Go Your Own Way (Or Maybe Not): New Heightened Fiduciary Standards are Coming to Group Health Plans

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by Bret Busacker

There has been a shift taking place in ERISA litigation and compliance that could significantly impact group health plan fiduciary requirements. We anticipate group health plan fiduciary standards will evolve along the same lines as what occurred in the 401(k) industry after the ERISA 408(b)(2) rules became effective in 2012.

401(k) plans for years have been subject to fee disclosure and relatively well-defined fiduciary standards of conduct. Much of the improvement in 401(k) fiduciary practices over the past decade can be attributed to the ERISA 401(k) fee disclosure requirements that went into effect in 2012 under ERISA 408(b)(2) and the resulting fee litigation fueled by the ERISA 408(b)(2) fee disclosure rules. As a result of the ERISA 408(b)(2) and the related litigation, employers and plan fiduciaries, often with the aid of counsel, have become significantly more proficient in monitoring fees and negotiating agreements with 401(k) plan TPAs and investment service providers.

The Consolidated Appropriations Act (CAA) in 2021 extended the ERISA 408(b)(2) fee disclosure requirements to group health plans. Based on what took place in the 401(k) industry after 2012 when the ERISA 408(b)(2) disclosure went into effect, we anticipate the ERISA 408(b)(2) fee disclosure requirement, now also applicable to group health plans, will make it easier for plan participants to bring breach of fiduciary duty claims against employer and plan fiduciaries. There are already several such cases currently making their way through the courts.

In addition to the ERISA 408(b)(2) fee disclosure requirement, group health plan fiduciaries now have a better line of sight into the structure and economics of their group health plans than ever before. This insight comes in the form of a series of new disclosure requirements that require plans to obtain and publish network and out of network payment rates, and to report plan drug and service cost information to HHS. Further, the CAA now requires employers to prepare periodic reports demonstrating compliance with the Mental Health Parity rules. These new rules give employers and plan fiduciaries unprecedented leverage with their service providers through increased transparency and improved awareness of the structure and economics of their group health plans.

With this greater knowledge and understanding comes more risk of criticism that an employer or plan fiduciary could have looked closer—and should have looked closer—at fees and plan design in carrying out their fiduciary responsibilities. We think these new group health plan transparency and disclosure rules will drive new litigation against group health plan fiduciaries similar to what occurred in the retirement plan industry after ERISA 408(b)(2) became effective for 401(k) plans.

Employers and plan fiduciaries should be considering now how to formalize appropriate compliance structures to ensure that reasonable fiduciary standards are being applied to group health plan administration. Our general recommendation is to adopt similar group health plan governance structures and practices that are now common in 401(k) plan administration. These governance structures may take on different forms than what we see in the 401(k) industry, but employers should be thinking now how best to match step with the shifting fiduciary standards applicable to group health plans.

The Time Has Come, A Fact’s A Fact: Consider Adding a Welfare Plan Committee

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by Brenda Berg

The time may have come to add a welfare plan committee to your company’s governance of employee benefit plans. New legal obligations and other developments impose fiduciary risks for welfare plans similar to what already exist for retirement plans.

Most employers that sponsor a 401(k) plan or other retirement plan set up a committee to administer and oversee the plan. This is generally a best practice to ensure that the plan is properly administered in compliance with employee benefits laws and, for plans subject to the Employee Retirement Security Act of 1974 (ERISA), to have a process for following ERISA fiduciary duties. Fiduciary duties include acting prudently and in the best interests of participants, such as in overseeing service providers and monitoring plan fees. Read more

Should I Pay Or Should I No(t) Now: Which Expenses Can be Paid with Plan Assets?

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by Brenda Berg

One question that often comes up is whether an expense related to an ERISA plan can be paid with plan assets. The decision of whether to use ERISA plan assets to pay an expense is an ERISA fiduciary decision. With the recent IRS guidance clarifying the timing of use of forfeitures, this question may come up even more.[1] Using plan assets inappropriately is a fiduciary breach and subject to possible DOL and IRS penalties. It is important to have a fiduciary process in place for reviewing expenses and determining whether a payment is proper. Read more

It Doesn’t Have To Be That Way: Negotiating Good Service Provider Agreements Is More Important than Ever

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by Bret F. Busacker

It may be an understatement to say that compliance with benefit plan laws and regulations is becoming increasingly more complicated. In my experience, the COVID era has brought about some of the widest-sweeping changes on the burden of administering benefit plans in some time.

There has been major evolution around service provider fee disclosure, DOL reporting and disclosure on mental health parity and disclosure of plan costs, new claims procedure rights, expanded expectations around Cyber Security protections, and expansion of the use of ESG and crypto currency (and on-again, off-again regulatory efforts). Read more

You Spin Me QPAM Baby QPAM: DOL’s Proposed QPAM Rule May Mean Changes to Collective Trust Agreements for Plan Sponsors

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by Bret F. Busacker

The DOL published on July 27, 2022 a proposed change to the QPAM Exemption (“Proposed QPAM Amendment”) that may require retirement plan sponsors to update their collective trust agreements in order to satisfy the new DOL requirements.  Collective trusts have become an increasingly common way for qualified retirement plan committees/plan sponsors to achieve lower investment expenses for some of the investment options in their plans.

These collective trusts are managed by investment managers who often engage other financial institutions to execute trades involving the pension assets held by the collective trust. These trades involving retirement plan assets may at times be executed by a financial institution that is also providing services (such as recordkeeping services) to the same retirement plan.  Absent an exemption, these sorts of related party transactions may violate the ERISA prohibited transaction rules.   Read more

How Much is that (Investment) in the Window…A Higher Level of Fiduciary Oversight Could be Required for 401(k) Plan Brokerage Windows

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by Brenda Berg

Fiduciaries of 401(k) plans and other retirement plans know that they must prudently monitor the investment options available to participants in the plan, but are they monitoring participants’ investments made through a plan’s brokerage window? Recent commentary from the Department of Labor (DOL) on cryptocurrency investments suggests maybe fiduciaries should be – and that the DOL may check in on that soon.[i]

A “brokerage window” or “self-directed brokerage account” can allow participants access to a broad array of investments beyond the regular investment menu under the plan. Most plan fiduciaries have not paid much attention to the actual brokerage window investments. This is not surprising given the DOL’s relative lack of focus on the matter. The DOL had issued guidance in 2012 that the investment disclosure portion of the fee disclosure rules could apply to brokerage window investments in certain cases but after pushback due to the administrative burdens, the DOL withdrew that guidance. In 2014 the DOL issued a Request for Information about brokerage window practices but no further guidance was issued. Read more

The Tide is High…Keep Holding On For More Retirement Plan Fee Litigation

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by Brenda Berg

The U.S. Supreme Court’s ruling this week in Hughes v. Northwestern University will do nothing to stem the rising tide of retirement plan fee litigation. But the ruling doesn’t mean fiduciary breach claims are more likely to be successful either. Instead, the Court kept its ruling very narrow: a broad investment menu with some prudent funds will not automatically mean the fiduciaries are off the hook for offering imprudent funds.

 

The plaintiffs in Hughes were participants in two 403(b) retirement plans sponsored by Northwestern University. The participants brought claims for breach of fiduciary duty against the University, the retirement plan committee, and the individuals who administered the plans. The participants alleged the fiduciaries breached their duty of prudence by: (1) allowing recordkeeping fees that were too high; (2) allowing plan investments with excessive investment fees; and (3) providing participants too many investment options (over 400!) which resulted in participant confusion and poor investment decisions. Read more

Here We Go Again, PCORI’s Back in Town

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By Benjamin Gibbons

For those employers that sponsor a self-insured health plan, it’s important to be aware that the deadline for your 2021 PCORI filing is August 2, 2021. This deadline applies for plan years ending on December 31, 2020 (or any others between October 1, 2020 and October 1, 2021).  If you haven’t yet made your PCORI filing on IRS Form 720, we recommend doing so as soon as possible. Read more

Tell Me More, Tell Me More…Fee Disclosures are Coming for Group Health Plans

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by Brenda Berg

One of the employee benefits items tucked into the recently-passed Consolidated Appropriations Act, 2021 (the “Act”) will soon require group health plan service providers to issue fee disclosures.

Service providers to retirement plans have been required to provide fee disclosures – the ERISA 408(b)(2) disclosures – to plan sponsors for the past 10 years. The disclosures are part of the “reasonable compensation” exemption that keeps the arrangement from being a prohibited transaction. Until now, the 408(b)(2) fee disclosure rules have not applied to health and welfare plans; the “No Surprises Act” portion of the Act changes that next year. Read more

One Last Time: The DOL Returns to the Fiduciary Rule for Retirement Plans

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by Bret Busacker

The Department of Labor has returned to the Fiduciary Rule once again with its third attempt to provide a regulatory framework that protects retirement investors while not imposing unnecessary burdens on investment advisors and consultants. 

Plan sponsors of 401(k) plans should be aware that the DOL will once again apply the historical “five-part-test” in evaluating whether 401(k) advisors are plan fiduciaries.  The return of the five-part-test is the result of the Fifth Circuit invalidating the DOL’s 2016 version of the fiduciary rule, which had temporarily replaced the five-part-test.  Under the “new-again” five-part-test, an investment advisor to a 401(k) plan or plan participant is deemed to be a plan fiduciary if the advisor makes investment recommendations on a regular basis pursuant to an agreement or understanding with the 401(k) plan or plan participant and the advisor’s recommendations serve as the primary basis for making the decision to invest in specific investment options.  A 401(k) plan advisor determined to be a fiduciary under the five-part-test cannot receive variable compensation tied to a 401(k) participant’s investment decision (generally, referred to as conflicted compensation).

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