401(k) Plan Excessive Fee Lawsuits – Reducing the Risk for Company Presidents, Chief Financial Officers, H.R. and Benefit Professionals
Webinar: On August 4, 2016, from 12:00 – 1:30, Frank Del Barto will review the current 401(k) excessive fee litigation environment, use a recent Minnesota collision repair company case as a teaching tool, and guide clients and friends of the Firm in strategies to help reduce 401(k) litigation risks via the use of plan committees, investment policy statements, and fiduciary liability insurance. This webinar is intended for executives and H.R. and benefits professionals who have 401(k) plan responsibilities or who are charged with benefit plan administration, corporate compliance and risk reduction strategies.
401(k) plans are not install and forget plans. For the last several years, Fortune 500 companies have been the target of ERISA lawsuits that allege that various plan fiduciaries (company presidents, chief financial officers, plan committees, H.R. and benefit professionals) breached their fiduciary duty owed to employee/plan participants by allowing excessive administrative and investment fees to be paid by employee/plan participants. For each "excessive fee" paid, an employee/participant has less money in his or her individual retirement account, resulting in the basis for the lawsuits.
The 401(k) litigation market may be shifting. In May, two employee/plan participants filed a class action lawsuit against a Minnesota collision repair company, its president and its chief financial officer in their capacity as plan trustees, alleging many of the same excessive fee and breach of fiduciary duty claims found in the Fortune 500 company litigation. Unlike the 401(k) plan of a Fortune 500 company, the collision company's 401(k) plan only has about 114 participants and only holds about $9.2 million in plan assets.
Small and medium size company risk reduction. Whether or not the litigation market is shifting, company presidents, chief financial officers, H.R. and benefit professionals are often considered plan fiduciaries under ERISA. As plan fiduciaries, these individuals have a fiduciary duty to defray the cost of plan administration and act in the best interest of employee/plan participants and beneficiaries. To meet this duty, plan fiduciaries must, among other things, monitor and understand all plan fees and expenses and review all aspects of plan governance and administration on a periodic basis.
A systematic review plan process and fiduciary insurance are key elements in any company's risk reduction strategy.
Registration for the webinar: To sign up, click here.
Reminder to Employers: Pre-Employment Inquiries Into Medical History Are Illegal
By Jiwon Yhee
A recent EEOC lawsuit, EEOC v. Grisham Farm Products, Inc., Case No. 16-cv-03105 (W.D. Mo. June 8, 2016), serves as a reminder to employers that pre-employment inquiries into an applicant's medical history can be violations of the of the Americans with Disabilities Act ("ADA") and the Genetic Information Non-Discrimination Act of 2008 ("GINA"). In Grisham Farm Products, the Court found that an employer's inquiries into a job applicant's medical history constituted a violation of the ADA and the GINA despite the fact that the job applicant did not even complete or submit a job application to the defendant employer, and the Court, amongst other things, awarded the job applicant $10,000.
Phillip T. Sullivan was a retired law enforcement officer who was looking for a job. When he learned that the defendant, Grisham, was hiring, Sullivan downloaded the defendant's application for employment from its website. The application included a three-page health history form with 43 questions that, according to Grisham, "must be answered." Sullivan was concerned when he saw the health history form because answering the questions fully and completely would disclose his disabilities to Grisham. Additionally, answering the questions would have revealed Sullivan's genetic information with respect to himself or his family members. Sullivan did not fill out Grisham's application form. Instead, he immediately contacted the EEOC with whom he filed a Charge of Discrimination against Grisham, and the EEOC ultimately filed a complaint against Grisham, alleging, among other things, a violation of the ADA and the GINA.
As a preliminary matter, the Court held that the fact that Sullivan did not submit an application to Grisham did not preclude relief, noting that the effects and injuries of discriminatory employment practices are not limited to situations where job applicants are expressly denied employment, but also where discriminatory policies deter job applicants who are aware of the policies and do not want to subject themselves to the "humiliation of explicit and certain rejection." Therefore, Sullivan was entitled to relief despite the fact that he never actually applied for a position with Grisham, and Grisham therefore never had the opportunity to reject Sullivan on the basis of his disability or other genetic information.
More importantly, the Court found that Grisham had violated the ADA when it required job applicants to fill out questions with respect to their medical history. The ADA prohibits an employer from "conduct[ing] a medical examination or mak[ing] inquiries...as to whether [an applicant] is an individual with a disability or as to the nature or severity of such disability" prior to extending a job offer. That is not to say that the ADA prevents employees from making any inquiries that would help them determine whether a job applicant is capable of performing the job duties of a position. The ADA includes a provision for an "acceptable inquiry" at the pre-offer stage into the "ability of an applicant to perform job-related functions." However, such questions must not be phrased in terms of disability. For example, an employer can ask a job applicant if the individual has a driving license if the job position would require driving, but the employer cannot ask the same applicant if he has a visual disability that prevents him from driving.
The Court also found that Grisham had violated GINA by asking Sullivan questions that would reveal whether Sullivan had consulted with certain medical professionals and to identify future diagnostic testing that had been recommended or discussed with his medical provider. GINA generally prohibits employers from "request[ing]...genetic information with request to an employee or family member of the employee" with few exceptions. GINA defines "employee" as including "an applicant for employment."
This case serves as a good reminder to employers that they should not ask job applicants questions regarding applicants' medical history, disability, or genetic information at the pre-offer stage. Employers may ask questions related to whether the job applicant can fulfill the job-related functions required of the position. However, employers should exercise caution in how they phrase such questions, lest they inadvertently touch upon a job applicant's disability or genetic information and open themselves up to potential liability under the ADA and GINA.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.