“High Court’s Pension Ruling Is Sinking Health Plan Suits,” Law360
Employer attempts to use a 2020 U.S. Supreme Court ruling that limited litigation over pensions to also knock out 401(k) class actions have largely fallen flat, yet they are starting to see success in an unexpected context: suits over health plan management.
While federal judges across the country have ruled Thole v. U.S. Bank 's central holding — that workers can sue only over pension mismanagement that actually threatens their retirement checks — doesn't translate to the 401(k) context, recent management-friendly decisions illustrate how the ruling can be used to fend off health plan litigation.
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401(k) Arguments Ring Hollow
The Thole ruling made huge waves in the ERISA litigation arena when it arrived in June, with the justices holding 5-4 that U.S. Bank pension plan participants didn't have standing to sue over alleged mismanagement because it didn't affect their monthly pension checks. In order to have standing, the majority ruled, the participants would need to show they lost money or were at substantial risk of losing money.
And since pension plans like U.S. Bank's guarantee retirees a set amount of money each month regardless of the quality of the plan's management, the participants couldn't show they lost money or were in danger of losing money because of plan overseers' behavior, the majority said.
Benefits attorneys speculated the case would render ERISA class actions against pension plans dead in the water — and potentially limit other types of benefits suits as well.
In the early days after the ruling, the conversation was focused on the potential impact on suits against 401(k) plans. And in the months that followed, employers began using Thole to argue workers and retirees shouldn't be allowed to sue over the alleged mismanagement of investment options within their 401(k) plan that they themselves didn't keep money in.
But that argument has failed on at least nine occasions since last summer — in cases in New York, Pennsylvania, North Carolina, Michigan, Massachusetts and New Jersey — against institutions as diverse as Columbia University, Goldman Sachs Group and Coca-Cola Consolidated Inc.
The reason is that 401(k) plans, which are also called defined-contribution plans, are set up differently than pension plans, which are known as defined-benefit plans — so mismanagement impacts workers' benefits differently.
In the Thole case, U.S. Bank retirees alleged mismanagement caused their pension plan to lose $750 million and become underfunded. Even so, that underfunding didn't impact their pension checks, as the high court majority pointed out. The same could not be said if that underfunding took place in a 401(k) plan.
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The Supreme Court pointed out this distinction, writing that, "Of decisive importance to this case, the plaintiffs' retirement plan is a defined-benefit plan, not a defined-contribution plan."
Federal courts have taken to citing this language when axing Thole-based dismissal arguments in cases involving 401(k) plans, attorneys said.
Health Plan Fights Gain Traction
Yet the landmark ruling is becoming increasingly useful in suits involving employee health benefits, attorneys say. At least three such cases have bitten the dust due to Thole-based dismissal arguments since July — in federal courts in Florida, New York and California — noted Bates and Joseph J. Torres, the chair of Jenner & Block LLP's ERISA litigation practice group.
Bates and Torres authored an article for the spring edition of the Employee Relations Law Journal on how the Thole decision has been interpreted in district courts.
In the article, they point out the dismissal of two cases that alleged health plan mismanagement — Gonzalez de Fuente v. Preferred Home Care of N.Y. LLC and Crosby v. California Physicians' Service — and one that alleged the employer failed to notify laid-off workers of their right to stay on the company's health plan, Bryant v. Walmart Stores Inc.
In those suits, the defendants secured dismissal by pointing out that, like in the Thole case, the alleged misconduct "was never going to materially impact what the individuals were entitled to," Torres said.
When it comes to the management of health plans, employers' failure to do something on the back end might not affect the benefits the worker ultimately receives, Torres explained.
If the failure does limit workers' benefits or otherwise impacts them financially, however, they could argue Thole doesn't apply and that they have a case, said Karen Handorf, a benefits partner at Cohen Milstein Sellers & Toll PLLC. She brought up cases alleging violations of the Mental Health Parity Act as an example of the type of health plan litigation that could likely fight off such a dismissal argument.
In these cases, workers argue plan managers' failure to follow proper guidelines in deciding which treatment is paid for led to them not receiving benefits to which they're entitled.
"If you have a mental health parity case, I think it's easier to make a standing argument because it's about what you get for benefits," Handorf said. "But where you're going to have more trouble is where it's about plan mismanagement, in cases where you're still getting benefits."
The complete article can be viewed here.