A recent lawsuit, Chavez, et al. v. Plan Benefits Services, Inc., et al., focuses on a dispute regarding two benefit plans, a retirement plan, and a health and welfare plan sponsored by Training, Rehabilitation & Development Institute, Inc. (TRDI). The plan participants did not sue TRDI, the plan sponsor, but rather third party entities responsible for marketing and supporting these plans.

Third Party Plan Providers

Plan Benefit Services, Inc., Fringe Insurance Benefits, Inc. and Fringe Benefits Group market and service plans for businesses that obtain government contracts. TRDI enrolled in two of their offered plans. In July 2017, plan participants sued these companies as third-party providers under ERISA, alleging excessive fees and undisclosed indirect compensation. While these are increasingly-common ERISA lawsuit complaints, they are generally brought against the plan sponsor rather than third-party providers. Like a more traditional lawsuit, Chavez alleges that the plan providers were receiving undisclosed compensation from plan recordkeepers andadministrators.

The plan participants are working to set up a class that includes both plan participants from TRDI as well as other employers who used the same benefit plans. The lawsuit claims that the third parties breached their fiduciary liability because they controlled the disbursements from the trusts established for their plans and directed those disbursements, including the payment of fees. The court found that a class certification was appropriate for these claims, despite the fact that many of the class members may have participated in different plans from those the TRDI employees participated in. While the defendants argued that a class certification was not appropriate because the plaintiffs would be delving into the details of plans that were not TRDI plans, the court found that this was not an adequate argument for preventing them from facing class-wide liability, as there was no variety of defenses that would apply to some class members and not others.

Impacts of Class Certification

In addition to suing third party providers instead of the plan administrator, class certification widens the scope by bringing in participants of unrelated plans to strengthen the lawsuit. Doing this is usually difficult, as it is uncommon for one defendant to be a fiduciary of several unique plans. However, under ERISA’s functional fiduciary status, these third party providers can serve as plan fiduciaries to a group of plans even if they are not formally designated as a plan fiduciary.

This case will be closely watched by ERISA attorneys who handle both plaintiff and defense work. If the case is decided for the plaintiffs, it will change how courts address liability and factual disputes. It may also t may open the door further for ERISA-litigation,as it gives plaintiffs’ attorneys a way to investigate and sue increasingly smaller plans by pooling participants into large classes.