Fiduciary Best Practices
What, or who, is a fiduciary?
The word “fiduciary” is based on the Latin word meaning to hold something in trust, confidence, or reliance. A fiduciary is a trusted individual or entity, responsible for proper management of a plan, program, or funds. To understand this word in the context of benefit plans, we look to how ERISA1 defines a fiduciary:
A person using discretion in administering & managing a plan or controlling the plan’s assets is a fiduciary to the extent of that discretion or control. Fiduciary status is based on the functions performed for the plan, not just a person’s title.
ERISA is the federal regulation that sets minimum standards for both retirement and health & welfare plans in private industry, with the goal of protecting individuals in those plans.
For health & welfare plans, ERISA fiduciaries include plan sponsors and plan administrators. Additionally, persons who act with discretionary decision making regarding the plan will likely be considered functional fiduciaries, even if unnamed in a plan document or designated as a plan fiduciary.
What are ERISA’s fiduciary duties?
The 5 fiduciary responsibilities:
1. Act solely in the interest of plan participants & their beneficiaries with the exclusive purpose of providing benefits to them;
2. Perform duties prudently;
3. Follow the plan documents;
4. Hold plan assets in trust; and
5. Pay only reasonable plan expenses.
What plan decisions are fiduciary in nature?
- Overseeing the creation, distribution, & maintenance of plan documents, including updating participants on plan changes (e.g., drafting, amending, & updating forms; & distributing open enrollment materials).
- Following the written terms of the plan document(s), including contributions, rebating, & claims provisions.
- Deciding who & why a person was chosen to act on the plan’s behalf.
- Making discretionary administrative & claims decisions (especially for self-funded plans who are often named plan administrators & handle protected participant information).
- Selecting plan providers & negotiating contracts.
- Evaluating performance of plan providers (e.g., TPAs, PBMs, COBRA administrators, & consultants).
- Maintaining the financial health of the plan, including diversifying plan assets.
Fiduciary behavior – what to do…& not to do.
Fiduciary responsibilities & actions underscore the need for businesses to assess plans, prioritize participant interests, & oversee providers to ensure compliance.
- Act in the best interest of plan participants & beneficiaries.
Don’t engage in self-dealing actions. - Comply with regulatory requirements.
Failures include fines & litigation risk. - Avoid conflicts of interest.
Ethical lapses damage relationships & reputations. - Evaluate plan providers regularly.
Avoid business partnerships based solely on referrals or personal connections. - Establish processes & use checklists to comply with evolving regulations.
Know your plan; document decisions; & designate personnel to own tasks. - Set annual meetings to audit plan documents & balance financials.
Don’t ignore plan oversight. - Follow written plan terms.
“Making an exception” to deviate from plan terms creates risk for complaints.
Have a complicated or concerning plan issue? When in doubt, consult tax advisors, legal counsel, & experienced software providers for guidance. Create necessary processes, systems, & documentation in preparation for plan requests.
10 Fiduciary Best Practices:
1. Identify & separate fiduciary decisions from plan design decisions.
2. Establish & maintain a plan committee, including both named fiduciaries & those who make discretionary decisions about the plan.
3. Document personnel choices, plan decisions & reasons for such decisions.
4. Train fiduciaries about the plan & their ERISA duties.
5. Maintain all plan provider agreements.
6. Evaluate provider pricing annually.
7. Review provider disclosures.
8. Create & maintain plan-related documents (SPD, SBC, Notices, etc.).
9. Follow a plan compliance calendar or checklist.
10. Comply with transparency rules (e.g., prescription drug reporting & the gag clause attestation under The Consolidated Appropriations Act).
What plan decisions are not fiduciary in nature?
Employers are permitted, for example, to establish a plan; change plan design & benefit structure; & amend or terminate the plan. These decisions are often based on business need. All plan decisions, however, must be implemented in accordance with ERISA, including following necessary & appropriate notice provisions respecting plan participants. compliance
The material contained in this document is for informational & educational purposes only. Such information should not be construed as legal or tax advice. Consult with your own advisors & discuss the specific facts and circumstances applicable to your situation. Although Patriot Growth Insurance Services, LLC and our partner agencies make every effort to ensure the quality & accuracy of the information provided, we do not make any warranties or guarantees, express or implied, regarding such information. © 2024 Patriot Growth Insurance Services, LLC.
