Health Plan Fiduciary Responsibilities (Benefit Minute)
Under ERISA, a health plan fiduciary is any individual who has discretionary authority in administering or managing a group health plan or controlling plan assets. A group health plan must have at least one named fiduciary which will generally be the employer, acting through individuals such as company officers or a plan administration committee. However, fiduciary status is based on the functions performed for the plan and not just an individual’s title or designation as such.
Health plan fiduciaries have the following basic responsibilities:
- To act solely in the interest of plan participants and beneficiaries
- To act with the exclusive purpose of providing benefits to participants and beneficiaries and paying reasonable plan expenses
- To carry out fiduciary duties in a prudent manner
- To follow the terms of the plan document (unless inconsistent with ERISA)
- To hold plan assets in trust (absent a specific exemption)
A fiduciary acting solely in the best interest of plan participants and beneficiaries must administer the plan with a single eye for the benefit of plan participants and beneficiaries and not for their own benefit or the benefit of other fiduciaries, the company sponsoring the plan or any other person. To the extent plan assets are used to pay plan expenses, a fiduciary must know the costs of the services that have been procured and apply due diligence to ensure the costs are reasonable relative to the level of services desired.
The duty to act in a prudent manner is one of the most important fiduciary responsibilities. It requires a plan fiduciary to exercise the care, skill, and diligence that a prudent expert acting in a like capacity and familiar with such matters would use in comparable circumstances. The key issue in reviewing a fiduciary’s action under ERISA is whether the fiduciary arrived at his decision by way of diligent investigation of the issues at the time of the decision and whether there was a reasonable process and basis for the decision that was made.
A fiduciary acting in a prudent manner will hire individuals with professional knowledge to carry out functions or provide guidance when the fiduciary lacks the required expertise. A fiduciary acting in a prudent manner will also interview a number of potential service providers before making a decision so that the fiduciary can document the process and make a meaningful comparison and selection.
ERISA also requires that a fiduciary discharge his duty in accordance with the terms of the plan documents unless the fiduciary would be violating his duty of prudence by doing so.
Examples of fiduciary responsibilities with respect to a group health plan include:
- Reporting and disclosure requirements required under ERISA (e.g. Form 5500 filings, SPDs and SMMs)
- Regular review of TPA and insurance broker’s services and fees, including their effectiveness and scope
- Outside legal counsel’s review of service provider contracts
- Ongoing monitoring of the plan’s administrative and claims procedures
- Informal market information collection on service provider options, even if formal requests for proposals are not undertaken
Fiduciary v. Settlor Functions
Not all actions taken by an employer with respect to its group health plan are fiduciary duties. An employer will not be treated as a fiduciary when making and implementing business decisions and actions, referred to as settlor functions. However, steps taken to implement these decisions will be fiduciary in nature. Examples of settlor functions include:
- Establishing a plan
- Determining the benefit options and plan design
- Setting or changing employee contributions
- Amending or terminating a plan
Often, some or all of the same officers and employees are involved in both settlor functions and fiduciary duties. Records of meetings, actions, and decisions relating to settlor functions should be kept separate and distinct from any records relating to the fiduciary functions performed on behalf of the plan.
Service Provider as Plan Fiduciary
A service provider that exercises discretionary authority or control over any aspect of plan management or administration will be a fiduciary with respect to that function, regardless of whether the service provider has contractually agreed to accept fiduciary status. In a fully insured plan, discretionary responsibility for claims adjudication and payment is delegated to the insurer. For a self-insured plan, the claims administrator generally does not want to be a plan fiduciary and therefore will attempt via contract to limit its responsibility to ministerial duties only. However, the duties performed by the claims administrator (such as interpretation of plan provisions, making improper benefit payments, review of appeals and final claim determination) will often result in the claims administrator being deemed a fiduciary with respect to those duties.
The delegation of fiduciary duties does not end the delegating fiduciary’s responsibility. The delegating fiduciary must act prudently in selecting the person to whom fiduciary responsibilities are delegated and remains responsible for determining whether the party that was delegated the task is properly performing the delegated duties.
Professional advisers such as attorneys, accountants, actuaries, or consultants who render legal, accounting, actuarial, or consulting services to a plan ordinarily will not be considered fiduciaries solely by virtue of performing their usual professional functions since this does not give them any decision making authority over the plan.
ERISA imposes personal liability on fiduciaries who are determined to have breached their fiduciary duties, even if the breach is unintentional. This requires them to make the plan whole for any losses incurred by such breach or to restore any profits the fiduciary gained. A fiduciary may also be subject to civil monetary penalties assessed by the Department of Labor and may be disqualified as acting as a fiduciary in the future.