Ten members of the Screen Actors Guild (SAG) and the American Federation of Television and Radio Artists (AFTRA) filed a class action lawsuit against the SAG-AFTRA Health Fund, its Board of Trustees, and individual trustees.
The plaintiffs allege the defendants violated the Employee Retirement Income Security Act (ERISA), failed to disclose material information, and breached their fiduciary duties.
The allegations are that SAG performers were required to surrender all television residuals for movies made prior to 1960 to serve as seed money for the SAG pension and health plans. However, those members have now allegedly been eliminated from health coverage following the merger of the SAG Health Plan with the AFTRA Health Plan on January 1, 2017.
Union leaders allegedly claimed the merger would strengthen the plan, ensure comprehensive benefits for all participants, and make it financially sustainable for years to come.
However, on August 12, 2020, the SAG-AFTRA Health Plan Trustees announced that they were cutting benefits and dropping thousands of participants and their dependents because of the COVID-19 pandemic. The changes included substantially raising the covered earnings threshold; eliminating secondary health coverage for seniors and surviving spouses; increasing quarterly premiums; and limiting spousal coverage. In addition, residual income will no longer count toward the eligibility minimum for participants over 65 who take a union pension.
The lawsuit contains allegations that other measures were available to deal with the crisis caused by COVID-19 and that the trustees had two years to fix the health plan without cutting benefits.
The plaintiffs further allege that the benefit cuts illegally discriminate based on age in violation of the Age Discrimination and Employment Act of 1967 (ADEA) and other statutes. The cuts eliminate Senior Coverage, the lifetime secondary health coverage for members with 20 years pension credit and their spouses. In addition, the cuts penalize participants over 65 who take their vested pension by taking away their credit toward covered earnings but still requiring them to pay contributions into the plan. Nearly 12,000 of the plan's 33,000 participants, most of whom are seniors who have paid into the plan for years, will lose their coverage.
The plaintiffs allege that the SAG Health Plan Trustees "hastily proceeded with the Health Plans Merger for political purposes to benefit the union and union leadership, without a diligent pre-merger investigation and analysis to assess the impact of the merger…." They claim an investigation and analysis would have shown the inadvisability of the merger and that trustees knew soon after the merger that the health benefit structure was not sustainable.
However, the trustees allegedly failed to disclose this material information to others when three major collective bargaining agreements were negotiated during the two years before the cuts were made.
The plaintiffs allege that the SAG-AFTRA Health Plan Trustees breached their fiduciary duties to manage and administer the plan when they approved the benefits cuts. Their fiduciary duties required trustees to conduct an investigation and analysis on the merger and only proceed with the merger if it was in the best interests of plan participants and their beneficiaries. In addition, the plaintiffs allege the trustees knew that the merger constituted a prohibited transaction with a "party in interest."
The plaintiffs and class members are suing for relief on behalf of the plan, including recovery of plan losses; recovery of profits resulting from the breaches of fiduciary duty; and other equitable or remedial relief that the court deems appropriate, including restoration of health coverage benefits. Gretchen Morgenson "Ed Asner, other members of SAG-AFTRA file lawsuit over cuts to union health care plan" nbcnews.com (Dec. 01, 2020).
Commentary and Checklist
In today's competitive environment, employers, including family employers, must compete for talented staff members. One way to compete is to offer benefits, and a preferred benefit of employees and applicants is a retirement plan.
Family employers who provide a retirement plan to staff are subject to the Employee Retirement Income Security Act of 1974 (ERISA) and must uphold fiduciary duties.
Under ERISA, a person is a fiduciary if they have any discretionary authority or control over plan administration. Family employers should consult with legal counsel to be clear about their responsibilities under ERISA.
Most small employers utilize a licensed plan administrator. If that is the case, it is important to perform due diligence on the plan administrator and to monitor the plan administrator to make certain they are meeting their fiduciary duties.
In general, fiduciary duties are strict duties of loyalty and prudence. The "prudent man standard of care" requires fiduciaries to discharge duties solely in the interest of plan participants and beneficiaries with the care, skill, prudence, and diligence that a prudent man would use.
Fiduciaries may not act in the interest of themselves or those whose interests run counter to the interests of the plan, participants, or beneficiaries.
ERISA allows plan participants to bring a civil action for relief against any fiduciary who breaches their responsibilities under ERISA. Because fiduciaries can be personally liable for plan losses, family employers must know if they are a fiduciary and uphold their duty to the letter of the law.
Plan fiduciaries are prohibited from causing the plan to engage in the following transactions under ERISA:
· Selling, exchanging, or leasing of any property between the plan and a "party in interest"
· Lending money or other extension of credit between the plan and a "party in interest"
· Furnishing goods, services, or facilities between the plan and a "party in interest" and
· Transferring or allowing to be used any assets of the plan for the benefit of "a party in interest".