COBRA Conundrums
Fiduciary Liability: When You’re Sued for Mismanaging Health or Retirement Benefits
Fiduciary Liability

Health plan administrators, take note. Human resource executives and chief financial officers who fail to manage benefit plans responsibly may find themselves personally accountable. Forbes has reported that HR execs at two companies have been named in lawsuits tied to the mismanagement of health benefits.

ERISA and Fiduciary Responsibility

The Employee Retirement Income Security Act of 1974, or ERISA, is a federal law that establishes minimum standards for pension plans and health benefit plans in order to protect participating individuals. Under ERISA, administrators who manage plans have fiduciary responsibilities, and individuals have the right to sue if they believe the fiduciary duties have been breached.

According to the Department of Labor, fiduciary responsibilities include running plans solely in the interest of participants and beneficiaries, acting cautiously to minimize risk, and avoiding conflicts of interest. Anyone who has discretionary control over plan management, assets or administration or who provides investment advice for compensation is said to have fiduciary responsibility, and this may extend to plan administrators, plan trustees and members of a plan’s investment committee.

When problems arise in plan management, it’s not just the company that has to answer. The individuals involved can be found personally liable.

Retirement Plans

Lawsuits related to ERISA and fiduciary responsibilities are nothing new. BenefitsPRO maintains a list of the 10 largest class-action claims under ERISA in 2015, the settlements of which totaled $926.5 million and were significantly larger than settlements related to other aspects of labor law.

An article in Institutional Investor chronicles how ERISA litigation has helped to shape retirement plans in the United States – 800 large U.S. corporations have been sued by employees claiming mismanagement of retirement plans, and more than $4 billion dollars have been paid in settlements.

The key element here is the focus on retirement plans. The fact that poorly managed group health plans are now being targeted is taking some people by surprise.

Health Plans

As anyone in the United States can tell you, health care is expensive. While many may feel that this is an unfortunate yet unchangeable reality, not everyone agrees. A LinkedIn article published in 2015 uses examples to show that employers actually can help to reduce health care costs.

Plan administrators who do not act prudently to reduce health care costs may be accused of shirking their fiduciary duties – which brings us back to the recent lawsuits.

What to Do

The Department of Labor has a guide to fiduciary responsibilities under a group health plan. It’s 16 pages long, but here are a few of the key points:

  • Research and compare multiple firms before selecting a service provider.
  • Make sure that fees are reasonable.
  • Monitor the service provider.
  • Maintain reasonable claims procedures.
  • Avoid prohibited transactions, including those that present a conflict of interest.

If you’re involved in health plan administration, make sure you understand your fiduciary duties. And, in case you are targeted for a Department of Labor investigation, make sure you have the proper documentation ready to prove that you’ve been acting responsibly and prudently when it comes to the administration of your health benefits. Need a system that makes that benefits administration documentation easy? Talk to iTEDIUM.

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