Establishing Health Plan Hygiene: The Final Chapter | Jackson Lewis’ PC

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

As health and wellbeing plan trustees prepare for the year ahead, how can they remain vigilant in identifying and meeting their responsibilities in an environment of increasing compliance demands and associated risks?

1. Establish a trust committee. In cases where a health and welfare plan document permits delegation of authority, a named fiduciary, such as the plan administrator, may wish to delegate some of his or her 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 that prudent policies and procedures are implemented. A fiduciary committee typically consists of appointed decision makers and at least one person with detailed knowledge of the plan sponsor’s participant population, such as the plan’s written terms, daily operations, and an HR professional with an outreach background. Although the delegator shares responsibility for ensuring that the committee properly carries out its duties, the committee can help the delegator stay abreast of evolving compliance requirements and best practices. The committee may wish to adopt a charter that addresses, at a minimum, the committee’s purpose, scope of authority and responsibility, frequency of meetings, and committee membership, including appointment and removal procedures.

2. Document the decision-making process. Establish and consistently use internal recordkeeping procedures for all fiduciary decisions and actions taken in connection with the plan. For example, the fiduciary committee should take minutes during all meetings to reflect on the issues discussed and the reasoning behind their decisions. Clearly documenting the decision-making process increases transparency and becomes critical if a plan is audited or sued.

3. Carefully negotiate and monitor service provider agreements. Health and welfare plan trustees may wish to establish and use prudent processes when selecting service providers. For example, the trustee may request quotes from multiple service providers to evaluate whether the terms are appropriate for the current market. Once a service provider is selected, the fiduciary must remain current on all plan-related contracts and operations to ensure that the terms are written and implemented in the best interests of the plan participants and beneficiaries. Trustees may also reassess and renegotiate fees when appropriate.

4. Make sure plan expenses are reasonable. The trustee has a duty to ensure that plan expenses, including compensation paid to experts and third-party service providers, are reasonable.

5. Perform an internal audit. ERISA requires certain employee benefit plans to submit to an annual independent audit whose report is submitted to the Department of Labor. However, some welfare plans that cover fewer than 100 participants at the beginning of the plan year are exempt from this requirement if the plan is fully insured, unfunded, or a combination of fully insured and unfunded. Regardless of whether an audit is required, conducting a voluntary independent audit facilitates proper plan administration and often helps identify opportunities to improve compliance.