Understanding the Fiduciary Responsibility Employers Face for Their Benefit Plans

Viewpoints by Craig Hasday

One of the most critical components of the Employee Retirement Income Security Act of 1974 (ERISA) is the fiduciary responsibility imposed on employers and administrators managing these types of plans. Employers should be concerned. ERISA requires employers to maintain oversight of vendors and monitor pharmacy and medical costs, and the penalties for non-compliance can be severe. In fact, there have been two significant lawsuits that underscore the exposure. In both Lewandowski v. Johnson and Johnson and Navarro v. Wells Fargo & Co, a class of employers alleges damages due to a breach by their employer of the fiduciary obligation to oversee plan costs.

The Core of ERISA Fiduciary Responsibility

Fiduciary responsibilities under ERISA require employers to act prudently and solely in the interests of plan participants and beneficiaries. This legal obligation extends to all aspects of managing employee benefit plans, including health, retirement, and other welfare plans. Essentially, fiduciaries must ensure that the plan operates with integrity, has adequate funding and that all actions taken are aligned with the participants’ best interests.

Oversight of Vendors

The duties of prudence and loyalty are pivotal here. Fiduciaries must carefully select, monitor, and oversee all service providers related to the plan, ensuring that vendors are not only competent but also ethical in their practices. These vendors may include third-party administrators, insurance providers, investment advisors, and healthcare networks. Fiduciaries must continuously monitor these vendors to ensure they provide quality services at a fair market price. Regular performance evaluations and vendor audits can help identify any discrepancies or issues that may arise, safeguarding against potential conflicts of interest and ensuring alignment with the plan’s objectives.

Managing Pharmacy and Medical Costs

As fiduciaries, employers need to actively manage pharmacy and medical expenses while ensuring that plan participants have access to quality care. This requires negotiating contracts with healthcare providers, managing pharmacy benefit plans, and implementing cost-sharing strategies that help reduce out-of-pocket expenses for employees, thus maximizing the value of the benefits provided. Employers should also be vigilant in analyzing claims data, identifying trends, and implementing preventive measures to address escalating costs. Engaging in data analytics can uncover potential areas of cost savings, facilitating informed decision-making that ultimately benefits both the employer and the employees. EPIC’s financial analysis team and EPIC Pharmacy Solutions help you provide this oversight both retrospectively and importantly, with proactive analytics that few advisors can manage.

We are pleased to announce that EPIC Brokers has developed a proprietary fiduciary guide and checklist to help employers like you stay on top of these requirements. We have the knowledge and breadth of resources including financial analysts, compliance and communication consultants needed to help our clients meet this obligation. Do you believe your current advisor is doing all they can to control costs and mitigate liability?

Request your copy of the fiduciary risk guide and checklist in the form on this page today.

EPIC offers this material for general information only. EPIC does not intend this material to be, nor may any person receiving this information construe or rely on this material as, tax or legal advice. The matters addressed in this document and any related discussions or correspondence should be reviewed and discussed with legal counsel prior to acting or relying on these materials.