Compliance September 12, 2023

Plan Sponsor Groups Send Amicus Brief in Defense of AT&T

Industry advocates submitted a brief encouraging the 9th Circuit to rehear a decision against AT&T in a 2017 excessive fee case.

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Plan sponsor groups, along with employee benefit and recordkeeping industry advocates submitted an amicus brief to the U.S. 9th Circuit Court of Appeals supporting AT&T in its defense of long-running excessive fee litigation in Bugielski v. AT&T Services Inc. The brief argues that the 9th Circuit erred in overturning a summary judgment that favored AT&T and instead remanding the decision to the district court.

The ERISA Industry Committee, the American Benefits Council, the Society of Professional Asset Managers and Recordkeepers and the Committee on Investment of Employee Benefit Assets proposed the brief to the court, which has yet to accept it. They are represented by the Seyfarth Shaw LLP law firm.

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The suit against AT&T started in 2017. The plaintiffs, Robert Bugielski and Chad Simecek, alleged that AT&T did not prudently monitor the fee expenses and structure in its retirement plan. In 2021, the U.S. District Court for the Central District of California ruled that AT&T had, in fact, monitored its fee structure prudently.

In August, a three-judge panel on the 9th Circuit remanded the case back to the district court. The appeals court’s ruling stated that when AT&T modified its fee agreements with service providers, it engaged in a prohibited transaction, which would only be permissible if it was necessary for the operation of the plan and if the compensation was reasonable.

Since the fees were the issue, the 9th Circuit ruled that the district court must evaluate the reasonableness of the compensation paid to those service providers, not just whether the process they used was prudent or not.

The brief is intended to strengthen AT&T’s appeal to have the case reheard or heard by the full 9th Circuit in an en banc hearing. The brief says, “The panel’s decision will lead to a flood of speculative litigation, and undo the significant progress the Supreme Court and Courts of Appeals have made in providing clarity on the pleading standard for excessive fee claims.”

The parties’ concern is that the decision effectively requires defendants in excessive fee cases, when motioning for dismissal, to offer an affirmative defense of what are routine fiduciary actions by arguing that there is an exception to a prohibited transaction or that their fees are reasonable. This legal structure would allow more cases to move past early motions for dismissal.

If plaintiffs can simply skip over this stage by alleging that the plan is engaging in a prohibited transaction for routine recordkeeping, then they will often reach the much more costly discovery stage, when fiduciaries will be under great pressure to mitigate legal expenses by settling the claim.

The parties further argue that the 9th Circuit should consider the negative effect the ruling would have on “plan formation and innovation” and Congress’ intent when passing the Employee Retirement Income Security Act.

The 9th Circuit has not yet accepted the brief or ruled if it will rehear the case.

Benefits September 12, 2023

How to Not Overwhelm Participants During Open Enrollment

Open enrollment is a time for plan sponsors to promote their benefits offerings, but they should also be wary of confusing employees with too many options and complex language.

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With open enrollment season approaching, plan sponsors have an opportunity to spotlight their benefits packages at a time when employees will likely be paying the most attention.  

But at the same time, plan sponsors want to avoid overwhelming participants with too many choices. 

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Open enrollment is “a bit like the Olympics of employee benefits,” said Megan Yost, senior vice president and engagement strategist at Segal Benz, in an emailed response. 

“We can tell from the data that participants are often highly engaged with communication materials about their enrollment,” Yost said. “They visit their benefits websites to read about what’s new and changing, they attend webinars and meetings, and they actively enroll in their benefits.” 

While most enrollments tend to focus on health benefits, insurance and disability benefits, Yost said many employers cross-promote retirement and financial wellness benefits because they have their employees’ attention.  

But even though nearly 65% of the 2,640 full-time U.S. employees surveyed in MetLife’s 21st annual U.S. Employee Benefits Trends Study said open enrollment will be extremely important this year against the backdrop of a “challenging economy,” MetLife found that many are still not being proactive when it comes to the benefits-election process. 

For example, 31% of employees surveyed said they procrastinated when selecting their benefits last year, and 37% said they wish they had more time to make the right choice. Yost said the open enrollment window is typically two to three weeks. 

In addition, 16% of employees said they regret their open enrollment choices last year. The top reasons included choosing benefits that did not cover as much as expected and enrolling in too few benefits. Employees also said they regret their choices because their financial situation had changed since the time of election, and 20% said they found that the enrollment process was too complicated. 

About 60% of those employees who regretted their benefits choices said a lack of understanding and information was to blame. Generation Z and Millennial workers were among the least likely employees to understand their benefits and the most likely to feel regret over the open enrollment choices they made last year, MetLife’s survey found.  

Using Open Enrollment to Educate, Not Overwhelm 

Another finding from MetLife was that 44% of employees said they did not consult others before enrolling in benefits last year. Yost explained that open enrollment is a crucial time for employers to be communicating with participants. 

“It’s important that employers and plan sponsors highlight new benefits, what could be changing to existing benefits and why,” Yost said. “This includes retirement plan changes, if applicable.” 

Plan sponsors should also be sure to highlight any required actions at this time, Yost said. Typically, many employers and plan sponsors require their employees to re-enroll or reset contribution amounts for tax-advantaged accounts like health care flexible spending accounts, dependent care FSAs and health savings accounts, and they communicate about IRS limit increases, if applicable.  

According to the Bureau of Labor Statistics, dependent care FSAs are gaining more traction, as 43% of employers offered this option in 2021. Typically, however, enrollment by employees is such that only 5% of employees at those employers will actually enroll.  

During open enrollment, Yost added that plan sponsors can also remind people about existing benefits that can be accessed at any time, such as employee assistance programs or retirement benefits. She said employers may want to remind people to confirm their savings rates, investment choices and beneficiaries, as well. 

The MetLife study also revealed that employees said employers can improve their engagement during open enrollment by providing easy-to-use benefits tools, having the HR team available to answer questions, providing access to expert guidance about benefits and generally communicating more often about benefits and open enrollment.  

“In order to not overwhelm employees, we recommend that employers and plan sponsors focus their messaging on what’s new and changing, required actions and consequences if no action is taken,” Yost said. “This information should be in one central place so people don’t have a fragmented experience (or get frustrated) because they have to review information in several different places. Decisionmaking resources should also be highlighted, and promotional materials (emails, on-site signage and other reminders) should focus on deadlines.” 

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