We all know that good benefits administration is important for attracting and retaining great talent. That’s the fun side of why you do your job. Here’s the serious side: If you administer a group health plan, you bear fiduciary responsibility. Failing to fulfill your duties can lead to serious legal and financial consequences.
In fact, the Department of Labor states that fiduciaries who fail to adhere to set standards can be held personally liable to restore resulting losses to the plan, and that courts may take any appropriate action against fiduciaries who breach their duties.
To avoid this, you need to understand what your duties are and how to fulfill them.
What are fiduciary responsibilities?
Fiduciary duty exists when one party, the fiduciary, is legally and ethically obligated to act in the best interest of another party. If the fiduciary instead acts out of his or her own interest, this is considered a breach of fiduciary duty.
Fiduciary responsibilities can occur in many different relationships, including between a lawyer and client and between a trustee and a beneficiary. And yes, administrators of group health plans that fall under ERISA also have fiduciary responsibilities to their plan participants.
Who has fiduciary responsibilities for group health plans?
In Understanding Your Fiduciary Responsibilities Under a Group Health Plan, the Department of Labor states that every plan needs a named fiduciary, but that many plans will have multiple fiduciaries.
Whoever has discretion over the plan is considered a fiduciary. Common fiduciaries include:
- Third-party administrators
- Employees in the human resources department
- Members of an administrative committee
- The board of directors
- Investment managers
What are the fiduciary responsibilities of benefit administrators?
According to the DOL, fiduciaries of a group health plan have five key duties:
- They must pay only reasonable plan expenses.
- They must hold any plan assets in trust.
- They must follow plan documents, assuming these documents are consistent with ERISA.
- They must carry out duties prudently.
- They must can in the sole interest of plan participants and their beneficiaries.
What does acting prudently entail?
Although prudence may seem subjective, in this case, it means basing decisions on expert knowledge. If a fiduciary is not an expert in a matter, the fiduciary is expected to hire the services of a professional who is.
This means that ignorance is no excuse for poor decisions. Although no one can be an expert in everything, it is absolutely essential to draw on the professional wisdom of experts.
How can benefit administrators protect themselves?
Following the plan documents and making professionally sound decisions is vital, but it may not always be enough. You also need to be able to prove that you’ve been following the rules.
If someone files a claim against you, you’ll need to show documentation that you’ve acted in a way consistent with your fiduciary responsibilities. Maintain clear records of everything you do so that you’ll always have this documentation on hand.
If you are using a professional’s services, or if you are a professional selling your services, use contracts that clearly establish the duties and liability held by each party.
World-class benefits administration software is important too. It can ensure that regulatory notices go out on time, benefit choices are well-documented, tax forms are filed in a timely manner and most importantly, that you can easily retrieve proof of what you did, if you are ever challenged.
Travisoft can help you achieve these goals. Request a demo to learn more.