New ERISA Fiduciary Class Action Filed

Once again, a fiduciary class action has been filed against an employer’s health plan, this time with a twist as the plaintiff’s suit hinges on a novel fiduciary claim. In Barbich et al. v. Northwestern University et al., plaintiffs allege Northwestern University breached its fiduciary duties by “(1) failing to prudently select and monitor the Plan’s PPO medical insurance options, and (2) failing to disclose this material information to the Plan’s participants.” The complaint states, Northwestern University offers employees the choice between a high-deductible, mid-deductible, or low-deductible health plan and informs employees they will likely pay more out-of-pocket costs if they opt for a plan with a lower monthly premium and higher deductible, an assertion the plaintiffs state is false. Specifically, the Plaintiffs claim the high-deductible plan provides lower out-of-pocket expenses for “all levels of medical spending”, meaning the high-deductible health plan “financially dominates” the low-deductible option. Further the compliant states, “a health insurance option is financially dominated when there is another option that results in lower total out-of-pocket expenses to participants, inclusive of premiums and regardless of the amount of medical care received,” therefore the option provides the same financial value but is more expensive than the alternative.  

In using “financial dominance” as the basis of their cause of action, the plaintiffs are potentially creating a new concern for plan sponsors as they navigate risk associated with their fiduciary duties under ERISA. Whether the complaint will proceed beyond the inevitable motion to dismiss remains unclear but depending on how this case proceeds plan sponsors may need to be more conscientious of plan design structure and offerings to avoid potential litigation.  

Employer Considerations  

This class action is one more in a series of suits against plan sponsors alleging fiduciary breaches with respect to the employer’s health plan. Plan sponsors wishing to mitigate risk and remain compliant should consider the following: 

• Establish a fiduciary committee to examine the health plans. 
• Review plan design and potential changes with fiduciary committee and document the reasoning behind each decision.  
• Engage with advisors to monitor the efficacy of the health and welfare benefits.  
• Inform participants of plan details and ensure communications are up to date and accurate. 

Plan sponsors without a fiduciary committee can download our sample fiduciary committee charter here to get started. To learn more about your obligations as a fiduciary, download our checklist here.