Who Is Legally Responsible for Running an Employer Health Plan

Answer first: the plan must be in writing and must name someone

29 U.S.C. 1102(a)(1) opens with two requirements in one sentence. "Every employee benefit plan shall be established and maintained pursuant to a written instrument. Such instrument shall provide for one or more named fiduciaries who jointly or severally shall have authority to control and manage the operation and administration of the plan."

A plan that exists only as a practice, or as an insurer's booklet with nobody identified as responsible, is not what the statute contemplates. There must be a document, and the document must name someone.

Paragraph (a)(2) defines the term. A named fiduciary is a fiduciary who is named in the plan instrument, or who, pursuant to a procedure specified in the plan, is identified as a fiduciary by an employer or employee organization with respect to the plan, or by both acting jointly. So a plan may name a person directly or may name a procedure for identifying one — but either way the identification traces back to the written instrument.

Section 1102(b) then lists four things every employee benefit plan must have. It must provide a procedure for establishing and carrying out a funding policy and method consistent with the plan's objectives and the statute's requirements. It must describe any procedure for allocating responsibilities for the plan's operation and administration. It must provide a procedure for amending the plan, and for identifying the persons who have authority to amend it. And it must specify the basis on which payments are made to and from the plan.

The third of those is the one people most often want and least often find. A plan document has to say who may change it and how.

Fiduciary status is functional, not titular

The definition that matters most is in 29 U.S.C. 1002(21)(A), and it is built on conduct rather than on job titles. Except as otherwise provided, "a person is a fiduciary with respect to a plan to the extent" they exercise any discretionary authority or discretionary control respecting management of the plan, or exercise any authority or control respecting management or disposition of its assets; render investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of the plan, or have any authority or responsibility to do so; or have any discretionary authority or discretionary responsibility in the administration of the plan.

Two phrases in that definition do most of the work. "To the extent" makes fiduciary status partial and act-specific — a person can be a fiduciary as to one function and not another. And "discretionary" separates decision-making from execution: the statute keys on authority to decide, not on the act of carrying a decision out.

The consequence is that a title on an organisational chart settles nothing in either direction. Someone labeled an administrator may be a fiduciary as to some acts and not others; someone with no such label may be one as to acts they actually control. Whether a particular person is a fiduciary as to a particular act is a fact-bound determination, and this article does not make one about anybody.

Section 1102(c) also permits some flexibility in structure. A plan may provide that a person or group may serve in more than one fiduciary capacity, including as both trustee and administrator; that a named fiduciary, or a fiduciary designated pursuant to a plan procedure, may employ one or more persons to render advice on their responsibilities; and that a named fiduciary with respect to control or management of plan assets may appoint an investment manager.

The standard the statute holds them to

29 U.S.C. 1104(a)(1) sets out the duty, and its opening words are the ones worth reading twice: subject to stated exceptions, "a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries."

The subparagraphs then specify what that means. It means acting "for the exclusive purpose of: (i) providing benefits to participants and their beneficiaries; and (ii) defraying reasonable expenses of administering the plan." It means acting "with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims." It includes a diversification requirement for plan investments unless it is clearly prudent not to diversify. And it means acting "in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of this subchapter and subchapter III."

That last clause resolves an apparent conflict before it arises. A fiduciary follows the plan document — but only so far as the document is consistent with the statute. A plan term cannot be a defense to a statutory violation, because compliance with the document is itself conditioned on the document's legality.

The prudence standard is comparative rather than absolute. It measures conduct against what a prudent person familiar with such matters would do in an enterprise of a like character and with like aims, under the circumstances then prevailing. It is not a guarantee of a good outcome, and it is judged against conditions at the time rather than in hindsight.

Several later paragraphs of § 1104 are scoped by their own terms to particular arrangements — paragraph (c)(1)(A) begins "In the case of a pension plan which provides for individual accounts and permits a participant or beneficiary to exercise control over the assets in his account," and paragraph (c)(2) addresses a simple retirement account. The statute's own scoping language is the guide to which provisions reach which kind of plan.

What a breach exposes a fiduciary to

29 U.S.C. 1109(a) states the consequence. "Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary."

Three features of that sentence are worth naming. The liability is personal. It runs to the plan rather than to any individual participant — losses are made good to the plan. And it covers not only losses but disgorgement of profits made through use of plan assets, plus whatever other equitable or remedial relief a court considers appropriate, expressly including removal.

Section 1109(b) draws the boundary in time: "No fiduciary shall be liable with respect to a breach of fiduciary duty under this subchapter if such breach was committed before he became a fiduciary or after he ceased to be a fiduciary." Responsibility attaches to the period of service.

None of this says anything about whether any breach has occurred anywhere. It describes the exposure the statute creates, which is a different thing from an allegation.

Where the duty surfaces in an ordinary year

Fiduciary responsibility can sound abstract until a specific sum of money passes through the plan. One concrete instance appears inside a different regulation entirely, and it is useful precisely because it is not in the ERISA text.

45 CFR 158.250(a)(7) governs what an insurer must tell a policyholder when it pays a medical loss ratio rebate. Among the required contents is the fact that the total aggregated rebate for the group health plan is being provided to the policyholder — and, "if the policy provides benefits for a plan subject to ERISA, a statement that the policyholder may have additional obligations under ERISA's fiduciary responsibility provisions with respect to the handling of rebates and contact information for questions regarding the rebate."

That is a regulator in a different part of the Code pointing at the same duty. Money arrives at the employer as policyholder, and how it is handled from there is not purely a business decision if the plan is subject to ERISA. The regulation does not resolve what the obligation is; it requires the notice to say the obligation may exist and to supply somewhere to ask.

The general lesson generalises past rebates. Where a plan sponsor is exercising discretionary authority over the plan's operation or administration, or over the disposition of plan assets, the § 1002(21)(A) definition is engaged by that conduct — and the § 1104 standard, solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and defraying reasonable administrative expenses, is the yardstick the statute supplies. What follows in any particular case is a matter of facts and of law applied to them, and neither this article nor any article can supply those.