. First, plan sponsors should ensure they have integrated partners to work with, suggested Puig. “Take a step back and look at who you are working with today, and make sure they have the knowledge base and the relationships to integrate these conversations,” he said.

Then, ask yourself where and how your employees are being educated in retirement, and then work in education on HSAs, encouraged Ray. Creating a partnership with an HSA provider can help plan sponsors achieve this. Building an alliance can drive this education forward, especially as employees are likelier to engage in employer notices, said Ray. “In our data, we see a higher read rate on emails if that’s coming from their employer and who they work for,” she explained. 

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