Health & Welfare Plans: Fiduciary Responsibilities

As group health plans become a popular option for companies’ health benefits, it is crucial for Plan Sponsors to understand their fiduciary responsibilities. A fiduciary is a person using discretion in administering and managing a plan or controlling its assets. The status as a fiduciary is based on the functions performed for the plan, not just a person’s job title.

Key Responsibilities of Plan Fiduciaries

1. Acting Solely in the Interest of Plan Participants: Fiduciaries must prioritize the interests of the plan participants above all else.
2. Carrying Out Duties Prudently: This includes making informed decisions and acting in a manner that a prudent person would under similar circumstances.
3. Following the Plan Documents: Fiduciaries must adhere to the terms of the plan documents, which should be reviewed at least annually to ensure they are up to date.
4. Holding Plan Assets in Trust: Plan assets should be kept in trust to protect the participants.
5. Paying Only Reasonable Plan Expenses: Fiduciaries must ensure that the expenses paid by the plan are reasonable.

Importance of Documentation

Fiduciaries should document their decisions and the basis for those decisions. This can include going through a Request for Proposal (RFP) process when selecting a plan service provider, documenting requirements for the service provider, and requesting the same information from each one.

It is essential for fiduciaries to have a good understanding of their plan documents, review them annually, and ensure changes and amendments are made timely.

Monitoring Service Providers

If a fiduciary hires a plan administrator to manage the plan, it is important that they have controls and processes to monitor the service provider’s activities and ensure the plan is being handled prudently.

Another fiduciary responsibility is determining that the plan’s fees are reasonable. Fiduciaries need to have a good understanding of the fees being charged by their service providers and then continually monitor those fees.

Fiduciaries should establish a formal review process to monitor their service providers. These review processes can include:

• Reviewing the service providers’ performance
• Checking actual fees charged
• Ensuring proper maintenance of plan records
• Following up on participant complaints
• Obtaining and reviewing service providers’ SOC 1 Reports

Establish Benefit Claims Procedures

Fiduciaries must also ensure that reviews of benefit claims are performed to verify the accuracy and validity of the claims processed by their plan administrators. This is crucial in ensuring the claims processor is following their established procedures, identifying discrepancies, detecting potential fraud, and ensuring that only valid claims are paid out. Regular review of benefit claims helps maintain the integrity of the plan and prevents unnecessary financial losses.

Required Communications and Reports

Plan fiduciaries are required to furnish certain information to participants and submit reports to government agencies. These required communications include:

1. Summary Plan Description (SPD): Summarizes the plan features to participants.
2. Summary of Material Modification (SMM): Apprises participants of plan changes.
3. Summary of Benefits and Coverage (SBC): Summarizes the key features of a plan.
4. Summary Annual Report: Outlines in narrative form the financial information in the plan’s annual return/report.

Group health plans with more than 100 participants are also required to file a Form 5500 annually with the government. Plans with more than 100 participants and a trust are also required to attach audited financial statements to their annual Form 5500 filing.

Best Practices for Plan Fiduciaries

• Identify the plan fiduciaries and their responsibilities.
• Establish a committee to oversee the company’s health benefit plan and maintain documentation of items discussed at these meetings.
• Document the processes and procedures for hiring a service provider ensuring multiple providers are reviewed.
• Document processes and procedures for monitoring any third-party service provider.
• Review benefit claims paid periodically to ensure they are valid.
• Review the plan document at least annually and ensure any changes are made timely.
• Ensure processes and procedures are in place to complete the annual Form 5500 filing and audit, if required.

By understanding and fulfilling these responsibilities, fiduciaries can help ensure that their group’s health plans are administered effectively and in compliance with applicable regulations.

Please contact us if you have questions about the information outlined above; our seasoned and experienced employee benefit plan professionals are here to help. You can also learn more on our Employee Benefit Plan services page.

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