Retirement plan committees are regularly reminded of and review the “fiduciary basics” consisting of:
- Who are plan fiduciaries (named or deemed fiduciary)?
- What are the fiduciary functions they perform (plan administration and claims, plan investments, payment of expenses, selection and monitoring persons performing fiduciary duties, and participant communications)?
- Are they acting as a fiduciary or in a plan management capacity (which hat are they wearing)?
- What are the ERISA fiduciary duties (exclusive benefit rule, prudent man rule, diversification rule, plan adherence duty, disclosure duty, and duty to monitor the plan)?
The Employee Benefits Security Administration of the U.S. Department of Labor published a useful guide entitled “Understanding Your Fiduciary Responsibilities Under a Group Health Plan.” This guide serves as a reminder that fiduciaries of a group health plan are subject to the same guidelines for conduct as retirement plan fiduciaries.
Let’s see what the DOL has to say regarding fiduciary responsibilities under a group health plan.
Who is a Fiduciary?
Fiduciary status is based on the functions performed for the plan, not just a person’s title. Using discretion in administering and managing a plan or controlling the plan’s assets makes that person a fiduciary to the extent of the discretionary control.
Typically, one or more fiduciaries are named in the plan, but based on functions also include trustees, plan administrators, investment managers, the plans administrative committee, as well as those who select these other fiduciaries. The key determining factor is if an individual exercises discretion or control over the plan.
Just as in a retirement plan, the fiduciaries of a group health plan must:
- Act solely in the interest of plan participants and their beneficiaries
- Must carry out their duties prudently
- Must follow the plan documents
- Must hold any plan assets in trust
- Pay only reasonable plan expenses
In operation, this means that employee contributions must be deposited into a trust as soon as administratively possible (or would be required to pay insurance premiums within 90 days of receipt. In addition, if insurance companies rebate a portion of insurance premiums to policyholders, a fiduciary must consider how to apply the rebate (enhance plan benefits, reduce future participant premiums, or distribute to participants).
The action of hiring a service provider requires due diligence as a fiduciary function. This would typically require obtaining information from more than one provider, a comparison of firms based on services, experience and costs, the financial condition of the provider, the quality of the firm’s services, and that all required licenses, rating and accreditation are current and up to date. Fees, if paid by plan assets, should be reasonable. After selection, the service provider must be monitored, and the plan’s benefits claims procedure must be established and maintained. This full fiduciary process should be well documented.
Like retirement plans, the fiduciaries of a group health care plan are subject to a number of reporting and disclosure requirements as well. These include reporting to the government (such as Form 5500) and providing information to participants, such as a Summary Plan Description, a Summary of Material Modifications, Summary of Benefits and Coverage, and a Summary Annual Report. Other disclosures are required as well.
Tips for Employers with Group Health Plans
The DOL guide ends with a useful checklist of tips regarding understanding fiduciary responsibilities. The following tips may be a helpful starting point for those with group health plans:
- Have you identified your plan fiduciaries, and are they clear about the extent of their fiduciary responsibilities?
- If you are hiring third-party service providers, have you looked at a number of providers, given each potential provider the same information, and considered whether the fees are reasonable for the services provided? Have you documented the hiring process?
- Are you prepared to monitor your plan’s service providers?
- Are you aware of the schedule to deposit participant contributions and payments by participants to the plan and forwarding them to the insurance company, and have you made sure it complies with the law?
- Have you reviewed your plan document in light of current plan operations and made necessary updates? After amending the plan, have you provided participants with an updated SPD or SMM? Does your plan have a reasonable claims procedure that is being followed by plan fiduciaries?
- Does your plan have a procedure for handling Qualified Medical Child Support Orders (QMCSOs)?
- Have you identified parties in interest to the plan and taken steps to monitor transactions with them?
- Are you aware of the major exemptions under ERISA that permit transactions with parties in interest, especially those key for plan operations (such as hiring service providers)?
- Have required reports (i.e., Form 5500) been filed timely with the government?
LINK TO DOL PUBLICATION