The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for employee benefit plans maintained by private-sector employers. ERISA includes requirements for both retirement plans (for example, 401(k) plans) and welfare benefit plans (for example, group health plans). ERISA has been amended many times over the years, expanding the protections available to welfare benefit plan participants and beneficiaries.
ERISA includes standards of conduct for those who manage an employee benefit plan and its assets, who are called “fiduciaries.”
Who is a Fiduciary?
Many of the actions involved in operating an employee benefit plan make the person or entity performing them a fiduciary. Using discretion in administering and managing a plan or controlling the plan’s assets makes that person a fiduciary to the extent of the person’s discretion or control.
Thus, fiduciary status is based on the functions performed for the plan, not just a person’s title.
The key to determining whether individuals or entities are fiduciaries is whether they are exercising discretion or control over the plan.
Group health plans can be structured in a variety of ways. The structure of the plan will affect who has fiduciary responsibilities. Most employers sponsoring self-funded group health plans exercise some discretionary authority and therefore are fiduciaries. If the employer sponsors a fully-insured plan, fiduciary status depends on whether the employer exercises discretion over the plan.
A plan must have at least one fiduciary (a person or entity) named in the written plan, or through a process described in the plan, as having control over the plan’s operation. The named fiduciary can be identified by office or by name. For some plans, it may be an administrative committee or a company’s board of directors.
A plan’s fiduciaries will ordinarily include:
- Plan administrators, trustees and investment managers;
- Individuals exercising discretion in the administration of the plan; and
- Members of a plan’s administrative committee (if applicable) and those who select committee officials.
What does it mean to be a Fiduciary?
Fiduciaries have important responsibilities and are subject to standards of conduct because they act on behalf of participants in a group health plan and their beneficiaries.
ERISA requires fiduciaries to discharge their duties with respect to employee benefit plans:
- Solely in the interest of plan participants and their beneficiaries;
- For the exclusive purpose of providing plan benefits, or for defraying reasonable expenses of plan administration;
- With the care, skill, prudence and diligence that a prudent person in similar circumstances would use;
- By diversifying the plan’s investments to minimize the risk of large losses; and
- In accordance with the plan’s documents (unless inconsistent with ERISA).