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Employer’s Fiduciary Responsibility Relating to Group Health Plans

July 12, 2019

The Employee Retirement and Income Security Act (ERISA) sets out specific employer responsibilities (fiduciary responsibilities) relating to the establishment and operation of a Group Health Plan. These fiduciary responsibilities include:

  • Acting solely in the interests of the plan participants and their beneficiaries
  • Carrying out duties prudently
  • Following plan documents unless contradicted by ERISA
  • Holding plan assets (if the plan has any) in trust
  • Paying only reasonable plan expenses

Employers may want to hire a firm, such as a 3rd Party Administrator, who is experienced in ERISA legislation and Plan operation, to help them comply with their responsibilities. The process of hiring an outside firm to help employers with their fiduciary responsibilities is not a process to be taken lightly. Employers must utilize diligence when hiring a firm to partner with regarding fiduciary oversight.

First off, the employer must ensure fees relating to the plan are reasonable. Next, the employer must verify that the partnering firm is capable of performing the services which it was engaged to perform and is knowledgeable in ERISA and other legislation which may impact Plan operation.

When choosing an outside firm, employers need to thoroughly document every step in the engagement process. Documenting the process helps ensure that it was fair, open, and honest. An employer’s diligence and documentation of the hiring process, including rationale for decision making, could be key if later challenged by individuals or entities such as the Department of Labor.

During the interview process, provide prospective firms with the same Scope of Work and ask them the same questions. This process should provide you with enough information to make an informed decision as to who would be the best firm for the employer to partner with.