The Liability Most Employers Are Blind To: Fiduciary

Employers spend two and a half times more on health benefits than on retirement benefits, yet don’t treat it with a proportional amount of care or scrutiny. What gives?

The year is 1974. The day is gloomy. Amidst a worldwide inflation crisis and a deepening recession, public concerns of private pension plan funds being mismanaged and abused continue to grow. At the peak of concern, the Employee Benefits Security Administration of the DOL takes action and creates the Employee Retirement Income Security Act (ERISA). This far reaching legislation sought to meet the changing retirement and healthcare needs of employees and their families, and has forever changed the way the U.S. does business.

Fast forward to today. Employers everywhere know of ERISA and what it means for their employees’ retirement accounts, but routinely fail to acknowledge that it also imposes a fiduciary duty of loyalty and care on how they handle their employees’ benefits. Not understanding what that entails is not only a failure of compliance, but a serious legal hazard as well. So how can you understand and meet your duty as an employer?

The Fiduciary Duty of Employers

Employers spend approximately 2.5x more on health benefits than on retirement benefits for their employees. What’s more, they often have rigorous, detailed oversight of retirement benefits with independent investment committees, audits, etc. If only employers knew that health benefits shared the same level of fiduciary obligation and responsibility.

Overwhelmingly, they do not. Worse, they assume that vendors and providers act in their employees’ best interests. These outside vendors talk a good game, but are not held to a fiduciary standard and do not have to act in such ways. The co-mingled funds they use to purchase benefits on your behalf are often what’s better for them, not best for your employees.

Regardless of how your health benefits plan is funded, under ERISA, an employer sponsoring his or her employee benefit plans has a legal obligation and duty to act reasonably, prudently, and in the best interest of plan participants. This includes paying only reasonable fees for services to the plan. That means minimizing costs for your employees as much as possible on the benefits you provide to them.

Meeting Your Fiduciary Duty and Managing Your Benefits

Fortunately, with the right oversight, meeting your fiduciary duty goes hand in hand with bringing better and less expensive benefits to your employees. Here are some tips to get you started in the right direction:

  • Carefully review agreements/contracts and fees with all benefits providers. This includes carriers, PBMs, TPAs, and brokers/advisors. If you do not understand the ins and outs of such agreements or fee structures, solicit outside assistance in making sure you do.

  • Demand that your broker or advisor disclose all compensation they receive to you, preferably in writing. Ask if they have any conflicts of interest you should know about.

  • Ask, ask, ask pointed questions. A good example might be, “Why are you satisfied with a 0% or single digit increase in plan cost year over year?” An advisor should be lowering your costs, not settling for steady increases that put more money in their pocket.

  • Continue to monitor the services of your benefits providers and ensure they are acting in accordance with the contract you have with them. Review claims, fees charged and paid, rebates from PBMs, and claims that are processed to make certain they are reasonable.

Informed, active management of your healthcare plan and employee benefits will result in better benefits to your employees at lower costs to them, which translates into savings for you. It also eliminates your chances of breaching your fiduciary duty and facing the ensuing litigation.

The Payoffs to Better Employee Benefits Management

At Wincline, we have a little saying: “Employee benefits can drive a business forward, as a strategic lever to pull.” We like that analogy.

It positions employee benefits as a positive opportunity rather than a burdensome headache. Companies spend so much on their benefits, which means that navigating them properly will decrease a large line item in your P&L. Benefits are a tool that employers can use to improve their entire company.

Wincline was founded on the concept that active employee benefits management can lead to better compliance, slashed costs, and fewer headaches. We pride ourselves in transforming the benefits process from one of frustration and uncertainty to delight and transparency. Most importantly, we accept a fiduciary standard and contract with you to give you the peace of mind that we act in your best interest at all times as we assist you in meeting your own fiduciary duty.

If any of that sounds appealing, don’t hesitate in getting the advice you need to pull that lever.

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