The Wagner Law Group Description
Wagner Law Group, A Professional Corporation, is a nationally
recognized ERISA & employee benefits, estate planning,
employment, labor & human resources practice.
in 1996, The Wagner Law Group has 23 attorneys engaged
exclusively in employee benefits, estate planning and
employment law. Seven of our attorneys are AV rated by
Martindale-Hubbell as having very high to preeminent legal abilities
and ethical standards. The firm is among the largest ERISA boutiques
in the country. Our practice is national in scope, with clients in
more than 40 states and several foreign countries.
Wagner Law Group
Fax: (561) 293-3591
7108 Fairway Drive
Palm Beach Gardens, FL 33418
Francisco, CA 94104
West Deerpath Road
Lake Forest, IL 60045
May 22, 2014
State and Federal Law
Affirms $5 Million Award Against TPA for Breaching ERISA Fiduciary
The Sixth Circuit Court of Appeals has ruled in Hi-Lex Controls, Inc. v. Blue
Cross Blue Shield of Michigan that a third party
administrator ("TPA") functioned as a fiduciary for an
ERISA-covered health plan and then breached its fiduciary duties by
failing to disclose its fees to the employer.
Background. The defendant served as TPA for the
plaintiff-employer's self-funded health plan. It charged the
plaintiff a monthly fee in exchange for administering employee claims
and offering access to its provider network.
Later, the defendant began to retain additional,
undisclosed fees from amounts transferred to it by the plaintiff to
administer the claims payments. The plaintiff learned of the
undisclosed fees several years later and sued, claiming that the
defendant breached its ERISA fiduciary duties by inflating plan
charges with hidden fees.
Sixth Circuit's Decision. The defendant argued that it did not become an ERISA
fiduciary merely because the contract gave it the unilateral right to
retain funds as compensation for plan services. The Sixth Circuit
rejected this argument, saying that a party is a fiduciary when a
contract gives it discretionary authority to retain plan assets.
The defendant next contended that the funds used to pay
the disputed fees were corporate assets and not plan assets subject
to ERISA. (Note: The funds sent by the plaintiff to the
defendant were a combination of the plaintiff's general assets and
plan participant contributions and did not come from a formal trust
fund or separate bank account.) The Sixth Circuit rejected this
notion, ruling that the defendant functioned as an ERISA fiduciary by
holding plan assets associated with the plaintiff's health plan.
Applicable DOL guidance provides that welfare plan assets generally
include property in which the plan has a "beneficial property
interest." The Sixth Circuit noted that a variety of factors
established that this property interest extended to plan funds held
by the defendant, including:
- An SPD provision
indicating that the plaintiff was not the direct payer of
- Additional SPD language
requiring participants to submit claims to the defendant, which
held the funds and maintained discretionary authority to pay
- The defendant's
submission to the plaintiff of data for inclusion in the health
plan's Form 5500.
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