Editor's Note: This report is based on survey data from February 2024 that was published in March 2024. This is the most recent data available. (Source: Bureau of Labor Statistics)

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US employers added 275 thousand jobs last month, and while the unemployment rate rose only slightly from 3.7% to 3.9%, it is nonetheless the highest it has been since February of 2022.

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The 275 thousand new jobs that were added last month surpassed the approximately 200 thousand new jobs economists were predicting, and also represents an increase of 20% over the month before which posted about 229 thousand new jobs. 

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That said, those 229 thousand new jobs reported in February were a downward reduction of about 35% from the 353 thousand jobs that had initially been reported. January’s figures were also revised downward this month by about 13% from 333 thousand to 290 thousand.

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The number of permanent job losers increased by about 10% over the month to about 1.7 million, which is up about 23% in total over the last year, while the labor force participation rate held steady at 62.5% for the third consecutive month.

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As for job growth, the healthcare industry led the field last month with the addition of 66 thousand new jobs, which is just above pace for the 58 thousand new jobs the healthcare industry has added on average over each of the last 12 months.

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The government sector added about 52 thousand new jobs, followed by 42 thousand new jobs in food services and drinking establishments, which saw their first substantial increase in months after making massive recovery gains for much of the last 2 years.

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The transportation and warehousing, social assistance, construction, and retail industries each added in the neighborhood of 20 thousand jobs, while there was little noteworthy change in payroll figures for the mining, oil, natural gas, wholesale, manufacturing, financial activities, personal services, business services, and information industries.

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The average workweek increased by an adjusted tenth of an hour to 34.3 hours per week, which is down slightly from 12 months ago when the average was 34.5 hours weekly and represents a rare upward break from the general downward trend in average private hours worked per week.

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Average hourly earnings rose by an adjusted 5 cents to $34.57, which is a noteworthy slowdown from the previously established pace of increasing wages, which are up 4.3% over the past 12 months.

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Mployer Advisor’s Take

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The latest jobs report brought some mixed messages, with unemployment ticking up but job additions once again exceeding expectations.

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While some headlines will certainly highlight the two-tenths of a point increase in the unemployment rate, the more significant story for the time being remains the 2 plus years during which unemployment has held steady below 4%. 

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On the spectrum between inflation and recession is a sweet spot in the middle that is akin to the ‘soft landing’ that the Federal Reserve has been steering the economy toward for the last couple of years. 

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While this most recent economic report is probably a small step away from inflation, that also means it’s a small step toward recession, but that’s not necessarily a bad thing. 

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A step away from inflation and toward recession doesn’t mean that recession is imminent or even inevitable - boom and bust cycle notwithstanding. That same step could also be re-centering the economy in the middle of that sweet spot.

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The operative questions become how long can the economy hover in the middle of that spectrum in between additional steps toward recession, and how small or large will those next steps toward recession be. If the economy and job market can come anywhere close to matching the stability and consistency they’ve shown over the past couple of years, then it may be quite a while yet before major economic downturn becomes an imminent concern.

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Eager for more exclusive content? Check out the Mployer Advisor blog here.

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ARTICLE |  Human Resources State Of The Union

The human resources field has been steadily expanding for the better part of a decade now, with nearly 980 thousand HR employees spread out across the US by the end of 2023. This is a credit to the increasing realization that a dedicated people strategy, proper talent management, employee retention and appropriate communication can have on an organizations 1. mission and 2. financials.

Even in the face of numerous disruptions to the workforce of international scale in the intervening years, the number of human resources professionals on US payrolls is up about 70% from the approximate 575 thousand US HR workers that the US boasted in 2015.

Perhaps even more interestingly, the ranks of human resources executives are well-positioned to continue growing into the future in the near-term, at times seemingly in spite of and at times seemingly because of the increased pervasiveness of artificial intelligence usage across human resources departments - more on that below.

What follows are some of the more interesting data points we’ve put together to help tell the story of the human resources field as it is today as well as how it is changing.

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HR Execs are Doing More Moving Up Than Moving On

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While 2022 was a busy year for Human Resources professionals seeking greener pastures and obtaining positions with new companies in order to progress their careers, those numbers substantially normalized over the last year and are much more in line with the level of executive  inter-company movement we saw in 2020 and 2021.

It’s worth noting that January has consistently been the month during which produced the greatest amount of HR executive churn over the past several years. With January behind us already in 2024, however, if historical trends over the last couple of years hold true, the next human resources executive exodus will likely occur in April, with churn decelerating then throughout the summer and fall until the close of the year.

One of the main reasons that there has been a noteworthy decrease in HR professionals leaving their current jobs for outside opportunities may be the inversely increasing amount of internal promotions that have occurred over the same time frame. Between 2021 and 2023, the proportion of internal promotions relative to total executive movement increased by 20%, with internal promotions climbing to account for nearly 4 out of every 10 human resource executives that changed jobs/companies, etc.

Further, the data indicates that the trend toward internal promotion has been picking up speed over the past couple of years, with the proportional growth of internal promotions relative to all HR professional job movements increasing 3 times faster from 2022 to 2023 than from 2021 to 2022.

‘Chief Human Resource Officer’ is in and ‘Chief People Officer Is Out’

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It was trendy for a little bit, but just as the job itself has evolved significantly over the last 100 plus years, the various titles by which companies have referred to their human resource lead has organically shifted among various options including HRBP or Human Resources Business Partner, VP of Human Resources, Chief Human Resources Officer, and Chief People Officer, for example.

The title Chief People Officer (CPO) has been riding atop the popularity wave in recent years - consistently exceeding the next most popular alternative, Chief Human Resources Officer (CHRO), by a significant margin. Since 2022, however, CHRO has been trending upward and making up ground while CPO has been doing the exact opposite. As of 2023, Chief Human Resources Officer is nearly as common as Chief People Officer with CHRO  likely to overtake CPO as the most popular HR head title in 2024 if these historical trends hold true.

HR Job Postings Increasingly Reference AI

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Artificial Intelligence tools have become more and more commonplace across a wide range of applications in recent years, and the human resources field has been no exception, incorporating AI in various capacities including job application processing, automated applicant interviewing, employee benefits optimization, and job performance analytic assessments.

Accordingly, it is no surprise that the number of HR jobs postings that relate to AI have been rapidly on the rise as well. In fact, since the second half of 2021 when the moving average number of AI-related HR job postings and other HR job postings were last approximately on par, the AI HR job posts have grown a more than 75% margin over the HR job postings that don’t involve artificial intelligence. Clearly the continuing incorporation of AI within nearly every aspect of the human resources field has been gaining momentum and is likely to continue doing so barring some currently unforeseen disruption.

While AI is referenced in a lot of places, what it really means is better analytics for the most part.  The best examples include -

1. AI-Powered Recruitment Tools: These tools use artificial intelligence to streamline the recruitment process, from sourcing candidates to screening resumes and even conducting initial interviews. AI algorithms can analyze large volumes of applications quickly, identifying the most suitable candidates based on predefined criteria. This not only speeds up the hiring process but also helps reduce biases by focusing on skills and qualifications. In short, better analytics around screening applicants.
2. Employee Engagement and Sentiment Analysis: AI technologies are increasingly being used to gauge employee engagement and morale through sentiment analysis of internal communication platforms, surveys, and feedback tools. By analyzing text and speech for emotional cues, AI can provide insights into overall employee satisfaction and identify areas for improvement in workplace culture and engagement strategies. In short, better analytics around surveys and feedback.
3. Predictive Analytics for Talent Management: AI-driven predictive analytics are being utilized to forecast future employee behaviors, such as the likelihood of an employee leaving, potential future leaders, or identifying skill gaps within the organization. This allows HR professionals to proactively address issues, plan for succession, and ensure the workforce is aligned with the company's future needs. In short, better analytics around talent management.  
4. Automated Employee Assistance and HR Bots: Chatbots and virtual assistants powered by AI are becoming more common in addressing employee queries, providing information on HR policies, benefits, and procedures, and even assisting with personal development and training recommendations. These tools offer employees 24/7 access to HR support and can significantly reduce the administrative burden on HR departments. In short, well - this one is large language model related and the term AI fits well.
These analytics / AI applications reflect the growing trend towards leveraging technology to enhance HR functions, improve the employee experience, and make data-driven decisions in managing human capital.

What are important HR micro-trends over the next 3-5 years?

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We will skip the buzz words, as you can see above they started to proliferate through job postings. Going one level deeper, and actual impacting the day to day, below are four major trends we are keeping an eye on. New technologies will evolve in this space, strategies are already in place in many companies we talk to and we will move from the second inning to later in the game with the below items.

1. Widespread Adoption of Remote Work Technologies: HR departments will increasingly adopt and refine technologies that support remote and hybrid work models. Tools for virtual on-boarding, engagement tracking, remote team building, and online performance management will become standard. HR will need to ensure these technologies are accessible and user-friendly to support a distributed workforce while maintaining team cohesion and company culture.

2. Micro-Credentialing and Continuous Learning Platforms: As the pace of technological change accelerates, there will be a shift towards micro-credentialing and continuous learning platforms. HR will integrate these platforms into employee development programs to offer short, focused courses that provide specific skills or knowledge, allowing employees to adapt to changing job requirements quickly and efficiently.

3. Expansion of Employee Self-Service (ESS) Platforms: Enhanced Employee Self-Service platforms will become more common, allowing employees to take charge of their personal information, benefits management, and learning and development activities. These platforms will offer more personalized experiences, using AI to recommend training, predict employee needs, and facilitate career development paths.

4. Utilization of Predictive Analytics in Talent Acquisition: HR will make more extensive use of predictive analytics for talent acquisition, going beyond traditional hiring criteria to include variables like candidate potential, team fit, and future performance predictions. This approach will help HR departments to not only fill positions more effectively but also to anticipate future hiring needs and reduce turnover by identifying candidates who are more likely to succeed and stay with the company long-term.

These specific changes indicate a shift towards more personalized, technology-driven HR practices that not only streamline HR operations but also enhance the employee experience and contribute to the organization's strategic goals.

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Each month, Mployer Advisor collects and presents some of the most relevant and most pressing recent changes in law, compliance, and policy in areas related to employee benefits, health care, and human resources. 

OSHA Form 300-A Electronic Submissions Due At Beginning of March

Electronic submissions of form 300-A are due March 2, 2024 for non-exempt companies and establishments, which include firms that had 250 or more employees during 2023, or 20 or more employees in industries designated as high risk. 

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Form 300 and 301 are also due on March 2 for qualifying institutions, which include firms in high-hazard industries that had 100 employees or more during 2023.

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Click here for more information about how and where to submit these forms in addition to guidance in determining what your organization is required to submit.  

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2023 EEO-1 Component 1 Submissions Due Date Set

Collection of EE0-1 Component 1 data will open on April 30, 2024 - with a final deadline for EEO-1 Component 1 submissions currently set for June 4, 2024.

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Check the Equal Opportunity Employment Commission (EEOC) website for updates as well as an instruction booklet and file submission specifications, which the EEOC expects to have posted by March 19, 2024. 

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This filing must be submitted by every company that has 100 or more employees across all locations and/or is affiliated with a company that has 100 or more employees through common ownership or centralized management. 

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Further, this filing must also be submitted by any company with 50 employees or more that has a contract with the federal government worth at least $50,000 or has an establishment that holds a federal contract worth at least $50,000. 

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Companies or establishments thereof that are federal contractors and serve as depositories of federal funds no matter how much or how little, as well as financial entities that are issuing and paying agents for US Savings Bonds and Savings notes must also submit this form. 

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Updates regarding the timely, etc. will be posted here on the EEO-1 website.

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Employee vs. Independent Contractor Classification

Beginning on March 11, 2024, the Department of Labor will effectively revert back to ‘the economic reality’ test for determining whether a given worker should be classified as an employee or as an independent contractor.

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The economic reality test will take into account the following 6 factors when evaluating a workers employment status and classification:

• Whether it is possible for the worker to either profit or lose money as a result of the arrangement;
• What investments have the employer and worker each made toward completing the work;
• Is the work relationship a more permanent arrangement or more temporary;
• How much control does the employer exert over the worker’s process;
• How crucial is the worker’s output to the employer’s business; and
• The levels of skill and initiative possessed by the worker.

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You can find more information from the DOL on determining employee and contractor status here.

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Employers Rejecting Job Applicants Due to Credit Reports Must Provide Credit Rating Agency Info 

Beginning March 20, 2024 enforcement begins for Consumer Protection Bureau’s rule requiring Employers that reject job applicants due to information obtained through a credit report to provide the rejected applicant with information about the credit reporting agency from which the report was obtained, including name, address, and telephone number.

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This rule, which went into effect in April of 2023, is an update to 2018’s Summary of Your Rights Under The Fair Credit Reporting Act.

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You can read more about the new rule, its impact, and enforcement here. 

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Reminder: ACA Affordability Threshold Lowered In 2024

According to the Employer’s Shared Responsibility provision of the Affordable Care Act, employers that have an average of at least 50 full-time or full-time equivalent employees must offer those employees and their children health care coverage that is considered affordable. 

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In plan year 2023, the threshold for coverage that qualifies as affordable was set at coverage that required a maximum employee contribution equivalent to no more than 9.12% of the employee’s income. As of plan year 2024, however, that income-to-affordability threshold has now decreased to 8.39%.

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You can read more about the Employer Shared Responsibility Provision here.

Each month, Mployer Advisor collects and presents some of the most relevant and interesting data, information, and insight we've encountered over the past month covering areas related to employee benefits.

Value-Based Care

Healthcare expenditures are expected to climb by 8.5% to an average of  $15 thousand per employee in 2024.

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Currently, more than half (54%) of all healthcare spending in the private sector continues to operate under the increasingly antiquated fee-for-service model, but that number is likely going to shrink quickly as consensus on the benefits of value-based care grows and employers.

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Some of the advantages that employers can gain from the transition to value-based care include: 

• Cost Savings: McKinsey estimates that companies who adopt a value-based care approach can save between 3% and 20% on healthcare spending. On the public side, Value-based care programs have saved Medicare billions, including $1.8 billion in 2022, which was the 6th year in a row that VBC has resulted in a net reduction in Medicare expenses, and resulted in fewer hospital admissions and readmissions. 
• Improved Care: 59% of employers reported improved outcomes among the results achieved from utilizing a value-based care model, and 96% of payers agree that value-based care will lead to better outcomes for patients.
• Higher Satisfaction: Given that the quality of healthcare an employee receives is often seen as a reflection of the quality of the employee benefits offerings and employer more generally, higher rates of satisfaction - via better chronic illness management, for example - can have meaningful impacts on both employee productivity and retention.

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Centers for Medicare and Medicaid Services setting the year 2030 as the target date for getting nearly all Medicare and Medicaid patients enrolled in value-based care programs, what remains to be seen is how quickly the private sector will follow suit. 

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Bereavement Leave

In a resiliently tight labor market, bereavement leave and other enhanced grief and loss-related offerings are not only a means of differentiation in the competition to attract top talent, they also provide an opportunity to display meaningful support, flexibility, and generosity in a time when those efforts are most likely to be appreciated, remembered, and reciprocated by way of loyalty in return.

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Much of the conversation surrounding bereavement leave and potential enhancements to bereavement policies involves 2 questions: How many days of paid time off should be allotted following the death of a loved one, and who qualifies as a loved one? 

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• According to Mercer, the average number of days of bereavement PTO offered by US companies is 5 days.
• Currently, only 5% of US companies offer more than 6 days of bereavement leave, although trends indicate that number is likely to grow with about 20% of a group of HR professionals known as the Disability Management Employer Coalition declaring their intent to expand their bereavement policies in the next year.
• One professor with the University of Alberta who researches grief recommends bereavement policies that allow for 14 days of PTO.
• More than two-thirds of companies that offer bereavement leave have expanded bereavement leave to include extended family members like grandparents and grandchildren.

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Some companies of note that have expanded their bereavement leave policies up to 20 days of PTO include Adobe, American Express, Bank of America, Goldman Sachs, and JPMorgan Chase.

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The Generational Divide In Benefits Prioritization

The challenge of providing benefits that meet employees’ needs becomes all the more difficult in the midst of a generational shift in how employees view benefits and which ones they most prioritize.

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Some of the generational divergence is the result of practical considerations related to the fact that different generations are currently experiencing different points in their lives and often have very different requirements. 

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For example, given that college has only gotten more expensive over time and given that older workers on average have paid off more of their tuition debt than younger workers, it is not surprising that benefits related student loans are less in-demand among Gen X employees, 20% of whom list student loan repayment as the top employee benefit, than Millenial and Gen Z workers, 27% and 34% of whom do so, respectively. Among workers aged 18 to 24, 39% put student loan repayment at the top of their ideal benefits list.

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Similarly, older workers tend to prioritize retirement-related benefits more so than younger workers do, with 401k matching ranking as the number 2 benefit priority among workers across all demographics with one exception - workers aged 18 to 24. 

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Other discrepancies between generations, however, seem to indicate a shift in opinion that goes beyond simply reflecting the different stages of life each generation is experiencing. 

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For example, although fully-paid healthcare premiums was the number 1 employee benefit listed by the majority of survey respondents, with 51% of all respondents listing it as their top priority, the proportion of Gen Z respondents that put fully-paid healthcare premiums on the top of their list of employee benefit priorities was actually slightly lower than those Gen X respondents who listed free food at the top of their list, at 41% and 42%, respectively.

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For context, the percentage of Gen X respondents that listed free food as their top priority is 21% while the percentage of Millenials that did the same is 29%.

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Despite intergenerational differences of opinion, however, many opportunities remain for employers to both add additional flexibility and customization to their benefits packages and to seek out the common ground where the Venn diagram circles for each generation overlap. 

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For example, despite the popularity of fully-paid health insurance premiums across generations, the number of firms offering this benefit has been dropping dramatically in recent decades, falling from 34% of the Fortune 100 companies offering it in 2001, to 9% in 2017, and just 1% as of 2023, which represents a significant edge for employers who can better meet this need of growing consensus. 

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Strategic Benefit Design

Non-profit research organization The Integrated Benefit Institute recently conducted an in-depth study involving more than 300 human resources professionals in order to better understand some of today’s most pressing issues in workforce management. 

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Based on the information that was gathered and the resulting analysis, the study organizers and authors make the following recommendations as to how employers can best execute employee benefits strategy to bring their offerings in line with a changing market::

• Evaluate current policies in light of the company mission and the evolving tactics being employed in the furtherance of that mission;
• Create flexible work arrangements and policies that consider the needs of each role/team on a smaller, more granular scale as opposed to a one-size-fits-all solution;
• Develop employees internally to fill skill gaps and build a stable talent pool; 
• Prioritize quality benefit outcomes over employee benefit engagement rates; and
• Provide additional, specialized training for managers and company leaders;

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You can read more about this study and the resulting analysis here.

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In the wake of a lawsuit against Johnson & Johnson (J&J) for alleged breach of fiduciary duty in their benefits planning, employers nationally are reassessing their own vulnerabilities. This post is intended as informational and does not constitute legal advice.

This case, which accuses both the benefits planning committee and individual HR leaders of overpaying on pharmacy costs, has sent ripples through the corporate world, highlighting the potential for similar legal challenges.

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What does ERISA actually say

At the heart of these legal challenges is the concept of fiduciary duty, as defined under the Employee Retirement Income Security Act (ERISA) of 1974. Specifically, ERISA law states: "(B) with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims;" (29 U.S. Code § 1104 - Fiduciary duties).

So what does prudent actually mean? This means that a fiduciary's actions are evaluated based on what was known or should have been known, considering the information available at the time, not based on how things turned out later. The issue for employee benefits resides with the lack of publicly available information.

For J&J’s benefit planning committee, was there enough publicly available information on drug prices and other dynamics that they violated their fiduciary duty? It will be difficult to prove yes, but that is the crux of the argument.

Take a step back and quick self-assess the easy things

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1. Your benefit strategy – Have you done or do you have a formal process for a broker or consultant RFP that occurs on a semi-regular basis?

The nice part about the employer<>broker relationship is that the broker consults and provides market expertise on  the majority of the benefits strategy – with oversight from the employer. In this situation, an employer is paying a third party with specific qualifications to design and implement a strategy. But, nearly 1/3rd of employers have had their same broker the past five years. Ensure you have a process in place to justify your choice for your insurance broker or consultant.

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2. Your broker compensation – Is what you are paying your broker excessive?

Broker compensation is a large plan expense each year and therefore could be scrutinized by someone external. Broker compensation benchmarks though are not widely available and only recently have more transparency rules been enacted to see the full picture. Reviewing 25K+ fully insured plans from the most recent 12 months, it is easy to see the variation in broker compensation. For employers of similar size ranges and industry, broker compensation can vary by 3X+ from the 25th percentile to the 75th percentile. While geography and several other plan design features can have an effect, the values should be more closely centered around the mean.

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3. Other ERISA payouts – What are your other plan expenses that could be scrutinized?

Each plan is different and can vary based on your benefits strategy. Therefore each plan can have different expenses that are material – some can be pharmacy carve out related, tax strategy driven or other programs. Evaluate you major line items to ensure their amount can be justified.

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4. Contracts & Gag Clauses – Do your contracts follow the new legal guidelines?

Defined as contractual terms that restrict the sharing of cost, quality, or claims data with plan members or sponsors, gag clauses have come under scrutiny. Code section 9824, ERISA section 724, and PHS Act section 2799A-9, a “gag clause” is a contractual term that directly or indirectly restricts specific data and information that a plan or issuer can make available to another party. The federal government now requires employers to attest annually that their contracts do not have gag clauses. This is an easy one – make sure you are following the regulations.

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5. Correct Tax Filings – Are your Dept of Labor filings accurate or a source of potential liability?

As you know, if you have 100+ employees, you have to file your benefit plan each year with the Dept of Labor; if under 100 and you offer a retirement plan, you also have to file. This form and process are nuanced at best. Fully-insured companies have a litany of items to report, self-insured items are limited.

10% of employers over the last five years have a material issue with one of their filings including missing schedules, incorrect broker compensation, materially wrong data reported and more. This is an easy way to open yourself up to liability.

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In this evolving legal landscape, understanding and fulfilling your fiduciary duty is more critical than ever. The lawsuit against J&J serves as a stark reminder of the potential consequences of failing to meet these obligations. We're committed to helping employers navigate these complexities with our free assessment service.

If you would like to see the broker compensation benchmarks for your industry, region and size or a short assessment of your Dept of Labor filings, feel free to reach out to us directly.

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One recent lawsuit is testing uncharted legal waters when it comes to determining exactly what fiduciary duty employers owe employees with regard to the provision of employee health plans.

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On February 5th, a class action lawsuit was filed against Johnson & Johnson in US District Court alleging the company breached its fiduciary duty to employees by egregiously overpaying for prescription drugs.

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The plaintiffs, or employees and former employees, support their claim by citing the seemingly exorbitant sticker prices that the company plan appears to be paying for certain medications - prices that supposedly far exceed the cost that uninsured customers pay for the same medication.

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Interestingly, in addition to naming Johnson & Johnson as a defendant in the case, the plaintiffs also filed suit specifically against the Johnson & Johnson Planning & Benefits Committee as well as each of the individual fiduciaries that make up that committee, which may be the first time that such fiduciaries have been personally named as defendants in a case like this for employee benefits.

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ERISA Fiduciary Liability 

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The Employee Retirement Income Security Act of 1974 (ERISA) governs primarily two components for an employer - their retirement and employee benefits. 

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Retirement - As a corollary, about 10-15 years ago, with new ERISA requirements for retirement plans, a number of lawsuits were filed against employers for violation of fiduciary duty. These lawsuits have primarily focused on allegations that plan fiduciaries failed to uphold their duties, leading to significant repercussions for plan participants and beneficiaries. The core issues at the heart of these legal battles include:

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1. Excessive Fees - One of the most common grounds for ERISA lawsuits is the accusation that plan fiduciaries allowed excessive fees to be charged for plan administration and investment management. Plaintiffs argue that fiduciaries did not adequately review or negotiate lower fees, which could erode retirement savings over time. Courts have scrutinized whether fiduciaries have conducted regular and thorough fee benchmarking against comparable plans to ensure that fees are reasonable for the services provided.

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2. Poor Investment Options - Another significant area of litigation involves claims that fiduciaries offered poor investment options that underperformed relative benchmarks or were inappropriately risky for the plan’s investment objectives. These lawsuits often allege that fiduciaries failed to properly monitor investment options and replace underperformers, leading to lower returns for plan participants.

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3. Mismanagement of Plan Assets- Lawsuits also have targeted fiduciaries for mismanagement of plan assets, accusing them of failing to follow the plan's investment policies, engaging in prohibited transactions, or not acting in the best interests of plan participants. These cases often hinge on the fiduciary duty of prudence and loyalty, requiring fiduciaries to act with care, skill, prudence, and diligence under the circumstances.

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The outcomes of these lawsuits have varied, with some resulting in substantial settlements or judgments against fiduciaries, while others have been dismissed. The legal landscape surrounding ERISA fiduciary liability has evolved, with courts increasingly setting higher standards for fiduciary conduct. These cases have led to greater awareness and changes in how retirement plans are managed, including more transparent fee structures, improved investment option monitoring, and the adoption of best practices in plan governance.

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Fast-forward to benefits - It remains to be seen how receptive the judicial system will be to the plaintiffs’ claims given that the excessive list prices plaintiffs are highlighting in the suit may be more a reflection of bundling practices common among pharmacy benefit managers (PBMs) than an indication of price gouging or negligent administration.

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Perhaps regardless of the ultimate outcome, however, any validation of the underlying premise that the fiduciary duty owed to employees by employers and health plan fiduciaries may extend to these matters will likely bring with it a surge in employees suing their employers for excessive medical care costs and fees.

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These suits could come in a variety of forms as it relates to employee benefits, which span not only medical but also cover dental through disability and voluntary. Key items that attorneys may be considering include:

• Failing to manage employer benefit spend as a fiduciary, specifically overpaying for medical, dental, vision or other as in the J&J case
• Improper payments to a broker, consultant or third-party vendor
• Denial of benefit claims
• Improper amendment or termination of a plan
• Failure to provide proper updates or adjustments
• Failure to act in a timely manner

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Strategy vs. Duty

Company leadership is hired to run a company effectively. They have a duty to shareholders to run the business to the best of their ability. Senior officers, directors and officers have insurance to protect themselves. When a company performs below expectations, are they liable to shareholders? Only if there are egregious and potentially illegal errors.

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The same line is drawn here. You cannot sue someone for implementing a strategy that was ineffective, but you can sue someone if they were negligent.

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How to Reduce Your Company’s Risk

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In order to minimize the risk exposure that the expansion of fiduciary duty in line with the plaintiff’s perspective presents, here are 3 steps employers can take to ensure that they are properly exercising their fiduciary duty with regard to employee health plan administration.

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Organize and Authorize a Health Plan Committee: In the complaint against Johnson & Johnson, the fact that they did not have a health plan committee in place to oversee health benefit plan issues may end up working against the company, especially in light of their implicit acknowledgment of the potential value of a such a committee as evidenced by the existence of their pension plan committee, which serves a similar function with regard to employee retirement benefits. 

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Request Disclosures From EBCs and PBMs: According to the Johnson & Johnson complaint, federal law requires contract service providers like employee benefits consultants and pharmacy benefits managers to disclose in writing any compensation of more than $1,000 that they receive for their services, whether that compensation is acquired directly or indirectly. Further, failure to obtain such written disclosure prior to entering into, renewing, or extending a contract with a contract service provider makes that contract a de facto ERISA violation, so fiduciaries responsible for these matters should insist that such disclosures are documented before those contracts and renewals are signed.

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Take Personal Responsibility: With each member of the benefits committee being named individually as a defendant in the Johnson & Johnson class action suit, proper oversight of health plans as well as the associated costs and administration is no longer any single fiduciary’s job - it is every fiduciary's job - which further underscores the value of health plan committees that are organized in part to provide accountability for these kinds of health-plan related issues.

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***

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Although the outcome of the lawsuit has not yet been determined at this point, the ripples across the benefits industry are already being felt, and with rising medical costs trending in the opposite direction of many people’s ability to afford them, employers and benefits managers are almost certainly going to be targeted as possible recipients of the blame with increasing regularity going forward.

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You can read more about this case here.

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