Benefits July 6, 2023

DOL Sues West Virginia Company for Fiduciary Breaches

MSES Consultants Inc. failed to fund its health plan for much of 2016, leaving participants and beneficiaries on the hook for health care costs.

 

Reported by

The Department of Labor, led by Acting Secretary Julie Su, on June 29 targeted MSES Consultants Inc., company president Lawrence Rine and the MSES Employee Benefit Health Plan, alleging the fiduciaries for the health plan burdened participants and beneficiaries with unpaid health claims for medical services when the plan was shuttered in 2016.  

The complaint alleges two counts of fiduciary breach—for prohibited transactions relating to the plan and co-fiduciary liability relating to the plans—under the Employee Retirement Income Security Act.

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“MSES and Rine failed to pay properly adjudicated health claims and (for employees with dependents) continued to withhold employee contributions from participant’s pay,” the complaint says. “During this time, they failed to notify participants that Health Plan claims were not paid, and that these might continue to go unfunded and unpaid. As a result, participants and beneficiaries reasonably believed they continued to be covered under the terms of the Health Plan when they were not.”

MSES Consultants is a professional services firm providing consultation in several areas, according to the company website. In 2015, the company filed for bankruptcy, but the case was dismissed from U.S. Bankruptcy Court’s Northern District of West Virginia in 2017, the complaint says.

The DOL filed the complaint in U.S. District Court for the Northern District of West Virginia. The MSES Inc. Employee Health Plan was administered in Clarksburg, West Virginia.  

Although the health plan year was to run from January 1, 2016, to December 31, 2016, MSES ultimately terminated the health plan on October 31, 2016, the DOL alleges in the complaint.

In the complaint, the DOL requests that the court direct that the plaintiffs are entitled to a surcharge remedy against Rine and MSES Consultants to compensate the participants and beneficiaries for a loss of health care coverage and related expenses; establish that Rine and MSES each participated knowingly in or knowingly undertook to conceal acts or omissions by the other that they knew to be violations of ERISA; and instruct Rine and MSES Consultants that each are liable for the other’s breaches of fiduciary responsibility.

Requests for comment to MSES Consultants were not returned. A working company website was found but would not accept a submitted message seeking comment on the litigation.

Requests for comment on the lawsuit to the DOL were not returned.  

The DOL brought a lawsuit against the trustees of a different health plan and its third-party administrator, alleging fiduciary breach, earlier in the month.

Health Plan Details

MSES and Rine did not notify participants that their health coverage was terminated or in danger of being terminated until September 27, 2016, when MSES held a staff meeting in which it informed employees that the health plan would be terminated effective October 31, 2016, says the complaint. MSES and Rine subsequently sent a letter to employees on September 30, 2016, notifying them that as of October 31, 2016, the health plan would terminate and that employees should seek coverage through other means, DOL adds.

The health plan was established as a partially self-funded health and welfare plan offered to all eligible employees, beginning January 1, 2016, the complaint shows. The health plan provided medical benefits to full-time company employees and their eligible dependents.

“Because of MSES and Rine’s failure to notify participants and beneficiaries of their failure to fund adjudicated health claims during the period of April 20, 2016, through October 31, 2016, participants and beneficiaries continued to seek covered benefits under the mistaken belief that health plan coverage remained in place,” says the complaint. “The participants and beneficiaries were billed at least $153,939.42 for medical services that were not paid due to the fact that they lacked insurance coverage as a result of the fiduciaries’ failure to fund the health plan and defendant’s misrepresentations.”

For single employees, the coverage was paid through employer contributions; for employees with dependents, coverage was partially paid by employer contributions and partially funded through employee contributions paid through payroll deductions, according to the complaint.

In May 2016, Benefit Assistance Corp., the health plan’s third-party administrator, sent MSES Consultants and Rine an email that they were $115,397.25 past due for claims dating back to April 20. BAC sent MSES and Rine another email on June 17 notifying them of additional unpaid claims, for a total of $124,248 in unpaid claims, but MSES and Rine again did not respond to either message, the complaint alleges.

BAC processed claims, drafted plan documents and handled the day-to-day customer service for the health plan, according to the complaint.

“Internal emails from the company acknowledge that MSES and Rine knew about the unpaid claims and their amounts, despite their lack of response to BAC and taking no steps to inform plan participants,” the complaint states.

Relief Sought

The DOL is seeking a judgement holding Rine and MSES liable. The complaint requests the following relief:

  • Removing the company and Rine as fiduciaries of the health plan and of any employee benefit plan for which they are fiduciaries;
  • Imposing a surcharge on Rine and MSES to compensate the health plan participants and beneficiaries for all incurred medical expenses, health care claims and other losses, including interest, which were caused by the defendants’ fiduciary misconduct; and
  • Appointing an independent fiduciary with plenary authority and control over the management and administration of the plan, including the authority to marshal assets on behalf of the plans, to pursue claims on behalf of the plans and to take all appropriate action for the distribution of benefits to the plan’s participants and beneficiaries, with all costs and fees of the independent fiduciary to be borne by the defendants.

The West Virginia Secretary of State’s website, with details on businesses organizations registered in the state, explains MSES’ registration was revoked in 2021 for failure to file an annual report; according to the website, the company filed annual reports through 2018.

Emailed messages sent to 10 business addresses listed on the MSES Consultants website were returned as undeliverable.

Benefits July 6, 2023

Pace of New PEP Filings Slowing

Observers expect consolidation as market matures and some slowing due to IRS clarification that expanded the scope of PEPs requiring audits.

Reported by


The growth of pooled employer plan registration has slowed in 2023 even as the industry gears up for more small and midsized businesses to introduce new retirement plans, according to an industry expert.

There were about 350 PEPs registered with the DOL halfway through 2023, showing a decline in the pace of rapid growth of registrations compared to prior years, according to Robb Smith, president of RS Fiduciary Solutions, PEP-HUB and PEP-RFP. Smith, who tracks PEP registration on the DOL’s EFAST website, noted around 170 registered PEPs at the end of 2021, and about 300 at the end of 2022.

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The slowdown doesn’t mean pooled plan providers aren’t continuing to bring PEPs to market, Smith says, but that even as new plans emerge, more are pulling out of the market due to lack of uptake from plan sponsors. Some of the pullback, he notes, came after a clarification this year by the Internal Revenue Service that expanded the audit requirements for PEPs.

In a February report posted in the Federal Register, the IRS and DOL clarified that PEPs with 100 participants or more are subject to audit, rather than the 1,000-participant threshold some interpreted in the Setting Every Community Up for Retirement Enhancement Act of 2019, which first made PEPs a retirement plan option. Instead, regulators kept the audit rule of having 100 or more participants the same for PEPs as they do for single-employer retirement plans.

Smith says the threat of an audit that could cost a pooled plan provider in the range of $10,000 to $20,000 likely hastened the closure of some of the smaller upstarts.

“The audits are an additional cost,” he says. “If a PEP has not reached critical mass regarding the number of participants and assets, they may want to consolidate into another PEP.”

Maturing Space

David Levine, co-chair of the Groom Law Group’s plan sponsor practice, agrees that some PEP providers may have been “caught a little flat-footed” by the IRS guidance. But overall, he doesn’t see the auditing clarification as a driver of consolidation.

“A lot of the pooled plan providers that I work with expect to have more than 1,000 people in the plan,” he says.

Levine does, however, see consolidation in the space as being linked to maturation of the market. “You’ve seen that some PEPs have gotten traction, some have not, and two years into this people are asking, ‘does this make sense anymore?’” he says. “You are seeing some consolidation and reshuffling in this space.”

Levine expects PEPs to continue to see growth among his clients as “another solution in the toolbox” for smaller plans, alongside the proliferation of individual plan options from various small plan providers.

PEP consultant Smith says he continues to see growth in the retirement plan vehicle from registered investment advisories who are linking wealth management with participant retirement savings. These RIAs, he says, are working with small or mid-sized business owners who may see the value in starting a workplace plan through a PEP, or transferring an existing plan to the vehicle.

“RIAs want to have that arrow in their quiver,” he says. “If they are asked about a PEP, or someone comes in and has a business with retirement plans, they want that option along with a single-employer plan.”

Smith says PEP-HUB is advising small RIAs and their small plan sponsor clients to two options in particular.

One is what PEP-HUB calls an “open PEP,” which are pooled plans on the market that are accepting new plan sponsors, but that also have enough adopting employers and participants that “auditing fees are minimized.”

A second option is joining a Group of Plans, or GoPs, which brings multiple plan sponsors under one 402(a) fiduciary. This setup can reduce administrative burdens and costs for a small plan sponsor.

Overall, Smith says PEPs still need a better benchmarking and analysis process for plan sponsors. Unlike single-employer-plan providers, he says PEPs do not yet have the proper analysis or prudent selection process.

 

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