While we feel like we are drowning in new laws & regs, some old laws are being forgotten that can earn you or client “federal room & board” with jumpsuit with a number. The SPBA Member-only website has many pieces describing ERISA & fiduciary duty from various perspectives to help you and also many are designed for you to reprint and provide to clients. Let me give quick heads-up of some of the issues arising. Refer to the website for more detail.
Self-test of ERISA fiduciary duty: ERISA was designed as the ultimate consumer protection law, and with a background of money missing and promises unfulfilled. So, it is much tougher than insurance law and normal business law. There are thousands of legal books & articles describing how to determine an ERISA fiduciary problem. Let me share a practical self-test which I have found is amazingly accurate: Pretend that an investigative TV show (like 60 Minutes) barges into your office and looks at everything, and applies the most negative or damning interpretation to everything. (That’s what DOL investigators are paid to do.) If there is any fact or detail or transaction that makes you squirm a little to have shown on TV, that squirm is your ERISA fiduciary alarm.
For example, did you or someone get paid more than the audience would think is “prudent” use of plan funds? Are there any business or other arrangements that might look a little too cozy or self-serving?
The 3 duties of ERISA fiduciary: Protect the security of plan assets + provide every plan participant with every benefit a “prudent man” (layman) reading the plan would logically expect to receive + be sure that plan assets are spent wisely and frugally. This is another handy self-test.
Plan assets & trusts: This is the biggest procrastination error….but can have devastating effect. The piece on the website with details is called “Why 99% of Plans should have a trust.” That is the best summary of the situation. ERISA fiduciary is usually based on care & use of “plan assets”. That includes the money an employer withholds from worker payroll for health or pension, COBRA, etc. for the plan use. It also includes any money the employer has designated as going to the plan. Consider plan assets to be sacred. Plan assets must be in a trust as soon as they are known. (When a paycheck shows $X withheld for the health plan, it is “known”.) Comingling or using plan assets for anything not relevant & “prudent” earns you a jumpsuit with a number. Even a carefully-segregated checking account is not OK, because the money is still legally in the hands of the employer. (DOL does allow TPA claims paying accounts and employer accounts for the prompt transfer of funds, but prompt is the operative word.) With that kind of legal liability, why wouldn’t every employer & TPA rush to create trusts???? People think that having a trust is expensive. ERISA just wants to isolate & protect the plan assets. So, you can open a simple trust (probably free) like many estate planners routinely create for clients. This may seem like a petty requirement, but TPA clients have learned the hard way all the ways that things can go bad in a hurry.
Follow the money: Look at actual or proposed arrangements and see whose money is being used. Anything paid (or relating to) plan assets has ERISA fiduciary implications. So, if the TPA admin fee is paid by the plan assets, then what the TPA charges and their actions are subject to ERISA fiduciary & reporting. If the TPA admin fee is paid from corporate assets, ERISA & DOL doesn’t care how an employer spends its own corporate money. However, anything the corporate-paid TPA does relating to the plan & assets is subject to fiduciary responsibility.
Stop-Loss: Like the above TPA example, who pays is the key. If an S-L policy is bought with corporate assets and the company is the beneficiary, then DOL doesn’t really care (because the employer is on the risk no matter what). On the other hand, if the S-L premium & beneficiary is the plan assets, then ERISA cares deeply and will want reporting on the Form 5500. Important: If the policy is paid with plan assets, but shows the beneficiary as the plan sponsor, DOL calls that stealing & diverting assets (the employer getting money paid for with plan assets). It’s jail time. Please, both TPAs & Stop-Loss take time to triple-check that the source of the money and the ownership of the pay-out is the same. Good intentions “I would have turned the money over to the plan” don’t count with DOL.
How much fiduciary responsibility: ERISA fiduciary duty is not all-or-nothing. Anyone or entity with any degree of discretionary power over plan assets has the proportionate amount of fiduciary responsibility. If a TPA says that he is absolutely not a fiduciary, ask if he’s ever made a decision about paying a claim or anything else involving plan assets. Since 99.9% of TPAs exercise some discretionary authority, you better assume you have fiduciary responsibility. DOL decides when they see the facts (not in advance), so the decision is with them, not you.
This is a quick highlight. Go to the member-only website. We print this because as everyone scurries to figure out how to survive and thrive in the impending ACA era, people grab for strategies that can get them into more legal trouble than ACA could ever cause.
This, and nothing from SPBA, should be considered legal advice. Only an infomed attorney familiar with all the facts & circumstances of a situation can render a legal opinion, and even then, DOL may disagree.