Benefits and Compensation

Fiduciary Duties Are Myriad, So Safeguards Matter

Monitoring the performance of service providers, making required disclosures to participants and beneficiaries, keeping good records and filing reports with the government are just a few of the important functions a fiduciary must ensure are properly executed, an enforcement official at the U.S. Department of Labor’s Employee Benefits Security Administration unit told a group of Maryland small businesses on Jan. 12.

If something goes wrong under a plan fiduciary’s watch, EBSA’s enforcers will hold the employer plan administrator liable, unless the plan maintains airtight procedures that can help establish that the fault lay elsewhere. Hence the importance of documentation.

“If you don’t want to be a fiduciary, resign and get a replacement,” Elizabeth Bond, EBSA’s district office supervisor in Washington, D.C., told the group.

There’s two kinds of fiduciaries: the person named in the plan document, and anyone who acts in a fiduciary capacity. Individuals not named as fiduciaries in plan documents can still be held accountable as fiduciaries if they assert functional control over health plans.

Named Fiduciaries

If something goes gravely wrong, a fiduciary can have personal liability to make a plan whole; officials who grossly mismanage plans can be forced to pay back plans out of their own pockets by DOL, Bond said.

Named fiduciaries need to know that the buck stops with them. They cannot delegate responsibility away from themselves for plan actions, including benefit decisions, disclosures to participants, reporting to the government and the custody of plan assets. If they don’t know the answers to key questions about how the plan is functioning (or generating claims determinations), that’s trouble in itself.

Example: The named fiduciary remains responsible for doing the right thing, even if he or she is thwarted by management. So if the CEO is preventing payouts or diverting money from an ERISA plan, the fiduciary needs to put a stop to it, because the named fiduciary will be blamed for not acting on behalf of members first.

Functional Fiduciaries

More than just the named fiduciary can be held liable, however. In light of the U.S. Supreme Court decision in Mertens v. Hewitt Assocs., 113 S. Ct. 2063 (1993), DOL has learned to pursue actions by company executives and business associates that affect control and authority over a plan, or disposition of its funds, etc.


DOL pursues legal remedies for fiduciary breach against plan vendors including third-party administrators, insurers, brokers, attorneys, accountants and others. A vendor’s contractual disavowal of fiduciary responsibility will be disregarded by DOL if the vendor performs fiduciary acts. DOL goes after functional fiduciaries (not named in plan documents) as often as it can because it pursues the “deep pockets” in its quest to protect participants and beneficiaries, Bond told the group.


Plan trustees who help conceal a violation, or do nothing to protect plan participants in the face of a plan administrator’s fiduciary violations, are increasingly being held liable by DOL. This is particularly the case if the plan trustee in question is in a position to profit from the violation, she said.

Selecting and Monitoring Vendors

The plan administrator needs to document the search for vendors and keep records that due diligence was done. You shouldn’t hire a broker or TPA on the sole basis, for example, that the person or company is a friend or affiliate, because that will make it more likely that the plan administrator will be blamed for the broker or TPA’s errors, Bond said.

Settlor vs. fiduciary functions

The processes of setting up a plan, modifying it and staking out its parameters and policies are not fiduciary acts, Bond said. They are “settlor” functions, and they often include preliminary business decisions about plan design, plan amendments and plan termination. “We can’t attack the settlor function,” she said.

However, fiduciary implications can grow out of settlor functions, since failing to ensure that plans function the way they are promised can be a fiduciary violation. An example is selecting vendors and monitoring their performance, she said. You cannot select a vendor and after that assume that vendor is handling everything about the plan perfectly, particularly when the vendor is being selected because it promises to save the health plan thousands of dollars.

Monitoring service providers

For instance, if you move to a vendor that causes you to underpay claims — be it through reference-based pricing, a percentage of Medicare, UCR or applying exclusions — because you want low premiums, you can’t allow that to happen on “auto-pilot,” or without communicating it fully to participants. Balance billing of participants, then legal claims from providers and participants, could result.

To avoid risks of letting the plan run on “auto-pilot,” plans should expect vendors to regularly update their services. It’s also important to put contracts up for bids every few years.

Making Required Disclosures

Another fiduciary duty is making required disclosures to plan participants and beneficiaries. Not only must required information be sent out, but the plan needs to ensure that participants and beneficiaries got the documents.

In-hand delivery of required communications at the workplace is the preferred method; posting in a common area is nice but not enough. Emailing is acceptable, if the plan uses delivery receipt and the plan can prove it followed up on bounced-back messages, Bond explained.

Summaries of material modifications have to be sent no later than 210 days after the end of a plan year, and if a material reduction is made in covered services, the plan has a maximum of 60 days from the date of the change to get the word out about those.

Note: If a staffer or vendor is ordered to arrange for and calculate a reduction in plan benefits, but does not have the power to make the final decision on that change, DOL usually does not consider that staffer or vendor to be a fiduciary, Bond said.

Automatic vs. on-demand requests

Summary plan descriptions, SMMs, summary annual reports, COBRA notices, HIPAA notices and claims appeals correspondence have to go out to participants and beneficiaries on a regular schedule, or when certain events occur. But the plan also has a duty to respond to disclosures on request.

Requested disclosures are very important to fulfill properly, because they often occur in the context of a claims dispute with a participant or beneficiary. These include requests for plan documents, SPDs, insurance contracts, Forms 5500 and other instruments under which the plan was established or operated. In many cases, the plan is found to have made a proper denial of health care services (for example, applying a medical necessity exclusion), but its failure to explain the plan policy on which the claims denial was based leads to extra litigation and penalties.

For more information on the plan administrator’s duties, see Section 542 of the Guide to Self-Insuring Health Benefits.

The Gift That Keeps on Giving

Resigning from being a fiduciary is not a “get-out-of-jail-free” card. Health plan fiduciaries remain on the hook for plan misconduct under their watch for six years after it happened, or three years from the time the DOL first learns of it, whichever comes first, Bond said.

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