Third Party Administrator of Health Plans Settles with DOL for $16 Million over Fee Disclosure and Claims Processing Issues
The U.S. Department of Labor alleged that, in addition to charging a per-employee monthly fee, which was disclosed, a third party administrator (“MagnaCare”) charged employer-provided health plans an undisclosed markup above the actual amounts paid by MagnaCare to ancillary medical service providers such as labs and radiology and imaging services. The plans paid MagnaCare the full amount, and MagnaCare remitted the lower actual charges to the providers and retained the undisclosed markup, which MagnaCare called a “network management fee.” By operating under this fee arrangement and charging an undisclosed fee that was not approved by plan fiduciaries independent of MagnaCare, the DOL alleged MagnaCare breached its fiduciary duties and committed prohibited transactions under ERISA. In addition, the DOL alleged that MagnaCare did not fully comply with the Affordable Care Act’s “prudent layperson standard” because MagnaCare did not inform participants with diagnosis codes that were not on MagnaCare’s “ER list” that… Continue Reading
4th Circuit Holds that the Limitations Period for ERISA Claims of Imprudent Plan Investments Commences with Initial Fund Selection and Does Not Continue With Ongoing Monitoring of Funds, Absent Material Change in Circumstances
A group of participants in Bank of America’s 401(k) plan sued alleging the bank engaged in prohibited transactions and breached its fiduciary duty by selecting bank-affiliated mutual funds despite the funds’ poor performance and higher fees in comparison to other available investment alternatives. The participants conceded that the initial fund selection was outside of ERISA’s general six-year limitations period. Nevertheless, the participants argued that the bank’s failure to remove the bank-affiliated mutual funds at meetings of its benefits committee, which occurred within the limitations period, constituted new prohibited transactions and new breaches of its fiduciary duty to monitor plan investments. The 4th Circuit disagreed, reasoning that a decision to continue certain investments, or even the bank’s failure to act, cannot constitute a “transaction” for ERISA purposes; therefore, the only transaction upon which the participants could assert a prohibited transaction claim was the bank’s initial selection of the bank-affiliated mutual funds.… Continue Reading
New Zealand’s Financial Markets Authority (“FMA”) recently issued guidance setting forth the criteria against which FMA will assess the reasonableness of performance fees for purposes of KiwiSaver schemes and outlining the requirements for disclosure of these fees. Under the guidance, performance fees should only be charged in limited circumstances such as actively managed growth funds and must take account of the effective allowance already in the base fee for an element of active management. The FMA indicated it looks for the following elements related to performance fees: hurdle rate of return with an appropriate benchmark; high water mark (with no resets); crystallisation periods of not less than a year; and a performance fee cap. Managers and trustees for KiwiSaver schemes should review the performance fees charged to their schemes in light of this new guidance. The guidance can be found here.