New Class Action Lawsuit Focused on Forfeitures is Filed as Another Survives Motion to Dismiss

Bank of America Corporation (BOA) is the latest plan sponsor facing ERISA claims related to how it uses forfeited employer contributions in its 401(k) plan. In a lawsuit filed on August 9, 2024, in federal court in California, a plan participant representing a putative class alleged that BOA, its corporate benefits committee, and unidentified individual defendants violated ERISA when they used "forfeited plan assets to reduce [BOA] employer obligations, rather than for the benefit of plan participants." Becerra v. Bank of America Corporation, No. 24-01697 (C.D. Cal. Aug. 9, 2024). The four-count, bare-bones complaint alleges ERISA violations for breach of the fiduciary duties of loyalty and prudence and a failure to monitor, as well as prohibited transactions and a violation of ERISA's anti-inurement provision. 

The plaintiff, seeking to represent a class comprised of all participants and beneficiaries in the BOA 401(k) plan, alleges the defendants "failed to engage in a reasoned and impartial decision making process in deciding to use the forfeited funds in the Plan to reduce the Company's own contribution expenses." The plaintiff claims that the defendants failed to consider whether participants would be better served by another use of plan forfeitures, but the complaint does not contain averments relating to what process BOA followed when deciding how to use forfeited amounts. The complaint also alleges that by using plan assets to reduce its own employer contributions to the plan, BOA saved "millions of dollars" in contribution costs in violation of ERISA's prohibited transaction and anti-inurement rules. The plaintiff also faults BOA for failing to monitor the activities of its benefits committee to whom it delegated responsibility for plan management. The plaintiff seeks to recover losses to the plan and profits BOA allegedly earned from the complained-of conduct, and requests that the court order removal of the plan's fiduciaries and an accounting.

This lawsuit follows a host of similar suits filed in the last year. Motions to dismiss the complaints in these cases have largely focused on the terms of the plans at issue, whether decision-making regarding the use of forfeited funds is a settlor or fiduciary activity, and whether the alleged misconduct resulted in any cognizable losses. Thus far, decisions on these motions have been mixed. For example, the court in a case against Qualcomm, Inc., denied the company's motion to dismiss in May 2024 and more recently also denied a motion to reconsider that ruling or allow an immediate appeal to the Ninth Circuit. In a case against HP, Inc., the court granted a motion to dismiss the complaint, but gave the plaintiff an opportunity to replead their claims. 

Just this week, the court hearing a lawsuit against Intuit, Inc., and its benefits committee denied the company's motion to dismiss, finding the plaintiff had sufficiently pled her fiduciary breach, anti-inurement, and prohibited transaction claims and that the plan "as a whole was damaged." Rodriguez v. Intuit, Inc., No. 23-05053 (N.D. Cal. Aug. 12, 2024). In the complaint in this case, the plaintiff faulted Intuit for allegedly failing to use plan forfeitures to eliminate administrative expenses charged to participants' accounts and instead used those funds to reduce the company's own contributions the plan. According to the court, "[a]lthough Intuit's decision about how to allocate [the forfeitures] undoubtedly effected the amount it would contribute as settlor each year, by the Plan's own terms it was making decisions about the management and disposition of plan assets. As such, it acted in a fiduciary capacity when making those decisions." 

The court concluded that the plaintiff had plausibly alleged that "Intuit breached its duty of loyalty by making decisions that were not in the best interest of Plan participants." Likewise, the court held the plaintiff plausibly alleged that the company beached its duty of prudence based on allegations in the complaint

not only that Intuit did not in fact comply with the terms of the Plan Document but also that a prudent employer in this particular context would have at minimum engaged in a "reasoned and impartial decision-making process" considering "all relevant factors" before determining how to use the forfeited funds in the best interest of the participants and beneficiaries [and that] Intuit failed to do so.

As to the impact of governing Department of the Treasury (Treasury) regulations and Department of Labor (DOL) guidance, the court stated those provisions "generally permit employers to structure plans to allow forfeitures to cover contributions," but they "do[] not establish that Intuit's implementation by using forfeitures to offset its mandatory Matching Contributions within the parameters of this specific Plan... was permissible, lawful, or inconsistent with a finding that Intuit violated ERISA's anti-inurement provision." The court rejected the defendants' argument that the use of forfeitures to offset the amount they contributed to the plan was not a "transaction" under ERISA's prohibited transaction rules, finding instead that "Intuit's reallocation of undisputed plan assets to reduce its own matching contribution... was a 'use' of plan asserts for the purposes of [ERISA § 406(a)(1)] (as well as a "dealing with" plan assets for the purposes of [ERISA § 406(b)(1)])." 

As to alleged damages, the court found that the plaintiff sufficiently pled that "Intuit 'caused the Plan to receive fewer contributions that would otherwise have increased Plan assets,' thereby 'reduc[ing] the funds available to participants for distribution and/or investing.'" The plaintiff agreed to the dismissal of the company's benefits committee as a defendant in the case and to the failure to monitor claim, which are no longer part of the case.

Fifth Circuit Applies Loper Bright to Affirm Vacatur of No Surprises Act IDR Rule

On August 2, 2024, a three-judge panel from the U.S. Court of Appeals for the Fifth Circuit issued an opinion in Texas Med. Ass'n v. U.S. Dep't of Health and Human Servs., No. 23-40217, affirming a lower court ruling that vacated certain portions of a No Surprises Act (NSA) independent dispute resolution (IDR) rule promulgated by the Departments of Health and Human Services, Labor, and the Treasury (collectively, the Departments). In reaching its decision, the Fifth Circuit relied on the Supreme Court's recent decision in Loper Bright Enterprises v. Raimondo, No. 22-451 (U.S. June 28, 2024), to find the challenged regulation exceeded the agencies' authority. 

The NSA limits the amount a patient must pay for certain medical services, including emergency services furnished by an out-of-network provider and certain non-emergency services furnished by an out-of-network provider at an in-network facility. If the provider and patient's insurer or plan are unable to agree on a payment amount for the services at issue, either party may initiate arbitration under the IDR provisions of the NSA, and the arbitrator must consider several enumerated factors to reach a payment determination, including in many instances the qualified payment amount (QPA), defined as the median contracted rate for the service in the geographic region, adjusted for inflation. The NSA also requires the Departments to establish by regulation the IDR process for determining the payment amount. The Departments promulgated a Final IDR Rule implementing the NSA in 2022. In relevant part, the Final IDR Rule requires the arbitrator to (1) first consider the QPA and then consider the remaining statutory factors; (2) not consider information other than the QPA if the information is not credible, irrelevant to either party's offer for the payment amount, or already accounted for in the QPA; and (3) if the arbitrator relied on information outside of the QPA, include a written explanation of the determination stating how the information was not already reflected in the QPA.

The recent Fifth Circuit decision addressed claims by the Texas Medical Association (TMA), a regional hospital and physician in Texas, and two providers of air ambulance services that the Final IDR Rule violated the Administrative Procedure Act (APA) because it conflicted with the statutory requirements in the NSA. In February 2022, a federal judge from the U.S. District Court for the Eastern District of Texas agreed with the plaintiffs and vacated certain provisions of the rule. 

Citing Loper Bright, a three-judge panel of the Fifth Circuit affirmed the district court's ruling, holding that the Departments had exceeded the "narrow rulemaking authority" granted by the NSA. The panel stated that "[t]he Departments leapfrog from the purely administrative authority conferred by [the NSA] to a broader claimed delegation that allows them to fill the gaps in the arbitration process itself" and that the NSA "did not delegate to the Departments the authority to set substantive standards for the independent arbitrators to observe." Quoting Loper Bright, the panel stated that "courts have 'obligations under the APA' to 'police the outer boundaries of [congressional delegations], and ensure that agencies exercise their discretion consistent with the APA.'" According to the court, the Departments exceeded their authority "by infringing on arbitrators' discretion to balance the statutory factors." 

In addition, the panel found that the Final IDR Rule places three "extrastatuory requirements" on arbitrators in conflict with the NSA and at least one of which "place[s] a thumb on the scale in favor of the insurer-determined QPA in derogation of the other congressionally mandated factors." Finally, the panel affirmed the lower court's decision both that vacatur was the appropriate remedy but also that the vacatur must be universal and not applicable only to the parties in the in the case "to promote 'uniformity and predictability across arbitrations.'" 

The Fifth Circuit also rejected the government's claim that the plaintiffs lacked standing to bring their claims, holding that the regulation's compelling the plaintiffs "to participate in an invalid administrative process" was an injury sufficient to show standing and that plaintiffs had adequately stated a financial injury in the form of a threat of reduced reimbursements.

The Fifth Circuit's decision, although not surprising in its outcome, is noteworthy as it is one of the earliest decisions applying Loper Bright in an APA challenge to a federal regulation. 

Upcoming Speaking Engagements and Events

The firm is sponsoring the ERISA 50th Anniversary Symposium and Gala on September 12.

Joanne and Tony are presenting "Legal Developments in Employee Benefits Law" to members of the ERISA Industry Committee on September 4.

Joanne is speaking at two ABA webinars in September. On September 10, she will discuss "Health Care Equality," and on September 17, she will co-present "50 Years of ERISA Preemption: Where Do We Stand?"

The information contained in this communication is not intended as legal advice or as an opinion on specific facts. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. For more information, please contact one of the senders or your existing Miller & Chevalier lawyer contact. The invitation to contact the firm and its lawyers is not to be construed as a solicitation for legal work. Any new lawyer-client relationship will be confirmed in writing.

This, and related communications, are protected by copyright laws and treaties. You may make a single copy for personal use. You may make copies for others, but not for commercial purposes. If you give a copy to anyone else, it must be in its original, unmodified form, and must include all attributions of authorship, copyright notices, and republication notices. Except as described above, it is unlawful to copy, republish, redistribute, and/or alter this presentation without prior written consent of the copyright holder.