ERISA fiduciary or not – where should employers start? 

Employer attention to ERISA fiduciary oversight for group health plans has increased significantly since 2024, mostly due to a growing number of lawsuits alleging breaches of fiduciary duty and increased price transparency.  Recent lawsuits aim to expand potential liability for employer group health plan sponsors.

These lawsuits assert a range of claims against plan sponsors, including allegations of fiduciary breach in the selection of major medical plan options – like arguments that higher-premium options are imprudent because they provide little value for the additional cost over cheaper options – and prescription drug benefit plan design.

A key point for the courts – and a practical starting point for plan sponsors when they review their group health plan processes – is to separate fiduciary functions, which may give rise to ERISA liability, from settlor functions, which are business decisions not subject to ERISA liability. Plan sponsors may want to review their processes overall, including whether decisions are properly categorized and documented as fiduciary or settlor, and made by the appropriate company official, plan representative, or committee. Don’t forget that some work related to a plan is neither fiduciary nor settlor, such as ministerial or administrative tasks like routine processing activities.

As a baseline, the US Supreme Court has held that the following activities are not fiduciary:

• Decisions regarding the form or structure of the plan, including who is entitled to receive plan benefits and in what amounts, or how such benefits are calculated. Hughes Aircraft Co. v. Jacobson, 525 US 432 (1999).
• Establishing, modifying or terminating an ERISA-covered plan. Lockheed Corp. v. Spink, 517 US 882 (1996).

Recent attempts to challenge the baseline – arguing that choices regarding the structure of a plan’s prescription drug benefit were fiduciary decisions – have not been successful. For example, one court found that defining the plan’s formulary framework, determining cost-sharing terms, setting employee contributions, and choosing between pricing models are components of plan design and not fiduciary decisions subject to ERISA liability. On the other hand, however, selecting and monitoring service providers, and ensuring they are reasonably compensated, remains a fiduciary duty. Of course, these arguments will continue to evolve as these cases develop.

While awaiting developments in the various pending lawsuits, group health plan sponsors may want to review operational processes, which may involve reviewing corporate and fiduciary delegations and other documents, plan or trust documents, and even participant communications and open enrollment guides to ensure clarity. And it’s always worth comparing group health plan documents to the practices of the third party administrator and pharmacy benefit manager to ensure adherence to the written plan documentation.

These aren’t the only processes that group health plan sponsors should review — for example, as discussed above, ensuring an appropriate fiduciary process for selecting and monitoring service providers, and that they are paid reasonable compensation, is extremely important. Note that the recent lawsuits probably won’t be the last on the fiduciary front for health and welfare plans, so stay tuned for more guidance that impacts those plan sponsors.