On July 24, the US Court of Appeals for the Ninth Circuit held in Munro v. University of Southern California that ERISA Section 502(a)(2) claims for breach of fiduciary duty fell outside the scope of the plaintiffs’ individual arbitration agreements because only those individual employees—and not their 403(b) plans—consented to arbitration. The ruling affirmed the district court’s denial of the University of Southern California’s motion to compel arbitration. The 403(b) plan litigation will now continue in the Central District of California, where District Judge Virginia A. Philips had previously stayed the matter pending USC’s appeal.

In Munro, the plaintiffs brought a putative class action lawsuit against USC alleging claims for breach of ERISA’s fiduciary duties in connection with fees and expenses charged to two ERISA defined contribution plans (the USC Plans). The plaintiffs filed their claims under ERISA Section 502(a)(2), 29 U.S.C. § 1132(a)(2), on behalf of the USC Plans. Thereafter, USC moved to compel arbitration pursuant to arbitration agreements signed by each of the nine plaintiffs. These agreements required the plaintiffs to arbitrate “claims for violation of any federal, state or other governmental law, statute, regulation, or ordinance.” However, the district court denied USC’s motion to compel arbitration, holding that the arbitration agreements were unenforceable as to the plaintiffs’ ERISA claims because the USC Plans were the real parties in interest to Section 502(a)(2) claims, and the USC Plans had not consented to arbitration. Munro v. Univ. of S. Cal. (C.D. Cal. Mar. 23, 2017) (“[P]articipants cannot sign an arbitration agreement, without the consent of a plan, that prevents the participants from bringing a § 502(a)(2) claim on behalf of the plan.”).

Congratulations to our ERISA litigation partner Melissa Hill for being named a 2018 Rising Star by Law360 in the Benefits practice area. Law360 annually recognizes elite lawyers under 40 whose legal accomplishments transcend their age. Read more about Missy and the other three Morgan Lewis lawyers who have been recognized as Rising Stars by Law 360.

The US House of Representatives passed the Main Street Employee Ownership Act (H.R. 5236) on May 8. The bill would be instrumental in facilitating the establishment of employee stock ownership plans (ESOPs) by revamping the rules by which the Small Business Administration (SBA) must abide when assisting small employers interested in transitioning to an employee-owned model. Specifically, it (1) allows the SBA to make loans to companies that can then reloan to ESOPs (prior law only allowed loans made directly to ESOPs), (2) allows ESOP loans to be made under the SBA's preferred lender program (a program providing for expediting the processing of loans with cooperating private lenders), and (3) updates the definition of ESOPs in the current law governing SBA loans so that ESOPs do not need to have full voting rights to qualify.

The bill also makes an exception to an SBA rule that sellers of a company cannot have an ongoing role in the firm. It waives a current SBA requirement for a 10% equity investment in a business transition loan, and it allows financing to be used to cover transaction costs.

In recent weeks, there have been a number of reports that the US Department of Labor (DOL) has been taking a more aggressive approach in enforcement actions involving late participant contributions and loan repayments and other errors self-reported by ERISA plans on their Forms 5500. These reports underscore the importance of timely, full correction when a plan discovers such late contributions and loan repayments, and other fiduciary breaches.

Under applicable DOL rules, participant contributions and loan repayments must be remitted to the plan’s trust as soon as the money can reasonably be segregated from the employer’s assets (and no later than 15 days, unless the plan qualifies for a small plan exception). The DOL’s view is that it is a breach of fiduciary duty when the payments are made into the plan’s trust later than that. The delay is treated as an unauthorized loan of plan assets and, therefore, a nonexempt prohibited transaction. The DOL has treated these breaches as an enforcement priority and regularly reviews this issue during its plan investigations (the DOL having primary investigatory authority of ERISA’s fiduciary duty provisions, and a robust investigatory program). The DOL frequently cites ERISA plan fiduciaries for fiduciary breaches due to such late contributions and loan repayments.

On June 1, New Jersey Governor Phil Murphy signed legislation that imposes new disclosure obligations on state healthcare providers and insurers, and changes the way healthcare providers can charge for out-of-network services. The new law, titled the Out-of-network Consumer Protection, Transparency, Cost Containment and Accountability Act, also has an impact on self-insured health plans subject to ERISA and their participants. As explained below, self-insured health plans subject to ERISA that cover individuals who obtain healthcare in New Jersey will need to determine by the end of August whether to elect to be subject to the act.

In broad brush, the legislation addresses “surprise” out-of-network medical charges, such as charges for services administered during an emergency from providers who are not part of the patient’s network. For nonemergency patients, the statute requires healthcare facilities and professionals to provide information—before the patient receives services—as to the in-network or out-of-network status of the providers, and a disclaimer regarding the responsibility of the patient to pay any additional out-of-network fees. The statute also requires providers to supply each patient, upon request, an estimate of fees, and requires facilities to establish public postings regarding standard charges. Health insurance carriers are required to provide written notice of changes to their network, and provide detailed information about out-of-network services, including the methodology used to determine the allowed amount for out-of-network services.

Congratulations to our partner Lisa Barton who has been named to The Business Journals’ list of 100 executives making an impact on business and legal matters in the communities in which they live and practice across the United States. Read more about Lisa and this recognition.

Whether due to an upcoming contract expiration, change in leadership, decline in service quality, regulatory issues, or any of the other many events that occur during an outsourcing engagement, invariably, the original agreement with the service provider must be modified. Please read this post from our Tech&Sourcing @ Morgan Lewis blog to learn about issues that should be considered before entering into such renegotiations.

President Donald Trump on May 24 signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act), which principally addresses amendments to the Dodd Frank Act affecting financial institutions. However, the Act also contains several provisions with respect to the federal securities laws. Section 507 of the Act directs the US Securities and Exchange Commission (SEC) to amend Rule 701 under the Securities Act of 1933 (the Securities Act) by increasing, from $5 million to $10 million, the amount of securities that an eligible company can sell under the rule during a 12-month period without being subject to the rule’s enhanced disclosure requirements. (The Act also calls for an inflation adjustment to this amount every five years.)

Two cases decided on May 23 by Judge Esther Salas in the US District Court for the District of New Jersey (Univ. Spine Ctr. v. Aetna, Inc. and Univ. Spine Ctr. v. United Healthcare – both unpublished decisions) reiterate the importance of including clear anti-assignment language in health plans to prevent healthcare providers from circumventing plan terms to obtain payment.

In this age of skyrocketing health costs, plan sponsors typically work with their advisors and insurers to craft reimbursement structures for services under their health plans. This often includes a lower reimbursement rate for certain out-of-network services. In recent years, many plans have had more claims from out-of-network providers trying to circumvent these design decisions and seek full reimbursement from the plans.