Do health and benefits plan sponsors have a Fiduciary Responsibility under the Department of Labor (DOL) to monitor and preserve their plans?
In my opinion - Yes. In the area of Fiduciary Standards for Health and Benefits plans under ERISA, the plan Fiduciary is responsible for determining reasonable health plan expenses.
The Department of Labor (DOL) has taken the position that plan sponsors and administrators should know the costs of the services they procure on behalf of the plan. Reasonable steps should be taken to ensure that costs are fair and reasonable relative to the level of services provided.
This is particularly true if the plan sponsor or administrator has access to or can request financial information including plan expenses, claims and demographic data from the carrier or third-party administrator. This should include information that insurance carriers use to calculate annual renewal pricing and coverage for both insured and self-funded plans.
As the plan fiduciary you should consider:
Fiduciary requirements apply when selecting a plan service providers.
Fiduciary requirements apply when accepting plan costs and rate setting.
The person responsible for the selection must engage in a “prudent selection process” (as determined based on what a knowledgeable fiduciary would do).
Failure to meet this standard could cause the plan to be discriminatory and therefore not be entitled to a tax deduction.
Plan sponsors and administrators must know the costs of the services they procure on behalf of the plan and apply due diligence to minimize the costs relative to the level of services provided.
ERISA requires plan sponsors to pay only “reasonable expenses” for the benefits offered.
If you do not have the background or skills to conduct an analysis, you can find an advisor to do so.
A certified independent consultant can advise you as follows:
Determine If plan information and data are available or should be available based upon your size.
If plan and data is available, the advisor will ask for this source information including, claims and demographic information in order to conduct a detailed review.
If any specific costs are higher than reasonable, the advisor will request an explanation in writing.
If costs can be reduced based upon market data, the advisor will request a reduction in those costs or go to the competitive market.
The advisor will also review your rates and employee contributions to make sure they are accurate. This includes the relative value of plans and the approach used to develop employee contributions.
The review will provide transparency, including any fees paid to third parties such as bonuses, sharing of overrides and commissions paid.
The advisor will determine the basis and methodology for claims paid including pooling levels.
This approach should provide you with the documentation you need to demonstrate you have met Fiduciary responsibilities with respect to the financial elements of your plans.
In summary, as plan fiduciaries and plan sponsors, employers should know what their carriers and/or TPA, brokers and other vendors are paid for the services rendered to the plan. Alternatively stated, ERISA requires plan sponsors to pay only “reasonable expenses” for the benefits and services provided and offered through an employer sponsored health plan.