Did you see the headline of the May 28, 2016 Forbes article? “CFOs and HR Execs Facing Millions in Personal Liability Due to Unmanaged Health Benefits Plans.”No kidding! According to Forbes, the companies involved include clothing retailer, GAP, and CB&I for starters. While fiduciary liability has been a hot issue for retirement plan administrators for a long time, it seems that health insurance administrators are the new targets. Perhaps rightfully so, as many employees spend 2.5 times more on benefits than they spend on saving for retirement. Clearly, they don’t want those benefits dollars squandered.
What does this mean for those in charge of group benefits?
Sponsoring a group health plan can expose you to serious financial liabilities. Let’s put this into perspective. Imagine if everyone in your extended family – brothers, sisters, nieces, nephews, cousins, and grandkids – all asked you to be responsible for managing their money, and expected you to be personally liable for any mistakes or investment losses they might incur along the way. You’d have to be crazy to take on that kind of burden! Yet, you could be taking on a similar liability when you sponsor a group benefits plan for your employees. Except in this case, your “extended family” is all of your employees and their families.
Who qualifies as a fiduciary?
Under the Employee Retirement Income Security Act (ERISA), a fiduciary is anyone who exercises discretionary control or authority over plan management or assets; has discretionary authority or responsibility for the administration of a plan; provides investment advice to a plan; or has authority or responsibility to provide investment advice to a plan. That can include plan trustees, plan administrators, or members of a plan’s investment committee.
Are you, the employer, considered a fiduciary?
That depends on how your plan is structured. If you sponsor a fully or partially self-funded group health plan, you exercise some discretionary authority over the plan, so you’re a fiduciary. If you sponsor a fully insured plan, your fiduciary status depends on whether you exercise discretion over the plan.
Understanding fiduciary liability
Fiduciaries have serious responsibilities and are subject to strict standards of conduct under ERISA because they’re acting on behalf of plan participants and their beneficiaries. Generally, a fiduciary must:
- Act solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them
- Carry out their duties prudently
- Follow the plan documents as long as they’re consistent with ERISA
- Hold plan assets in trust (if applicable)
- Pay only reasonable plan expenses
What happens if a fiduciary fails to comply?
That’s where things get costly. Fiduciaries that don’t comply with ERISA principles of conduct can be sued by plan participants, and can be held personally liable for any losses to the plan. Courts can even remove the fiduciary from the plan. In other words, it’s a potentially devastating liability. But there are ways to reduce that liability. One way is by meticulously documenting the processes used to carry out your fiduciary responsibilities. Hiring a service provider to handle fiduciary functions is another way. And carrying Fiduciary Liability and/or Employee Benefits Liability insurance is smart protection against a potentially devastating lawsuit.
Of course, keeping plan costs under control is paramount. It’s a key part of your fiduciary responsibilities, so you need strong cost control and benchmarking strategies in place.
One way to make sure you’re NOT overspending
Wouldn’t it be nice to know if your company is paying more or less than average for health care? Now you can with our complimentary Health Care Competitive Cost Analysis. Simply provide us with five pieces of data, and we’ll apply our proprietary benchmarking methodology to determine how your company stacks up against other companies of similar size and type. That way you can know for certain if you’re paying more or less than similar companies, and if there are more savings opportunities out there. Best case scenario – you’ll find out you’re already in great shape. Worst case – you’ll find out you’re paying too much and get laser-focused advice on how to slash future costs.
Ready to get started? Complete the form below to request your complimentary Health Care Competitive Cost Analysis. We will contact you to gather the needed information.