Extraordinary times call for extraordinary measures. With the enactment of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the economic collapse caused by the coronavirus will be met with unprecedented levels of government fiscal intervention to restore and stabilize our nation’s ailing economy. Given its over $2 trillion dollar price tag, spending from the CARES Act will require close oversight to ensure these public funds are used for their intended purpose and are not diverted by unscrupulous companies or individuals. Injecting trillions of dollars into nearly every aspect of the nation’s economy holds great promise to cushion the devastation of this pandemic but carries with it the potential for fraud on a massive scale.

While the CARES Act provides for the creation of the Pandemic Response Accountability Committee to be chaired by an inspector general, government officials and committees are not the only mechanisms at our collective disposal to protect the integrity of government spending programs.

As lawyers for whistleblowers who report fraud against the government, we know well that every American has a role to play. Our laws embody the wisdom that ordinary Americans themselves are oftentimes best positioned to monitor and report on fraud.

Passed amid reports during The Civil War that public funds were being stolen when corrupt suppliers sold cardboard boots and sawdust instead of gunpowder, the False Claims Act makes it illegal to submit fraudulent claims to the government for payment and allows the government to recover three times its monetary damages. Over the last 150 years, the False Claims Act has become the government’s most potent arrow in its fraud prevention quiver as it was amended to empower and encourage individual Americans to blow the whistle on those who defraud the government by allowing them to bring lawsuits against fraudsters and providing monetary awards when these cases are successful.

In 2019, for instance, the Department of Justice recovered more than $3 billion dollars through False Claims Act enforcement and in keeping with recent history the vast majority of that recovery came from cases that were initiated by whistleblowers. During the 21st century alone, whistleblowers proceeding under the False Claims Act have protected government expenditures made in response to financial crises, natural disasters, and Medicare and Medicaid expansion, among other circumstances. The role of individual whistleblowers has been so integral to the success of this law that programs to empower and reward whistleblowers have been established at the Securities and Exchange Commission and the Internal Revenue Service to protect the integrity of our capital markets and tax system.

What kinds of fraud are likely to occur as the CARES Act is implemented? If history is any guide, manufacturers may knowingly sell defective or unsafe products—such as critically important personal protective equipment—to the government in its rush to supply hospitals with necessary supplies. Health care providers may take advantage of the current crisis to bill Medicare or Medicaid for treatments that are unnecessary and may even be harmful to patients. Companies that are not among those meeting the law’s criteria for federal loans or grants may falsify applications to claim this public money for themselves and deprive deserving businesses of liquidity to survive our nation’s lockdown. And public companies may not fairly disclose to their investors the impact of the coronavirus on their operations, weakening our newly fragile financial markets. Individuals that see, hear, or learn of these or other types of fraud on our government should contact a lawyer immediately to investigate and, where warranted, pursue whistleblower actions that can lead to substantial government recoveries and financial awards to the individuals that came forward.

During this crisis, many Americans are wondering what they can do to help our nation’s response to this deadly and devastating virus. For those who learn of fraud on the government, there is an important role to play in safeguarding public spending and helping government programs reach those in need. If each of us will blow the whistle when we believe our government is being defrauded, we can stand united in our efforts to make our response to this pandemic as effective as possible.

The spread of COVID-19 across the globe has created unprecedented challenges for businesses and individuals alike, and that is certainly true for the public pension plan community. Public pension plans do not have the ability to “hit the pause button” when it comes to performing their critical duties. Retirees and beneficiaries depend on the timely receipt of their pension checks and benefit payments that must continue to be processed and paid. Moreover, billions of dollars of pension fund assets have to be managed in a time of tremendous turmoil in the markets. The Shareholder Advocate turned to leaders at public pension plans to hear how they are managing to carry out their essential responsibilities during the pandemic.

Thinking Outside the Box

According to Karen Mazza, Deputy Executive Director for the New York City Employees’ Retirement System (NYCERS): “At times like this, pension systems need to think outside the box while carrying out their fiduciary responsibilities.” Such thinking proved critical to NYCERS as its information technology and security teams developed innovative ways to enable over 450 employees to work securely from home. The crisis highlighted the critical nature of essential support functions, such as mailroom and scanning staff, who receive and enter member documents such as retirement and loan applications and correspondence.

Interconnection and Essential Functions

Glen Grell, Executive Director of the Pennsylvania Public School Employees’ Retirement System (PSERS), agrees with Mazza’s observation that functions supporting the business units are on the front lines in times of crisis. “We realize how interconnected all of our bureaus and units are, and we have a  new sense of what constitutes an ‘essential position’,” Grell said, noting that “the work can’t get done if the mail doesn’t get opened, sorted and scanned to start the queue of workflows.”

The rapid transition to teleworking forced PSERS to adopt new communications and technology models, largely on the fly. “We are now communicating among all senior managers every day,” Grell says. By deploying 230 laptop computers, in addition to 70already distributed under PSERS’ Continuity of Operations Program, PSERS enabled over 90% of staff to work from home.  Mailroom, document imaging, print shop and facilities management were the only units requiring physical presence at PSERS headquarters. PSERS successfully processed and delivered member pension and healthcare benefits to 230,000 annuitants on schedule on March 31, and used technology to conduct retirement exit counseling remotely, so that retirement applications could be prioritized and processed without delay for the membership.

Grell says that the crisis has brought home how much their annuitant members count on PSERS to provide monthly member benefits timely and accurately, regardless of the circumstances. And there is at least one silver lining of the crisis. “All of this will position us well with enhanced capabilities once the immediate situation has passed,” he says.

Importance of Communication

“Now is the time for over-communicating,” says Carolina de Onis, General Counsel to the Teacher Retirement System of Texas (Texas TRS). As de Onis sees it, communication at this time is tied to three basic concepts: risk mitigation, accountability and well-being. She notes that when you aren’t seeing people on a daily or weekly basis, you lose bits of information that may be relevant to the issues you’re dealing with and that “legal issues are rarely one dimensional— you need people with different areas of expertise to identify issues you might not be aware of and to help you problem solve. You need to create a structure around those lines of communication when the normal mechanisms are no longer available.” As for accountability, de Onis says, while we trust our professionals to do their jobs, it’s not about trust. “It’s about ensuring that the work that needs to get done is being done (under difficult circumstances and with different resources),” she says, “and finding new ways to supervise work and to demonstrate to your clients, your organization and your board that you’re on top of the novel, pressing issues this situation has created.” Finally, de Onis notes that many people are feeling isolated and disconnected now: “Connecting with people who are a normal part of your everyday life is healthy,” she says. “People’s situations may change on a dime—perhaps they are home schooling, taking care of elderly relatives or feeling anxiety about a what is going on.” Repeated check-ins to make sure your teams are getting the help and resources they need is essential at this time.

Business Continuity and Disaster Recovery Plan

Gina Ratto, General Counsel to the Orange County Employees Retirement System (OCERS), says that OCERS’ detailed Business Continuity and Disaster Recovery Plan has guided them throughout the process. Like the others quoted here, Ratto highlights the importance of communication, noting that the OCERS Recovery Team had been meeting daily by conference call until they felt comfortable moving to meeting twice a week. In addition, the CEO conducts weekly “all hands” meetings by telephone, and personally telephoned all team members at home to see how they were faring. All employees were issued mobile devices and permitted to “check out” their desk chairs, computer monitors and other items as necessary to make their home offices ergonomically safe and comfortable. The phone system permits staff to receive and handle calls from OCERS members and the public with live operators responding from home. In addition, a very small team of about half a dozen staff work from the office to perform essential activities that cannot be performed from home. Significantly, Ratto notes that March is traditionally OCERS’ heaviest month of the year and that the Member Services team timely processed every retirement application from members seeking a retirement date of April 1 or earlier.  Also helpful in allowing OCERS to move forward in conducting business is the that fact that in California, as in several other states, the governor acted by executive order to relax the state’s open meeting laws with respect to public meetings held via teleconference. OCERS held a board meeting and a meeting of its investment committee with some or all of the trustees telephoning into the meeting and the board room open to the public to observe and participate in the meeting. OCERS intends to hold its next board meeting using Zoom technology, which will alleviate the need to open the board room to the public. Finally, returning once again to the theme of communication, Ratto notes the importance of communicating with members at this incredibly stressful and uncertain time. Shortly after the offices were closed, the OCERS CEO posted a statement to assure members that their benefits were secure, noting: “the most important fact that you need to know is if you are retired, you will get your benefit, paid in full, paid on time. That’s a fact.”

Fiduciary Duty—the Bottom Line

As Brian Bartow, General Counsel to the California State Teachers’ Retirement System (CalSTRS) noted, CalSTRS, like all public pension funds, is a perpetual fund and will continue after this crisis, just as it has after prior crises. After reaffirming the importance of assuring members that they can continue to rely on CalSTRS during this time to pay their benefits on time, he succinctly summarized the bottom line: “We are stewards of that fund and will continue to exercise our duties to safeguard and grow that fund for the sole purpose of providing benefits to our members and beneficiaries—whether we’re in the office or working remotely.”

Just as the response to the COVID-19 pandemic has varied in timing and scope from state to state, so it is with the nation’s courts.

While state courts in 34 states have suspended all in-person proceedings, the remaining 16 states have left matters up to court officials at the local level. Likewise, the timing of federal court orders relating to court business, operating status and public employee safety have varied, thanks to the administrative discretion given the chief judge of each district. Still, there has been consistency among the federal circuits: all have limited public access to federal courthouses, postponed or continued jury trials, permitted hearings to be held by telephone or video, and either extended filing deadlines in March and April or conveyed a willingness to extend deadlines if proper motions are filed. As for the U.S. Supreme Court, it postponed 20 oral arguments scheduled for sessions in late March and April and announced on April 13 that it would hear oral arguments remotely in May for a limited number of the postponed cases.

But while courts have modified their operations to accommodate the special circumstances caused by the pandemic, some judges also have given clear instructions to counsel to move their cases forward to the extent possible. For example, on March 23, Chief Judge Waverly Crenshaw of the Middle District Court of Tennessee issued an order “for clarification [that] the Court emphasizes that all deadlines previously established in both civil and criminal cases remain in full force and effect, absent further order . . . [and] [t]he Judges unanimously expect that counsel for all parties will continue to diligently work on cases to comply with established deadlines.”

As brick-and-mortar law offices go quiet, home offices are buzzing—or at least click-clacking—as lawyers and support staff continue their work remotely. In the securities fraud and shareholder rights practice of law, new case filings and court rulings on pending matters continue without an appreciable decline, although a recent study across all practice areas showed that rulings are beginning to slow down as compared to prior years. Lawyers continue to initiate cases, file briefs, argue motions telephonically, take video depositions, and even participate in video mediations.

This “new normal” takes adaptation and patience on both sides—especially for cases in discovery with depositions. They must now be taken remotely, which requires additional logistical preparation to ensure that the deponent and all counsel are properly equipped. Everybody involved needs enough internet bandwidth, plus the computer, camera, and audio-video quality to allow the court reporter and videographers, also working remotely, to capture a clean record and to make sure the deponent and counsel can see any exhibits introduced and marked on the screen.

Technology aside, video depositions present some fundamental challenges. For counsel taking the deposition, it is much harder to develop a rhythm of questioning and assess witness credibility on a screen than face-to-face. For counsel defending the witness, meanwhile, it is tougher to assess how well the witness is tolerating the process and provide effective guidance during breaks  that are not in-person but rather  over the phone.

In general, counsel may also find it difficult to strike an appropriate balance between their duty to advance their client’s interests and their concern about how to best communicate with clients and judges who may have more pressing matters at hand.

Despite these and other challenges, effective advocacy continues amid these most uncertain and difficult times.

As we begin a new year, we are all no doubt grateful for the blessings in our lives, including the ability to achieve justice for our clients through the legal system. But, to be honest, aren’t you a little disappointed that it is now 2020 and there is no real prospect of traveling by flying car in sight? Many of us grew up believing 2020 was the year cars would take flight. Now some manufacturers estimate 2025 is the earliest commercial flying vehicles will hit the market, while analysts believe it could take much longer.

We may not have flying cars yet, but the age of the self-driving car has begun. To many, the idea of sitting passively in a car that does the hard work of navigating through traffic is appealing. But plaintiffs’ lawyers likely find the idea terrifying. We know how companies cut corners and send products to market too soon without adequate safety testing. We know how manufacturers have been willing to risk the safety of consumers in order to maximize profits by using cheaper tempered glass instead of laminated glass, and by using airbag inflators that were known to be ticking time bombs. And we know manufacturers have been all too willing to hide dangerous product defects from the public. One can easily imagine how self-driving vehicles that are not subject to human direction and control will lead to increased opportunity for the manifestation of product defects.

Truly self-driving cars will not only have the same potential for traditional product defects as other automobiles, like faulty seat belts, bad airbags, etc., but there will also be potential for defect in the cars’ “brains” — the artificial intelligence programming that will enable these vehicles to completely eliminate the need for a driver. Part of this programming must include a system of artificial ethics to guide a self-driving vehicle when making life and death decisions.

If you are interested in discussing any of the issues raised in this opinion piece, please contact us or reach out to Leslie directly at lkroeger@cohenmilstein.com or 561-515-1400.

Every day in Tallahassee, Florida lawmakers are being inundated with legislation that flies in the face of protecting the constituents they are elected to serve.

There’s an attack on consumer rights in Florida. The attack is happening in Tallahassee. While hard-working, tax-paying consumers go about their everyday lives, there are various attacks on consumer rights happening right now in the state Capitol that could severely limit access to medical care, prevent lower insurance rates, prohibit consumer protections after a storm, and even limit access to the courts.

Every day in Tallahassee, Florida lawmakers are being inundated with legislation that flies in the face of protecting the constituents they are elected to serve.

While consumer advocates are trying to protect the system that ensures a person can seek the care they need, the insurance industry is one step ahead trying to protect their bottom line.

Time and time again we see these heartbreaking stories.

Families who think their property insurance will cover damages related to natural disasters like a hurricane. Yet more than 15,000 Floridians are still trying to have claims resolved more than a year after Hurricane Michael impacted our state and sadly, over 20,000 have had their claims closed without receiving a single penny. Many are still not able to return to their homes because there is nothing left – only a concrete slab remains.

Florida drivers pay 81 percent more than the national average for auto insurance. The Sunshine State is one of only two states that does not require auto insurance coverage for bodily injury liability, putting it far behind the rest of the country when it comes to protecting its citizens from significant economic losses and higher insurance costs for all drivers.

Florida could join the 48 other states in the country which require their drivers to buy bodily injury liability insurance, providing coverage for injuries caused to others. This would help us return to responsible roadways and lower insurance rates for all drivers. But the insurance industry continues to block legislative proposals that ensure a safer Florida and are good for all consumers.

Other proposals would limit injured Floridians from receiving adequate care and compensation when they suffer injuries caused by another party. This means limited access to necessary and in some instances, life-saving health care because some providers will not treat out of fear of never getting paid for services. Patients will be increasingly limited to what doctors and specialists they can see.

In these cases, it’s not the consumers fault they are put into a position where they need to seek treatment or compensation for losses; however, the insurance industry and big business seek every opportunity to convince lawmakers to pass new laws that will further limit consumers ability to receive fair treatment, compensation, and care after individuals and their families have experienced a tragedy.

Florida consumers deserve the truth about what is happening and the roadblocks that are being created for them in Tallahassee. Lawmakers, it’s time to put a stop to these attacks on everyday Floridians and enact sensible legislation that truly protects Florida consumers.

It is important for Taft-Hartley plan trustees to be informed of developments related to ERISA fiduciary liability. Cohen Milstein continuously monitors ERISA lawsuits, and in this issue of the Shareholder Advocate, we summarize developments related to several lawsuits concerning actuarial equivalence rules found in certain ERISA provisions. Over the last year, there were nine class cases filed that allege pension plans are violating ERISA by paying less than actuarially equivalent benefits to defined benefit plan participants. Plaintiffs in these lawsuits generally allege that plan fiduciaries and sponsors of their defined benefit plans violate ERISA when a plan uses outdated mortality tables to calculate alternative forms of benefits or “form factors,” which are predetermined factors used to convert normal form benefits into alternative forms. The plans at issue in these lawsuits are those sponsored by household names, such as American Airlines, U.S. Bancorp, AT&T, Metropolitan Life Insurance Company, Anheuser-Busch, Raytheon Company, and Huntington Ingalls Industries.

A participant’s pension benefit is generally expressed as a monthly pension payment beginning at “normal retirement age” as defined by the plan (no later than age 65). This monthly payment is called a single life annuity because it pays a monthly benefit to the participant for her entire life (i.e., from the time she retires until her death). ERISA-governed pension plans may (and, in some circumstances, must) offer optional forms of benefits. Several provisions of ERISA require that when participants receive optional forms of benefits, the value of the optional forms must be actuarially equivalent to benefits expressed as a single life annuity commencing at normal retirement age.

“Actuarial equivalence” is a computation that is designed to ensure that, all else being equal, two alternative forms of benefit payments have the same present value as each other. Generally speaking, present value is calculated using two primary actuarial assumptions: (1) an interest rate and (2) a mortality table. The interest rate discounts to present value each future payment using an assumed rate of return that is based on current market conditions. The mortality table provides the expected duration of that future payment stream at the time the table is published based on statistical life expectancy of a person at a given age. ERISA’s actuarial equivalence requirements are summarized as follows:

• For defined benefit plans “if an employee’s accrued benefit is to be determined as an amount other than an annual benefit commencing at normal retirement age [of 65] … the employee’s accrued benefit … shall be the actuarial equivalent of such benefit[.]” ERISA § 204(c)(3), 29 U.S.C. § 1054(c)(3).
• ERISA’s non-forfeitability requirements provide that if a participant receives less than the actuarial equivalent value  of her accrued benefit, this results in an illegal forfeiture of her benefits, and hence a violation of ERISA § 203(a), 29 U.S.C. § 1053(a).
• In addition, ERISA requires all defined benefit plans to provide Qualified Joint and Survivor Annuities, which are the “actuarial equivalent of a single annuity for the life of the participant.” ERISA § 205(a) & (d)(1)(B), 29 U.S.C. § 1055(a) & (d)(1)(B).
• Finally, if a plan offers early retirement benefits, ERISA requires that all participants receive no less than the actuarial equivalent of their benefit commencing at normal retirement age. ERISA § 206(a)(3), 29 U.S.C. § 1056(a)(3).

Whether the actuarial equivalence requirements have been met turns, in large part, on whether the actuarial assumptions used to calculate optional forms of benefits are reasonable and have been updated to reflect current trends in mortality and interest rates. In many of the cases where fiduciaries were sued, the mortality tables used to calculate optional forms of benefit were very outdated (with publication dates ranging from 1951-1984). If these allegations are true, the mortality tables used by several large plans have not been updated for decades—in some cases, for as much as 70 years. In other cases, the plans use form factors to convert benefits into optional forms and plaintiffs similarly allege that those form factors have not been updated for decades. These are the types of factual issues to be aware of if you are a trustee of an ERISA-governed plan.

While it is unclear how the lawsuits that have been filed to date will resolve, two of them have survived motions to dismiss and, in the one case that was originally dismissed, plaintiffs’ motion for reconsideration was granted. Given the likelihood of continued litigation in this area, trustees should consider taking some “belts and suspenders” actions to help defend against or avoid these types of lawsuits. For example, trustees could ask their plan’s actuary to periodically review the actuarial assumptions or form factors used to calculate the Qualified Joint and Survivor Annuities and early retirement benefits. The plan actuary could provide an opinion as to whether those assumptions or form factors are reasonable. Note, however, that if the plan actuary provides an opinion that the assumptions or form factors used by the plan to calculate benefits are unreasonable, the plan likely will need to revise its terms to employ reasonable actuarial assumptions. The revised terms may increase pension benefits obligations for the plan and negatively impact its funding status. Being proactive in working with the plan’s actuary to identify any potential issues related to actuarial equivalence should serve the plan well.

Investors suing GreenSky, Inc. and its underwriters for failing to disclose important changes to the company’s business in documents accompanying its 2018 initial public offering (“IPO”) cleared an important procedural hurdle recently when a federal judge denied defendants’ motion to dismiss the case.

Judge Alvin K. Hellerstein of the U.S. District Court for the Southern District of New York announced his ruling from the bench November 25, 2019 after presiding over a spirited oral argument, handled largely on the plaintiffs’ side by Cohen Milstein Managing Partner Steven J. Toll with participation by Partner S. Douglas Bunch. Judge Hellerstein issued his order denying the motion to dismiss the next day.

Cohen Milstein is co-lead counsel in the case, representing co-lead plaintiffs Northeast Carpenters Annuity Fund and El Paso Firemen & Policemen’s Pension Fund. Judge Hellerstein upheld all claims alleged by those two funds, dismissing only one overlapping claim brought by a third co-lead plaintiff, the Employees’ Retirement System of the City of Baton Rouge and Parish of East Baton Rouge.

GreenSky is a technology company that operates an online platform that allows creditors to process loan applications at the point of sale. More than 10,000 businesses use GreenSky’s platform.

Plaintiffs argued that GreenSky was required under the Securities Act of 1933 to tell IPO investors about its decision to sharply reduce business from solar energy merchants who earned the company high transaction fees in favor of other less-profitable merchants.

In 2016, two years before its IPO, GreenSky had derived approximately 20 percent of its transaction-fee revenues from solar panel merchants; that share had dropped to 12 percent by 2017 and to 8 percent in the first quarter of 2018, just before the IPO. By the second quarter of 2018, it had fallen to 5 percent. While it was aggressively reducing its presence in the solar panel business, where the average transaction fee was 14 percent, the company was increasing its involvement in the elective healthcare industry, where the average transaction fee was 6.5 percent. When the truth about GreenSky’s reduced transaction fees and consequential impact on transaction fee revenue emerged, the company’s stock price fell, damaging investors.

At issue was whether, taken at face value, plaintiffs’ allegations appeared plausible and were pleaded with enough particularity and detail.

At the November hearing, defense counsel argued that the company was not required to disclose the shift in merchant mix in its offering documents and that some of the decline in business from solar panel merchants was unexpected. Defense counsel also contended that the risk disclosures contained in the prospectus for the IPO constituted sufficient disclosure.

Judge Hellerstein, however, noted that the shift from the higher-profit solar panel sector to lower-profit elective healthcare merchants seemed “counterintuitive” and was never explained in the prospectus. “There’s something missing here. It doesn’t make sense,” he said. Toll argued that the prospectus and other offering documents made virtually no mention of the solar panel merchants, let alone their importance to the company’s bottom line. Despite all the pages in the prospectus devoted to risk disclosures, “you do not find the words ‘solar panel merchant’ in any risk factor in the entire prospectus,” he said.

In addition, Toll said, investors couldn’t know how a shift to healthcare would hurt the company without knowing more about its reliance on solar panel merchants. “This was their most profitable business,” he said. “It’s not like it’s 1 percent. It’s 20 percent in ’16. The investors aren’t told that. They don’t have a clue. So when [GreenSky] make[s] this disclosure they are going to actively reduce transaction volume with solar merchants, no investor knows what that means.”

The judge agreed. “The prospectus cries out for an explanation,” he said. “It doesn’t make sense without more of an explanation. At this point, I have too many questions to grant the motion [to dismiss] in this aspect.”

The case, In re GreenSky Securities Litigation, No. 18 Civ. 11071 (S.D.N.Y.), is proceeding to discovery.

A Checklist for 2020

Ask public pension plan trustees or counsel what keeps them up at night, and you’re likely to hear about ethics, compliance and fiduciary issues. Resolve to address these issues in 2020. Here’s a checklist to help you achieve your New Year’s resolution.

Tone at the Top: “Tone at the top” is not just a cliché—it has a significant effect on an organization and its people, and shapes the culture of ethics, compliance and risk management. Several organizational studies have shown that, when presented with a hypothetical ethical quandary, only a small percentage of individuals in an organization are likely to always do the right thing or the wrong thing. For the vast majority—90 percent, according to these studies—their choice of actions will depend upon the organization’s culture and the individuals’ access to guidance.

These studies confirm that when faced with a moral choice, most people act based upon environmental circumstances. For that reason, it is essential to set the correct tone and focus on core values. Communicate the message throughout the organization, speaking frequently on it, and integrating the message throughout. Articulate the mission and the values of the organization. Don’t just pay them lip service. When an organization’s ethical culture is weak you can wind up with headlines like those we’ve seen over the years—pay to play scandals, improper disability awards, pension spiking, nepotism, lack of oversight, and misrepresentation—which have led to ethics investigations, criminal convictions, regulatory enforcement actions, and reputational damage. Don’t let that happen to your organization.

A Resource for Guidance: The organizational studies cited above also found that access to information and guidance were key factors in determining ethics and compliance issues. Make sure your organization has a resource where people can comfortably go get the answers to ethical questions. The person tasked with responding to questions from trustees and staff must be knowledgeable, approachable and able to address sensitive questions. Importantly, that person must be given enough resources to respond quickly.

A Reporting Mechanism: Ethical cultures create an atmosphere in which individuals are comfortable coming forward to report wrongdoing. Be sure you have an appropriate resource where people can report allegations without fear of retaliation and with a belief that the issue will be taken seriously, together with a mechanism for investigating such allegations.

Codes of Ethics: An important element of the vigorous and robust ethics program needed to create an ethical culture or maintain an existing ethical culture is a code of ethics that sets forth permissible and impermissible conduct. Such codes must be workable and clearly written, preferably with examples of actual conflicts of interest or situations that create the appearance of a conflict. Many public pension plans have separate codes for trustees and employees, although sometimes both appear in the same document. At a minimum, codes must be consistent with the state or local ethics laws, but public pension systems often wish to adopt customized codes that are directly applicable to the work and mission of pension plans.

Training Program: Clearly communicating rules is essential to compliance. Put in place a comprehensive training program to educate trustees and staff. Remember the 90 percent of the population cited in the studies above—the overwhelming majority of trustees and employees are trying to do the right thing and need access to resources to help them do so. Among the elements of an effective training program are annual fiduciary training for trustees and appropriate staff, and regular ethics and compliance training for trustees and all staff. Attendees say they often prefer shorter, more frequent training sessions on tightly focused topics. Use a variety of speakers to keep the material fresh. For example, while a staff member is likely in the best position to train on the organization’s code of ethics, you may wish to invite a trainer from your jurisdiction’s commission on open meetings/open records to speak on those requirements for a subsequent session.

Governance: It is hard to overstate the importance of good governance in public pension plan management and success. Among the most critical questions in this area is whether the board has delegated appropriately and, having delegated, is careful to exercise appropriate oversight without micromanaging day-to-day operations. While trustees should not be substituting their judgment for that of staff who have been delegated authority, trustees are responsible for carefully monitoring and overseeing those operations and for regularly reviewing the performance of direct reports (the Executive Director and sometimes the Chief Investment Officer).

Policies and Procedures: Policies and procedures are at the heart of the public pension plan and can provide a strong system of internal controls. Many plans organize their policies in a Board Governance Manual that sets forth committee charters and contains such policies as a Communication Policy, Gifts Policy, Travel Policy, Placement Agent and Political Contribution Policy, Whistleblower Policy, and Discrimination, Harassment and Retaliation Policy, among others. In addition to having the right internal controls in place, policies and procedures must be regularly revisited and revised so that they remain relevant and robust.

Chief among policies is the Investment Policy Statement (IPS), which is at the core of good governance. The IPS should clearly set forth investment objectives; roles and responsibilities among trustees, staff, consultants and advisers; long-term strategic asset allocation; operational guidelines for carrying out the asset allocation; and rules for monitoring and reviewing the investment strategy.

Process: Remember that fiduciaries are judged by the process by which they reach their decisions. Establishing a reasonable decision-making process and adhering to that process helps to demonstrate prudence. Documenting the process is an important part of demonstrating prudence. Be sure that your review process has been sufficiently memorialized in order to demonstrate such prudence.

Happy New Year!

In a 150-page complaint filed on December 31, 2019, styled Advanced Gynecology and Laparoscopy of North Jersey.et. al. v. Cigna Health and Life Insurance, Cigna is accused of violations of  the Employee Retirement Income Security Act of 1974 (ERISA), of acting in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), and of committing a variety of state law violations. The Complaint accuses Cigna of engaging in several “brazen embezzlement and conversion schemes, through which it maximizes profits by defrauding patients, healthcare providers, and health plans of insurance out of tens of millions of dollars every year.”[1] Complaint ¶ 1. The plaintiffs, a number of different out-of-network health care providers, allege that Cigna cheats out-of-network healthcare providers by massively underpaying them for medically necessary services already rendered to beneficiaries of health plans administered by Cigna. Id. Cigna then allegedly retains those amounts withheld, which rightfully belong to the health plans, for its own use. Id. The complaint alleges that as a result, Cigna shifts the “financial responsibility for covered expenses onto the backs of patients, their employers, and [p]laintiffs, while Cigna gets rich.” Id.

The plaintiffs claim they protested Cigna’s unlawful processes and procedures in numerous communications to Cigna management. However, Cigna management allegedly informed them that Cigna has no compliance department capable of addressing these issues and encouraged the providers to file a lawsuit to “prompt Cigna to act.” Complaint ¶ 2. This lawsuit was filed on the heels of two similar class-action lawsuits against Cigna and its third-party administrator (TPA), American Specialty Health (ASH). Cigna settled these lawsuits for $20M total (one for $11.75M and one for $8.25M) in September of 2019. Both lawsuits were filed by out-of-network chiropractors, and alleged that Cigna and ASH colluded to overcharge members of Cigna’s employer-sponsored health plans. Specifically, the cases alleged that ASH charged employer-sponsored health plans hidden fees, by [including false charges for therapy services that were never provided /calling certain charges medical expenses for therapy services.] The plaintiffs accused Cigna and ASH of breaching their ERISA duties by concealing information about the true nature of the charges and alleged that Cigna falsified the Explanation of Benefits (EOB) forms to hide ASH’s administrative fees. The settlement was approved by the Pennsylvania district court judge, and neither Cigna nor ASH admitted any wrongdoing, although the judge’s approval order acknowledge that both organizations agreed to take certain actions to reform some aspects of their business.

• Cross-plan offsetting occurs after a plan’s carrier or TPA determines that an out-of-network provider received an overpayment; the overpayment is “reimbursed” by offsetting the amount owed with another payment owed to the same provider under a different health plan. 
• Many times, the alleged overpayments are made from an employer’s fully insured plan and the offset is taken from an employer’s self-funded plan. This can result in self-funded plan participants facing large “balance bills” or “surprise bills” if the provider seeks to recover the remainder of its charges that were offset by the TPA.
• This practice raises many fiduciary concerns under ERISA, including the duties to monitor, to act prudently and to refrain from using plan assets for any purpose other than providing benefits to plan participants and beneficiaries and defraying reasonable administrative expenses.
• The DOL believes cross-plan offsetting violates ERISA. Although dicta, the court in Peterson v. United Health Group also believes the practice likely violates ERISA. 
• You can also be liable, as a plan fiduciary. You should ask your TPA if they engage in cross-plan offsetting and if allowable, best practices is to opt out of that practice.