Making the decision to offer a group health plan used to be as simple as deciding on an insurance company and paying the premiums. Now that most employers are required to offer a plan, running it in the manner prescribed by the law imposes a legal responsibility on those that make plan operation decisions. These people are known as fiduciaries.
The Employment Retirement Income and Security Act (ERISA) casts a wide net when defining a fiduciary. It can include plan administrators, trustees, investment managers, administrative committees and those who select committee members. It includes all individuals exercising discretion in the administration of any health and welfare plan offered by the employer.
The fiduciary designation has a very significant meaning to the Department of Labor. Fiduciaries have several responsibilities in performing their duties to the plan. These are important to know because fiduciaries can be held personally responsible for any lapses. These duties include:
- Acting solely in the best interest of the plan participants;
- Carrying out duties prudently;
- Following the plan document (not the insurance company’s documents);
- Holding plan assets;
- Paying only reasonable plan expenses.
Most plan sponsors do not have in-house expertise to administer a health and welfare plan. Depending on the industry, employers with fewer than 200 employees will not have a full-time Human Resource professional. Smaller employers rely on insurance brokers and insurance companies to advise about compliance. However, they are not fiduciaries and are not responsible for administration of the plan.
There are a few steps plan sponsors can take to mitigate some of the liability:
- Establish a procedure for making plan decisions and record the process for all decisions.
- Follow the plan document and identify and notify those employee positions that have a fiduciary responsibility.
- Compare and evaluate all services provided to the plan (this would include professional services).
- Hire an administration company to run the plan and accept the liability for any errors.
Implementing the above will not only protect the company from employee lawsuits but will also ensure any communication with the Department of Labor is very brief.
Hiring an administration company is the best first step you can take to ensure compliance with the law. The administrator will help establish the plan sponsor’s procedures during the implementation process and take all of the liability for any plan errors.
EDA has taken the first step to protect dealer members by hiring one of the largest health and welfare service providers in the country to help administer their fiduciary responsibilities at a discounted rate.
For more information, visit www.erisaweb.com.
Bill Hill, President of Visor