By: HUB’s EB Compliance Team

Last month in our series on fiduciary duties for health and welfare plans, we discussed the duty to administer the plan according to the written terms. This month we’ll wrap up our series on fiduciary duties and discuss how plan fiduciaries can limit their potential exposure. Protective steps include forming a benefits committee, getting fiduciary training, do periodic market checks, purchasing fiduciary liability coverage and of course, following the rules we’ve described in this series. These protective measures can help not only the employer, but also their employees acting in fiduciary capacities, as individuals can be held personally liable for breaches of fiduciary duties.

Benefits Committees

As a protective measure, some employers have looked to form benefits committees within their organizations. These committees often include those from other areas within the organization who wouldn’t otherwise be involved in the benefits decision making process. For example, a hotel chain may have a committee comprised of the CFO, VP of Human Resources, Benefits Director, the Director of Safety, and a hotel manager. In this example, the hotel manager and Director of Safety would be considered the “outside members” who would not normally be involved with benefits. The goal of including outside members is to get a fuller perspective on the impact of benefits on the workforce.

A benefits committee is perhaps most useful in meeting the duty of prudence requirement. Most often, all members are plan fiduciaries. However, some members of the company or outside advisors (like legal advisors) may not be formal members of the committee, but could be invited to attend as advisors. While plan fiduciaries are held to the standard of a prudent expert, this standard does not apply to advisors who were not plan fiduciaries. These advisors could however help the plan fiduciaries demonstrate they are adequately evaluating the market when searching for and monitoring vendors by asking questions of the plan fiduciaries.

Fiduciary Training

Most law firms and many other firms provide fiduciary training for the plan fiduciaries. The idea behind fiduciary training is to give plan fiduciaries an understanding of the scope of their responsibilities. Training can take many forms, such as a presentation at a committee meeting or written materials that committee members should review and discuss. Because memories fade and members change, it is good to refresh fiduciary training periodically.

Requests for Information/Proposals

For key service providers to plans, it is good to conduct periodic requests for information (“RFI”) or requests for proposal (“RFP”). This is sometimes referred to as a “market check.” These market checks help ensure that the benefit plan services are being provided at the best price and that the plan is leveraging the latest services and features.

Insured benefits are typically taken to market at renewal. However, for other vendors, like COBRA or FSA service providers, periodically conducting an RFI or RFP is a good idea. While there is no hard and fast rule on when to conduct RFIs or RFPs, many experts believe that every three to five years is a good window, particularly for key service providers to a plan.

Understanding the Plan Document

The main way to ensure the plan is administered according to the written document is to understand what the written document contains. This requires reading the document to understand the contents of the document itself, as well as areas where the document may defer to or incorporate the applicable certificate of coverage or other document from the insurance carrier or TPA. If the plan fiduciaries don’t know the contents of the plan, they can’t administer the plan according to those contents.

Reviewing the plan document is not a one-time activity. Plan fiduciaries must understand when the plan is updated and what those updates mean for the plan. Likewise, when in doubt, plan fiduciaries are urged to consult with their plan documents if unsure of any answers. This will help avoid providing incorrect information, which can bring upon potential liability should plan participants rely to their detriment on that incorrect information.

Fiduciary Liability Coverage

Fiduciary liability coverage is considered to be a Property and Casualty line of coverage, even though the coverage itself relates to employee benefit plans. While fiduciary liability coverage is not required by ERISA, this coverage can provide protection for the employer as well as the plan fiduciaries individually from lawsuits brought against the plan.

While coverage can vary based on the specific policy, it will generally include coverage for breaches of duty, negligent acts, errors or omissions, and other matters claimed by reason of the fiduciary’s service to the corporation as an ERISA Fiduciary. By including coverage other than just for specific ERISA breaches, these policies show that other acts, that are not breaches of fiduciary duties can and do lead to liability for the organization and fiduciaries.

Conclusion

Fiduciary liability is not something for employers to take lightly. In addition, employees acting in fiduciary capacities must understand they can be held personally liable for breaches. Thankfully, the steps discussed here can help both the employer and plan fiduciaries limit their potential risk. Plan fiduciaries are urged to work within their organizations to understand the protective measures they can take and review HUB’s entire fiduciary series for more information (links below).

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.

NOTICE OF DISCLAIMER

Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only and is not intended to constitute legal or tax advice as to an organization’s or individual's specific circumstances. It is based on Hub International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect and Hub International does not have an obligation to update this information. You should consult an attorney, accountant, or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your or your organization’s particular needs.