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The Supreme Court Holds Participants in Fully-Funded Defined Benefit Plans Cannot Sue for Fiduciary Breach

The U.S. Supreme Court held Monday that participants in a fully-funded defined benefit plan have no standing to bring a lawsuit against plan fiduciaries for a breach of ERISA’s fiduciary requirements. In Thole, plan participants alleged that the plan fiduciaries had mismanaged funds and invested in imprudent investments causing the plan to lose approximately $748 million more than it otherwise should have during the 2008 recession. Subsequent to that date, the plan sponsor contributed an additional $311 million to the plan resulting in the plan becoming fully funded. The Court held that because the participants would receive the same benefits whether they won or lost the lawsuit, there was no controversy and, therefore, the participants had no standing under Article III of the U.S. Constitution to bring a civil action under Sections 502(a)(2) or 502(a)(3) of ERISA. Thole v. U.S. Bank N.A., No. 17–1712 (U.S. June 1, 2020) can be… Continue Reading

Fifth Circuit Holds that Offering Single Stock Investments in a 401(k) Plan is Not Per-Se Imprudent

Following a spinoff, a 401(k) plan continued to offer the employer stock fund of the predecessor parent company as an investment alternative, but closed it to new investments. After the share price fell by approximately 50%, the participants brought a lawsuit against the plan fiduciaries claiming, among other things, that the fiduciary breached its duty to diversify under ERISA Section 404(a)(1)(C) by retaining the stock fund as an investment alternative. The District Court dismissed the case and the U.S. Court of Appeals for the Fifth Circuit upheld the dismissal. The Fifth Circuit held that although the stock of the former parent was not statutorily exempt from ERISA’s diversification because it was no longer a “qualifying employer security”, there was no obligation for the plan fiduciaries to force plan participants to divest from the funds. The court explained that ERISA contains no per se prohibition on individual account plans offering single-stock… Continue Reading

HIPAA Covered Entity Settles Breach Notification Failure with OCR for $2.175 Million

The HHS Office for Civil Rights (“OCR”), which is the agency responsible for enforcement of the HIPAA privacy, security, and breach notification rules (“HIPAA Rules”), announced a recent $2.175 million settlement with a covered entity under HIPAA (the “Covered Entity”) for the Covered Entity’s failure to properly notify HHS of a breach of unsecured protected health information (“PHI”) as required by the HIPAA Rules, and other potential violations. Background OCR had investigated the Covered Entity in response to an individual complaint it received that alleged the Covered Entity had sent correspondence to the individual containing another person’s PHI. OCR’s investigation determined that the Covered Entity had mailed correspondence containing the PHI of 577 individuals to the wrong addresses. In some of the correspondence, the PHI consisted of the names and account numbers of the individuals and their dates of medical service. The Covered Entity had reported this incident to HHS… Continue Reading

Legal Requirements Triggered by HIPAA Breach

An impermissible acquisition, access, use, or disclosure of HIPAA “protected health information” (“PHI”) under an employer’s group health plan (which is a “Covered Entity” under HIPAA) is not uncommon. If such a breach occurs with respect to the PHI of a Covered Entity, the employer needs to know that the Covered Entity may be required by HIPAA’s breach notification rules (the “Breach Rules”) to issue certain notices and perform other tasks. Analysis of the Impermissible Acquisition, Access, Use, or Disclosure of PHI An impermissible acquisition, access, use, or disclosure of PHI is presumed to be a “breach” unless the Covered Entity demonstrates that there is a low probability that the PHI has been compromised. The Breach Rules outline the four-factor risk assessment that a Covered Entity must perform (and document) in order to make such a demonstration. If, after completing the step above, the Covered Entity determines that a “breach”… Continue Reading

Federal District Court Orders Owner to Disgorge His Cars

A recent federal district court case demonstrates the risk to an ERISA fiduciary’s personal assets when he commits a fiduciary breach. The court previously held that the former owner of a privately-held company engaged in a prohibited transaction and breached his fiduciary duties when he sold shares of company stock to his company’s leveraged ESOP at prices in excess of its fair market value. The district court required the owner to provide assets, including several cars, as security in conjunction with his motion to stay enforcement of the judgment pending appeal, stipulating that if the judgment were upheld, the security would be transferred to the plaintiffs. When the U.S. Court of Appeals for the Fifth Circuit upheld the judgment, the owner refused to turn over the assets. The district court is now ordering the owner to turn over the assets despite any hardship that it may cause the owner. Perez… Continue Reading

Largest Single-Entity Settlement to Date Due to HIPAA Non-Compliance

The U.S. Department of Health and Human Services (“HHS”), Office for Civil Rights (“OCR”), recently entered into a $5.55 million settlement agreement with Advocate Health Care Network and its subsidiaries (“Advocate”) to resolve multiple potential violations of HIPAA involving electronic protected health information (“EPHI”). The settlement results from OCR’s investigation of Advocate which began in 2013 after Advocate submitted three breach notification reports to OCR within a three-month timespan. The reported breaches involved (1) the theft from one of Advocate’s support centers of four desktop computers containing unsecured EPHI of nearly four million individuals, (2) unauthorized access of unsecured EPHI from the computer network of Advocate’s business associate (“BA”), and (3) the theft of a laptop containing unsecured EPHI from an Advocate workforce member’s vehicle. Upon its investigation, OCR determined that Advocate failed to (a) conduct an accurate and thorough risk analysis related to its utilization of EPHI, (b) implement… Continue Reading

Breach of Fiduciary Duty Class Action Targets Relatively Small 401(k) Plan

Over the past several months, high profile class action lawsuits have been filed against plan sponsors and fiduciaries of very large 401(k) plans alleging breaches of fiduciary duty related to excessive plan administrative fees and underperforming investment options. A new class action lawsuit filed in the U.S. District Court of Minnesota raises concerns that plan sponsors and fiduciaries of relatively small 401(k) plans may also become targets of such suits. Similar to the class actions filed against fiduciaries of large 401(k) plans, plaintiffs in the case of Severson v. LaMettry’s Collision, Inc. allege their employer, its president, and its CFO breached their fiduciary duties by causing the employer’s 401(k) plan to pay excessive administrative fees, selecting imprudent classes of investments, and selecting investment options that were unnecessarily expensive. Unlike the other class actions, the LaMettry 401(k) plan is relatively small, having just over 100 participants and approximately $9.2 million in… Continue Reading

Fifth Circuit Addresses ERISA Fiduciary Duty of Appointing Fiduciary to Monitor an Appointed Fiduciary

The U.S. Court of Appeals for the Fifth Circuit, which includes Texas, upheld a district court judgment that the former owner of a privately-held company engaged in a prohibited transaction and breached his fiduciary duties of loyalty and prudence when selling shares of company stock to his former company’s leveraged employee stock ownership plan (“ESOP”) at prices in excess of the stock’s fair market value. Specifically, the court found that the owner influenced the outcome of the appraiser’s valuation of the stock to achieve a higher stock price, which resulted in the ESOP overpaying for the stock. The Fifth Circuit disagreed with the district court’s holding that the owner, who was also a trustee of the ESOP, breached his fiduciary duty to monitor the other two plan trustees whom he had appointed and whom he knew had breached their duties of loyalty and care. Perez v. Bruister, No. 14-60811 (5th… Continue Reading

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