PLANSPONSOR - April/May 2019 - 74

ERISA EXAMINATION
Don't Forget
Welfare Plans
Those, too, are subject to ERISA
F
or the most part, our columns have focused on fiduciary
obligations with respect to retirement plans, particularly,
how plan committees can meet their obligations. Now it's
time to throw health plans into the mix. What?
Yes, it's true, your health plan is an employee welfare benefit
plan subject to the Employee Retirement Income Security Act
(ERISA) and carries with it fiduciary duties and responsibilities.
Unfortunately, too often welfare plans get lost in the retirement
plan's shadow. In part, this is because so much of a welfare plan's
costs are borne by the employer. Even if employers bear the brunt
of the cost, we are here to remind you that the people with discretionary
responsibility for welfare plan administration or use of
welfare plan assets are also fiduciaries.
The Department of Labor (DOL) does investigate welfare
plans, especially self-insured health plans, for compliance with
ERISA fiduciary requirements, and it raises excessive fees as a
potential breach of fiduciary duty. There has also been an increase
in fee litigation with respect to insurance companies, third-party
administrators (TPAs) and pharmacy benefit managers. All of
which can create issues for plan fiduciaries who are not monitoring
the welfare plan's fees and expenses.
Plan Governance
Welfare plan fiduciary responsibility may fall to the retirement
committee, to a different committee, to the executives making
welfare plan decisions, or to some combination thereof. As with
retirement plans, we recommend thinking through welfare
plan governance in order to understand who has what plan
responsibilities and to then make sure those are being exercised
prudently.
When mapping out welfare plan governance, start at
the top-similarly to retirement plans, they invest ultimate
authority in the plan sponsor, which generally means the sponsor's
board of directors. Work down from there to how the board
delegates tasks, keeping in mind there's an obligation to report
back up to the delegating fiduciary. You may want to consider
having the board delegate welfare authority to the retirement
plan committee and then renaming the committee to reflect the
broader benefits responsibility.
Specific fiduciary responsibilities include, for example, plan
administration; claims and appeals determinations; and selecting
and monitoring service providers such as insurers and TPAs.
74 PLANSPONSOR.com April - May 2019 Art by Joseph Ciardiello
Disclosure Obligations
When an ERISA plan pays a service provider, the payment must be
pursuant to a reasonable arrangement for necessary services to the
plan or it is a prohibited transaction. Many of you are familiar with
the 408b-2 disclosure requirements and know that, for purposes
of retirement plans, a service provider must disclose its compensation
and services for the arrangement to be reasonable.
The DOL had originally proposed that these disclosure
requirements also apply to welfare plans but then decided to
cover welfare plan disclosure in future guidance instead. Because
welfare plans don't have the same 408b-2 fee disclosure requirements
(yet!) that apply to retirement plan service providers,
people often overlook this requirement entirely in the welfare
plan context. But the basic requirement-that the arrangement
be reasonable-does still apply to welfare plans.
Having a reasonable arrangement requires that the compensation
be reasonable. As with retirement plans, this doesn't
mean fiduciaries must pick the cheapest insurance company
or TPA, but it does mean the fiduciaries should consider all of
the compensation the provider will receive and that the compensation
is appropriate given the level of services and size of the
plan. Yet, often, especially in the context of pharmacy benefit
managers and related rebates, it is not entirely clear exactly
what compensation the service provider will receive. Plan fiduciaries
should carefully consider what the plan will be paying,
what services will be provided, and what other compensation the
vendor may receive in connection with the services.
DOL regulations also provide that an arrangement is not
reasonable if the plan cannot terminate it on reasonably short
notice without penalty. There is no bright line rule as to what
is " reasonably short notice, " and that can be difficult to balance
with trying to lock in a good rate for multiple years.
Next time you are planning the company's retirement plan
committee meeting, think about who has responsibility for the
welfare plans, and make sure governance for those plans is
understood and those with fiduciary responsibilities are meeting
their obligations.
Summer Conley is a partner in the Los Angeles office of
Drinker Biddle & Reath LLP. Michael Rosenbaum is a partner
in the firm's Chicago office.
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