Compliance November 20, 2018

Health Care System Sued Over Retirement Plans’ Governmental Status

A lawsuit alleges a health care system in North Carolina falsely claims to be a governmental entity, allowing it to dodge ERISA requirements and protections for its retirement and health plans.

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A lawsuit has been filed claiming Atrium Health, formerly known as Carolinas Healthcare System, is in violation of the Employee Retirement Income Security Act (ERISA) because it falsely claims to be a governmental entity and as such its retirement plans are exempt from ERISA.

PLANSPONSOR reached out to Atrium, but has not received comment.

According to the complaint, Atrium established and maintains at least three employee benefit plans—the Pension Plan of the Charlotte-Mecklenburg Hospital Authority, the Carolinas HealthCare System 401(k) Matched Savings Plan, and the Carolinas HealthCare System LiveWELL Health Plan. “None of these Plans comply with ERISA because Atrium erroneously claims that Atrium is a ‘governmental entity,’” the complaint states.

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The lawsuit alleges that Atrium’s claim to fall under ERISA’s governmental plan exemption puts the retirement and health benefits of more than 65,000 employees in jeopardy. Atrium’s pension plan, for example, is dramatically underfunded—by the end of 2017, its unfunded liability was $379 million—and the plan has unlawfully denied participants their entire accrued pension benefits. The complaint says participants in the 401(k) plan receive limited information about the performance and expenses related to their investments, impeding their ability to make decisions about their retirement savings.

In addition, the lawsuit says Atrium outsources the operation of its employee health plan to MedCost Benefits Services LLC, a subsidiary company in which Atrium holds a 50% stake. As a result, Atrium’s health care plan can charge significantly more than alternate networks, despite demonstrating no improvement in quality of care or services, allowing Atrium to pocket a portion of these profits, the complaint alleges.

However, according to the complaint, Atrium has never satisfied the Federal law definition of a government of a state, a government of a political subdivision, or an agency or instrumentality of such and, therefore, the plans do not qualify as ERISA-exempt governmental plans. Atrium’s plans were not established by a governmental entity, and the plans are not maintained by any governmental entity.

The lawsuit goes on to say that Atrium’s governing body—the Board of Atrium Commissioners—is not controlled by any state or political subdivision thereof, and Atrium’s daily operations are not controlled or overseen by officials of any state or political subdivision thereof. Atrium’s Board of Commissioners are not publicly nominated or elected—incoming Atrium Commissioners are nominated by the Atrium Commissioners in a self-perpetuating cycle.

In addition, the complaint states that Atrium’s employees are not treated in the same manner as government employees of any state or employees of any political subdivision thereof. For instance, Atrium employees are not entitled to civil service protections; are not subject to any state personnel act, which provides a system of personnel administration for state and local government employees; do not have their salaries publicly available, compared to the salaries of state and local government employees; and are paid salaries from Atrium’s revenue, not from any state funds or county funds collected from a taxpayer.

Further, no state nor any political subdivision of a state has fiscal responsibility for any debts or liabilities of Atrium. No state or political subdivision thereof provides any funding to Atrium, including any funding for Atrium’s employee benefit plans. Atrium is not funded through tax revenues or other public sources, and Atrium does not have the authority to levy taxes on any state residents or residents of any political subdivision to fund its operations or to raise revenue to fund its plans.

The complaint states that Atrium is a nonprofit health care conglomerate that competes with other nonprofit health care conglomerates in its commercial health care activities. The plaintiffs seek an order requiring Atrium to bring its plans into compliance with ERISA and afford the proposed class all the protections of ERISA.
Investing November 20, 2018

Too Much Employer Stock Could Be a Bad Thing

According to a nationwide survey from Schwab Stock Plan Services, equity compensation accounts on average for nearly 30% of employees’ net worth, and almost three-quarters of employees surveyed also own company stock outside of their equity compensation plan.

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According to a nationwide survey from Schwab Stock Plan Services of 1,000 equity compensation plan participants who receive stock options or restricted stock awards and/or participate in employee stock purchase plans (ESPPs), equity compensation accounts on average for nearly 30% of employees’ net worth.

Millennial employees have a greater share of their net worth in equity compensation than do their Gen X and Baby Boomer counterparts (42%, compared to 24% and 19%, respectively). Almost three-quarters (73%) of employees surveyed also own company stock outside of their equity compensation plan, and most (44%) in their workplace retirement plans.

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Maintaining a high proportion of company stock may be a conscious choice, as 81% of employees say either they have rebalanced their investment accounts in the past 12 months (55%) or their account automatically rebalances itself (26%), and approximately two-thirds of them say they take their equity compensation or ESPP into account when rebalancing.

“Markets are uncertain, so participants should understand the risks of having too much of their net worth concentrated in company stock,” Marc McDonough, senior vice president, Schwab Workplace Financial Solutions, tells PLANSPONSOR. “Generally, our rule of thumb is to have no more than 10% to 20% of an investment portfolio in company stock, but everyone’s financial situation is unique. It’s important to identify how equity compensation fits into your overall plan and manage your portfolio accordingly, ideally with the help of a financial professional.”

Needing advice

To make sure employees’ investment are diversified, McDonough suggests plan sponsors should, at a minimum, ensure that education is available for their employees and they know where to go with questions. “People tend to look at their finances holistically. Plan sponsors should also consider offering their employees a financial wellness program that supports that holistic view. These programs are a great vehicle to help employees understand a range of financial issues, including how much of their net worth is tied to equity compensation and how to properly balance their overall portfolio,” he says.

Schwab’s survey found most respondents recognize the value of financial advice, but it also reveals contradictions between that recognition and their reported behavior. Three-quarters say they would be very or extremely confident in their ability to make the right decisions about their equity compensation if they had the help of a financial adviser, and yet employees are more likely to get advice on how to manage their equity compensation through independent research (37%) than from interacting with a financial adviser (24%) or asking their employer (16%).

Workplace financial wellness programs are another source of guidance that can help employees understand and effectively manage financial complexities, offering direction in areas like equity compensation, budgeting and debt. According to the survey, 61% of those who are offered such a program take advantage of it. Those who participate say their program is helpful in a number of areas including planning for retirement (90%), using equity compensation to reach financial goals (84%), investing skills (83%), balancing equity compensation with other investments (82%), and developing a financial plan (82%).

The survey suggests that employees who are offered a financial wellness program but elect not to use it might not fully understand the breadth of services this type of program can provide. Their top reasons for not availing themselves of this resource are believing they don’t need advice (40%) and focusing on more immediate financial issues, like debt (27%).

“One of the most beneficial aspects of such programs is helping workers to create a financial plan that can balance short- and long-term priorities and show them the next step forward. Plus, people with a financial plan tend to exhibit more positive saving and investing behaviors overall,” McDonough says.

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