You may be aware of the fiduciary duties held by investment advisers, but did you know that fiduciary duties also exist in group benefits administration? Benefit administrators have fiduciary responsibilities, and HR teams should be aware of the trends in lawsuits regarding employee benefits plans, including health plans. Employers can be sued over breaches, and individuals are being held personally liable in some cases.
What Is Fiduciary Liability?
A fiduciary is a person with fiduciary duties. Essentially, this just means the fiduciary must act in the best interest of the individuals he or she serves.
The Employment Retirement Income Security Act (ERISA) sets legal standards for fiduciary duties in the management of employer-sponsored benefits. Don’t let the name trick you into thinking it’s limited to retirement investments. It also applies to most private sector employee benefit plans, including health plans.
Under ERISA, a person bears fiduciary duties if he or she has authority over plan management, is responsible for administering a plan or provides investment advice to a plan and is compensated for doing so. This includes plan administrators and plan trustees, as well as members of a plan’s investment committee.
According to the U.S. Department of Labor, “The primary responsibility of fiduciaries is to run the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and paying plan expenses.” Fiduciaries are required to follow plan documents and to avoid conflicts of interest.
What happens if fiduciary duty is breached?
Plan participants have the right to sue if they believe there has been a breach of fiduciary duties, and individuals found guilty of breaching their fiduciary duties can be found personally liable.
This is exactly what happened in 2015, when a United States District Judge ruled that Michael Paul Harris, President and Chief Operating Officer of Faribault Woolen Mills Inc., had breached his fiduciary duties and violated ERISA in the management of a health plan. Harris was held liable for $55,040.61 in unremitted employee health insurance premiums and for $12,798.99 in prejudgment interest on the premiums.
What should benefit administrators do?
First and foremost, benefit administrators should fully understand their fiduciary responsibilities. According to the Department of Labor, ERISA requirements mean fiduciaries must:
- Follow plan documents. These documents must be consistent with ERISA requirements.
- Pay only reasonable plan expenses.
- Perform duties prudently. Individuals who lack expertise in certain areas should hire others who have the needed knowledge and experience.
- Act solely in the interest of plan participants and their beneficiaries. The sole purpose of actions should be to provide benefits to plan participants and their beneficiaries.
- Diversify plan investments when applicable.
Furthermore, whether you’re administering employee benefits in-house or hiring a third-party benefit administrator, it’s important to adhere to the following standards to ensure that the administrator acts with transparency, in your best interest. At Selman & Company, we extend this notion of accountability in several ways:
- When a customer contacts us we need to make sure we represent ourselves as the correct entity.
- When a claim is filed, if we are processing the claim, we need to make sure the info collected is accurate.
- When we perform marketing, we need to verify the materials are compliant and have been reviewed.
- It’s our obligation to make sure our IT systems are as resistant as possible to threat of attack.
- We need to be on the lookout for fraud and report it when we see it.
There are many ways an insurance administrator functions in a fiduciary capacity – even if financial accounts are not involved. There’s a big difference between merely outsourcing services and expecting your chosen administrator to help you mind your business.
In closing, if you think "fiduciary responsibility" applies in a limited sphere of business, you may be surprised to learn you're wrong. The benefit administrator and the insurance administrator they hire share in the duty to act in the best interest of individuals. For more information, read the Department of Labor’s guide on the matter, Meeting Your Fiduciary Responsibilities.
Have questions about benefits administration? We’re here to help. Contact us to learn more.