Benefits Monthly Minute
The February Monthly Minute digs into the DOL’s recent $28M mental health parity settlement with Kaiser, the 5th Circuit’s holding on a retirement plan’s arbitration clause and a 7th Circuit decision that evaluates whether the substantial compliance doctrine was correctly applied to a defective beneficiary change.
Kaiser’s $28M Settlement With DOL Over Mental Health Access Failures
On February 10, 2026, the Department of Labor announced a settlement with Kaiser Foundation Health Plan Inc. resolving investigations into Kaiser's alleged failure to provide timely access to mental health and substance use disorder (MH/SUD) services. Federal investigators alleged that Kaiser failed to maintain adequate behavioral health provider networks which forced members to seek out-of-network care at higher costs. Investigators also alleged that Kaiser used patient questionnaires to improperly prevent patients from receiving care.
Under the settlement, Kaiser will pay at least $28.3 million for costs its members incurred when seeking out-of-network mental health and substance use disorder services, in addition to a $2.8 million federal penalty. Kaiser also agreed to operational reforms to improve access to mental health and substance use disorder care, including reducing appointment wait times, improving care review processes, and monitoring network adequacy for behavioral health services, and has provided notices of these changes to impacted members.
KMK Comment: Mental health parity compliance is an active DOL enforcement priority. Plan sponsors should coordinate with third party administrators and legal counsel to ensure adequacy of MH/SUD provider networks and examine screening or utilization review processes to ensure they do not impose prohibited barriers to mental health care access. The KMK Benefits Group will continue to monitor mental health parity enforcement and are available to assist with compliance assessments.
5th Circuit Reviews ERISA Plan Arbitration Clause
On February 10, 2026, the Fifth Circuit decision in Parrott v. International Bancshares Corporation applied the effective vindication doctrine to partially invalidate an ERISA plan’s arbitration clause. The case involved a former employee who alleged that International Bancshares Corporation ("IBC") and its plan fiduciaries breached their ERISA fiduciary duties causing his distribution to be diminished. After the plaintiff left employment and received his distribution, IBC amended the plan to add a mandatory arbitration clause—that applied retroactively—and prohibited representative/class actions. Interestingly, the Fifth Circuit held that the plan's consent to arbitrate—not the individual participant's—is the relevant consent for an ERISA § 502(a)(2) claim, and the plan validly consented when IBC exercised its amendment authority. However, the Fifth Circuit further found, among other things, that IBC violated the effective vindication doctrine with its arbitration provisions prohibiting representative actions because ERISA § 502(a)(2) claims must, by definition, be brought in a representative capacity on behalf of the plan, and the statutory remedy entitles plan participants to recover all losses to the plan—not merely individual losses. The court also voided the plan's standard-of-review provision to the extent it purported to apply a more deferential abuse of discretion standard to breach of fiduciary duty claims.
KMK Comment: The question of enforceability of arbitration clauses continues to evolve. The Parrott decision follows some other circuit court decisions that ERISA plan arbitration clauses prohibiting representative actions or limiting participants to individual relief are not enforceable. Plan sponsors that have adopted mandatory arbitration provisions should carefully evaluate their practical impact with legal counsel given their enforceability is uncertain in the current litigation landscape.
A Fax Doesn’t Change the Facts: Informal Request Fails to Change Beneficiary
Earlier this month, the Seventh Circuit issued its opinion in Packaging Corporation of America Thrift Plan for Hourly Employees v. Langdon, reversing the district court in a dispute over the proceeds of a deceased employee's retirement account. The deceased employee had designated his then-wife as the primary beneficiary of his 401(k) plan account. After the couple divorced, the employee directed his secretary to fax a request to the plan administrator requesting his ex-wife to be removed as beneficiary. However, in so doing, he failed to follow the plan's prescribed procedures for beneficiary changes. When the employee later died, competing claims arose between his ex-wife and his estate, and this interpleader action ensued. The district court ruled that the employee’s fax was sufficient under the doctrine of substantial compliance. The Seventh Circuit reversed. Although the employee showed his intent to change the beneficiary, he failed to take positive action that was "for all practical purposes similar to" the plan's required procedures. The Seventh Circuit distinguished prior cases involving minor clerical errors where participants “took pains to follow [plan] procedures” and further observed that the employee’s own fax, which asked for "any necessary paperwork" demonstrated his awareness that additional steps were required to remove his ex-wife as beneficiary.
KMK Comment: This case is an important reminder that beneficiary designations carry significant weight and informal communications are unlikely to satisfy the substantial compliance standard when a plan prescribes specific procedures for beneficiary changes. Plan sponsors and administrators should ensure that participants are well informed of the methods for updating designations, particularly following important life events and in connection with plan and vendor changes. To this end, participant communications and SPDs should be regularly reviewed to ensure clear instructions are being communicated. In addition, plan sponsors must take great care when determining the beneficiary under the terms of the plan.
The KMK Law Employee Benefits & Executive Compensation Group is available to assist with these and other issues.
Lisa Wintersheimer Michel
513.579.6462
lmichel@kmklaw.com
John F. Meisenhelder
513.579.6914
jmeisenhelder@kmklaw.com
Antoinette L. Schindel
513.579.6473
aschindel@kmklaw.com
Kelly E. MacDonald
513.579.6409
kmacdonald@kmklaw.com
Rachel M. Pappenfus
513.579.6492
rpappenfus@kmklaw.com
KMK Employee Benefits and Executive Compensation email updates are intended to bring attention to benefits and executive compensation issues and developments in the law and are not intended as legal advice for any particular client or any particular situation. Please consult with counsel of your choice regarding any specific questions you may have.
