Experts answer questions regarding plan sponsor fiduciary duties for health benefits.
SOURCE: P lan Sponsor
Q: What emerging theories of liability are driving litigation against plan sponsors and their group health plans?
Jamie Greenleaf, co-founder, Fiduciary in a Box; Julie Selesnick, executive director, legal and compliance, Judi Group and founder and principal attorney, Health Plan Legal Counsel; Rory Akers, vice president, senior ERISA compliance attorney, Lockton Companies; and Jacob Mattinson, partner, McDermott Will & Shulte, answer below:
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A: When plan sponsors consider health plan fiduciary risk, the focus is often on discrete issues, such as plan vendors, rebates or gag clauses. But litigation against plan sponsors and the group health plans they sponsor is evolving differently.
We are seeing the migration of 401(k)-style fiduciary claims to health plans, accelerated by transparency requirements established by the Consolidated Appropriations Acts of 2021 and 2026. The unifying question is often not whether a single rule was violated, but whether the plan sponsor followed a prudent fiduciary process.
One prominent development is the expansion of “excessive fee” claims in group health plans. Although health plan pricing has historically been far less transparent than pricing in retirement plans, plaintiffs are increasingly alleging that plans paid more than reasonable compensation for services. These claims sometimes focus on embedded costs within service provider arrangements, network pricing and administrative services.
More recently, similar cases are arising in voluntary benefits, stressing that fiduciaries are expected to understand how advisers are compensated; evaluate whether any incentives could influence recommendations; and document that analysis. The key shift for plan sponsors to focus on is not necessarily the fact that these cases exist, or even their ultimate result, but that health and welfare plan fiduciaries are no longer insulated, as they once were, and there is work to be done. These complaints show that there is a growing expectation that plan sponsors understand, at least at a reasonable level, what drives health plan costs.
Other focuses of recent litigation are both the duty to monitor service providers and the obligation to obtain and use data. Under the Employee Retirement Income Security Act, a plan sponsor’s fiduciary responsibility does not end with vendor selection. Rather, plan sponsors are expected to periodically reassess whether arrangements remain reasonable, including by reviewing compensation structures, rebate practices and overall contract performance. Plan sponsors should consider extending this level of review to all ERISA plans they sponsor, even those receiving less attention.
With both CAAs expanding access to information, failing to request or use available data—such as claims and pricing data—to inform those reviews may be considered imprudent by a fact finder. While fiduciaries are not expected to achieve perfect visibility into plan costs, they must demonstrate reasonable efforts to monitor vendors and understand what costs are embedded in their plans.
These developments share a common foundation: They are process-driven claims. Courts—and ERISA, for that matter—are less focused on whether a plan achieved the lowest possible cost and more focused on whether fiduciaries engaged in a prudent, well-documented decisionmaking process. This includes, for example, asking appropriate questions, evaluating available information and addressing conflicts of interest.
For plan sponsors, the implications are significant. Group health plan oversight is increasingly resembling retirement plan governance, with greater emphasis on structure, documentation and ongoing review. This trend will continue, and plan sponsor fiduciary prudence should not only focus on outcomes, but should also emphasize process.
Ultimately, the question is not simply whether plan costs and selected vendors were reasonable, but whether the plan sponsor can demonstrate how that determination was made.
NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.
Do YOU have a question about health benefit fiduciary duties? If so, we would love to hear from you! Simply forward your question to Amy.Resnick@issmarketintelligence.com with Subject: Health Plan Fiduciary How-To, and the experts will do their best to answer your question in a future column.
