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Conjuring Health Plan Hygiene: The Final Chapter
Thursday, October 31, 2024

As we conclude our “Health Plan Hygiene” blog series, we reflect on the important insights shared about fiduciary responsibilities under the Employee Retirement Income Security Act of 1974 (ERISA) and highlight the risk posed by recent group health plan fiduciary litigation and offered strategies for mitigating these risks by meeting ERISA obligations. We have explored best practices for evaluating, selecting, and contracting with third-party administrators, emphasizing the importance of cybersecurity protocols for health plan data, and discussed the proactive review of third-party vendor fee arrangements, including pharmacy benefit managers and broker compensation structures.

As health and welfare plan fiduciaries prepare for the year ahead, how can they remain vigilant in identifying and executing their responsibilities in a climate of increasing compliance demands and associated risk?

  1. Set up a fiduciary committee. Where a health and welfare plan document permits delegation, a named fiduciary, such as the plan administrator, may wish to delegate some of its fiduciary duties to a health and welfare plan fiduciary committee. Fiduciary committees are designed to act solely in the best interests of plan participants and beneficiaries by ensuring prudent policies and procedures are in place. A fiduciary committee typically includes designated decision-makers and at least one person with intimate knowledge of the plan’s written terms, day-to-day operations, and the plan sponsor’s participant population, such as an HR professional with a benefits background. While the delegator shares responsibility for ensuring that the committee executes its duties properly, the committee can help the delegator stay abreast of evolving compliance requirements and best practices. The committee may want to adopt a charter that addresses, at a minimum, the committee’s purpose, scope of authority and responsibilities, meeting frequency, and committee membership, including appointment and removal procedures.
  2. Document decision-making. Establish and consistently use internal recordkeeping procedures for all fiduciary decisions and actions taken regarding the plan. For example, the fiduciary committee should take minutes during all meetings to reflect on the topics discussed and the reasoning behind its decisions. Clear documentation of the decision-making process promotes transparency and becomes critical if a plan is audited or sued.
  3. Mindfully negotiate and monitor service provider contracts. Health and welfare plan fiduciaries may want to establish and use prudent processes when selecting service providers. For example, the fiduciary might request proposals from multiple service providers to assess whether the terms are appropriate for the current market. Once a service provider is selected, the fiduciary is wise to stay updated on all contracts and operations regarding the plan to ensure the terms are written and performed in the best interest of plan participants and beneficiaries. Fiduciaries may also reassess and re-negotiate fees when appropriate.
  4. Ensure plan expenses are reasonable. The fiduciary has a duty to ensure plan expenses are reasonable, including any compensation paid to experts and third-party service providers.
  5. Conduct an internal audit. ERISA requires certain employee benefit plans to submit to an annual independent audit, a report of which is filed with the Department of Labor. However, some welfare plans, such as those that covered fewer than 100 participants at the beginning of the plan year if the plan is fully insured, unfunded, or a combination of fully insured and unfunded, are excluded from this requirement. Regardless of whether an audit is required, voluntarily conducting an independent audit facilitates proper plan governance and often helps identify opportunities to improve compliance.
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