Do You Know Your Fiduciary Responsibilities in Group Health Plans?
When offering a group health plan, plan sponsors must be cognizant of their fiduciary responsibilities. Unfortunately, many are not and rather than contract with an experienced third-party administrator, they attempt to manage their plans internally. Given the complexities involved with the administration and management of a plan and its assets, it is critical that plan sponsors be fully-aware of their fiduciary responsibilities. The related fiduciary rules and standards of conduct are covered under the Employee Retirement Income Security Act (ERISA).
What is an ERISA-Covered Group Health Plan?
First, it is important to understand what defines an ERISA-covered group health plan. According to the U.S. Department of Labor (DOL), “An ERISA-covered group health plan is an employment-based plan that provides medical care coverage, including hospitalization, sickness, prescription drugs, vision, or dental. It can provide benefits by using funds in a plan trust, purchasing insurance, or self-funding benefits from the Fund’s general assets.”
The Components of a Plan
Every ERISA-covered plan is comprised of four key elements which include:
- The written plan describing its benefit structure and directing the plan’s day-to-day operations;
- A trust to hold the plan’s assets;
- A recordkeeping system to track contribution and benefit payments, as well as maintain participant and beneficiary information, and accurately prepare reporting documents; and
- Documents that provide plan information to participating employees and the government.
Who is a Fiduciary?
The plan’s fiduciaries are considered to be those officials with discretion over the plan even if there is a third-party administrator managing its day-to-day operations. Every plan must have at least one fiduciary identified in the written plan. Often, a plan’s fiduciaries include: members of the plan’s administrative committee and the individuals who select the committee officials. Those who are not fiduciaries are third-party administrators, recordkeepers or utilization reviewers, as well as attorneys, consultants, accountants and actuaries.
The functions an individual performs are what define them as fiduciaries. For example, fiduciaries control the plan’s assets and may manage the plan. A group health plan’s structure indicates who has fiduciary responsibilities. Employers who sponsor fully- or partially self-funded group health plans have discretionary authority and are thus considered fiduciaries of the plan. For fully-insured plans, the sponsoring employer’s fiduciary status is dependent on whether the employer exercises discretion over the plan.
What Are Group Health Plan Fiduciaries’ Responsibilities?
The U.S. DOL lists the responsibilities of fiduciaries of an ERISA-covered plan as follows:
- Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them;
- Carrying out their duties prudently;
- Following the plan documents (unless inconsistent with ERISA);
- Holding plan assets (if the plan has any) in trust; and
- Paying only reasonable plan expenses.
Liabilities Associated with Being a Fiduciary
For fiduciaries who do not adhere to ERISA regulations and the expected standards of conduct, there are potential liabilities. They can be held personally liable to restore any losses to the plan, or to restore profits made through improper use of the plan’s assets stemming from their individual actions. By documenting all processes used to perform their fiduciary responsibilities, fiduciaries can potentially limit their liabilities. Contracting with a reputable, experienced third-party administrator is also an effective strategy for promoting plan regulatory compliance and limiting exposure.
For a complete discussion of this topic, the U.S. DOL’s Employee Benefits Security Administration (EBSA) has produced its Understanding Your Fiduciary Responsibilities Under A Group Health Plan available on its website.