Purpose: There are thousands of books written to try to describe ERISA fiduciary duty and who is subject to it. Meanwhile, the courts constantly stumble over each other trying to define it in the context of often-goofy cases. When asked, the Department of Labor (DOL) probably has the best answer: Fiduciary responsibility depends on facts & circumstances of each situation. Thus, there is no shortage of precedents & anecdotes lawyers and others can collect to throw around or hide behind. This refresher is simply to give the basic truths to help people avoid getting into trouble. This is not in any way legal advice.
Background: ERISA was passed to be the ultimate consumer protection law...with protections & prohibitions far stronger & different than provided in insurance law or normal business practice. ERISA fiduciary duty (section 404 & 405 of Title I) is the major consumer protection. It is not a list of do's and don'ts. It simply demands that everyone subject to fiduciary duty see that the plan is managed in the most "prudent" way (and DOL judges whether you were "prudent" by 20/20 hindsight). As a rule of thumb, fiduciaries are expected to maximize the security & size of plan assets (including, of course, minimizing expenses). They are also responsible to maximize the size and security of legitimate payments to legitimate plan participants, and the plan participant should receive all benefits the plan document leads him to believe he had due.
How do they judge whether a deal was "prudent"? Each and every transaction with the plan is judged individually. Thus, the plan's payments to the TPA for purely TPA services are one transaction reviewed. (Is it a good deal for the plan for the range of services given?) Any payments to brokers are scrutinized. (The amount paid to a broker must be justifiable by the value/services that broker actually provides to the plan. Just saying "Add $3 per head" doesn't fly with DOL investigators.) Selecting the stop-loss is another transaction. In other words, DOL wants to know where every penny went and for what purpose. Was it the most "prudent" price & deal each time?
Who is subject to fiduciary duty? There are two classes. First comes the official Fiduciary: the official plan Administrator (usually the plan employer sponsor or trustees...not to be confused with the TPA, who has the legal role of only a contract service provider...similar to a tax preparer who does the paperwork, but is not the "taxpayer"). Second comes the confusing group of people & entities who are also subject to fiduciary duty, depending on the amount of decision-making power they can exercise. These are called "co-fiduciaries" or, more often, "knowing participant" fiduciaries. This group includes anyone who knew...or should have known...about the operations of the plan. Thus, TPAs, brokers, stop-loss, UR, medical providers (who knowingly overcharge or rig bills), individuals in the plan, etc. etc. could all be pursued by DOL investigators. It is very unpredictable who DOL will pick as their main target, so all parties need to be scrupulously prudent. Example: In a situation where a PPO was sloppy, the DOL went after the employer Fiduciary, charging the official Administrator with not exercising enough care in the selection of the PPO and not enough care in the oversight of the PPO's services.
What are the risks? The investigations can be both civil and/or criminal (jail time, especially in cases where the person gained from the non-prudent activity). Prosecution also goes beyond the corporate veil. They can pursue individuals' personal assets for fines & restitution. Be careful. "Everyone does it." and "I've always done it that way." are worthless excuses.