In the case of Pipefitters Local 636 Insurance Fund v. Blue Cross Blue Shield of Michigan, the 6th U.S. Circuit Court of Appeals ruled that the U.S. District Court for the Eastern District of Michigan was correct in ruling for the plaintiff. The plaintiff had alleged that the defendant violated its fiduciary duties under the Employee Retirement Income Security Act (ERISA) by “discretionarily setting up and billing the plaintiff for a cost transfer subsidy fee, known as the other-than-group (OTG) fee.”
In affirming the district court’s ruling for the plaintiff, the appellate court examined what the defendant’s fiduciary status was and the alleged breach of ERISA fiduciary duties and prohibitions against self-dealing. On the first point, the appellate court cited Guyan International, Inc. v. Professional Benefits Administrators, Inc., where under ERISA “an entity that exercises any authority or control over disposition of a plan’s assets becomes a fiduciary.” While the defendant had argued the state of Michigan determined the charging of the fee in question, the court disagreed stating, “the state did not fix the rate that defendant charged each customer.”
On the second point, the appellate court examined fiduciary duties imposed by ERISA, which included making decisions “single to the interests of the participants,” acting with the “care, skill, prudence and diligence of a prudent person acting under similar circumstances,” acting for “the exclusive purpose of providing benefits to plan participants” and a bar against “self-dealing.”
The court found that by discretionarily setting the OTG fee,” the defendant violated the last two of the ERISA-imposed duties. The court also again cited the similar Guyan case, stating that the defendant had used plan funds for its own purposes “as is the case here with…OTG fees” and violated the first two of the ERISA-imposed duties.
The full text of the ruling can be found here.