ERISA 101: The Five Defining Questions Plan Fiduciaries Should be Ready to Answer
Updated: Oct 13
The Employee Retirement Income Security Act (ERISA), enacted in 1974, is one of the defining laws guiding the administration of self-funded healthcare plans. Here, we’ll share five questions and answers that will give you a rundown on ERISA and your role accordingly. Of course, the information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information.
What: The Employee Retirement Income Security Act (ERISA)
When: Enacted in 1974, and updated since then
Regulates: ‘Self-funded’ or ‘self-insured’ healthcare plans
“Under ERISA, employers are accountable for spending healthcare contributions with the care, skill, and diligence of a prudent person.” – U.S. Department of Labor
1. How do You know if You Are a Fiduciary?
While the plan must have at least one fiduciary named in the plan documents, the courts have found that plan administrators, trustees, administrators, investment managers, and third parties who administer the plan are often fiduciaries even if they are not named in the original documents. In sum, fiduciary status is determined by the role someone performs for the plan, not by their job title.
2. What are a Fiduciary’s Responsibilities?
Plan fiduciaries are legally responsible for executing the plan by acting solely in the interest of plan participants, providing plan documents to members, avoiding all unreasonable plan expenses, monitoring service providers to ensure they are providing contracted services at agreed upon rates, and ensuring there are no conflicts of interest in plan administration.
3. What Risks do Fiduciaries Face?
As a plan fiduciary, the stakes are high if you do not do your job well since ERISA “gives participants the right to sue for benefits and breaches of fiduciary duty”. Individuals who fail to fulfill their fiduciary obligations run the risk of facing serious civil liability and federal fines, and of being held personally liable to restore losses to the plan.
4. How Might You Breach Your Fiduciary Duty?
While well-intentioned plan administrators and trustees often work with tried-and-true legal templates to set up their plans, each additional entity a plan contracts with introduces new potential breaches. For instance, third-party administrators (TPA) are often contracted to manage self-funded plans. However, plan fiduciaries can be held liable for the actions of that TPA. Accordingly, fiduciaries need to understand the fees and expenses charged by the TPA, as well as other service providers. Fiduciaries need to review their performance and ensure that they are not incurring unnecessary expenses. Unfortunately, trusting third-party entities to “self-police” themselves risks a conflict of interest (as well as the appearance of one). Failure to account for where plan dollars are spent is a surefire way for fiduciaries to incur ERISA risk exposure.
5. What Other Laws Should You be Aware of?
Another fiduciary responsibility is ensuring that the plan complies with additional laws besides ERISA, including the Consolidated Omnibus Budget Reconciliation Act (COBRA), the Health Insurance Portability and Accountability Act (HIPAA), and the Affordable Care Act (ACA).
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