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.

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

I can’t drive 55 – or classify my workers

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by John Ludlum

Making correct classifications between independent contractors and employees is not getting simpler with flexible, geographically-distributed workforces.  For those with long memories, a key case in the area of worker classification was issued by the Ninth Circuit in Vizcaino v. Microsoft Corporation, 97F.3d 1187 (CA-9, 1996).  Vizcaino v. Microsoft held that certain workers, originally hired as independent contractors, were actually employees who were entitled to benefits under Microsoft’s 401(k) plan and Microsoft’s Employee Stock Purchase Plan.  Determinations like this can lead to substantial corrections costs to fix tax-qualified benefit plans as well as to make the contributions required under plan terms to the improperly excluded employees. 

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