As legal, financial and reputational risks escalate for employer-sponsored benefit plans, companies are being forced to revisit how they manage their health and welfare offerings.
Fiduciary responsibility – once a concept tied mainly to retirement savings – is now firmly part of the conversation around employee health benefits. Beth Latchana, senior vice president and director of compliance consulting at Lockton, shared her insights on this shift, describing how fiduciary governance is evolving and what employers need to do to manage this growing area of risk.
“Most of us understand the important role a fiduciary plays in overseeing an investment portfolio or a retirement plan,” she said.
However, the regulatory and legal environment is demanding broader application. Latchana described how the requirements under the Employee Retirement Income Security Act (ERISA) are now being interpreted to cover not just retirement plans, but also medical and pharmacy arrangements.
“But, while it’s always been a requirement, the emphasis on being a fiduciary over a health and welfare benefit plan is fairly new – and it’s a shift in mindset that employers must adopt,” she said.
An increase in class-action lawsuits has highlighted the consequences of failing to comply with fiduciary duties under ERISA. Latchana warned that the risks extend beyond government enforcement.
“Fiduciary breach class-action litigation by plan participants against their employer plan sponsors is on the rise,” she said.
For employers that have not named a fiduciary or established a governance committee, the consequences could be personal.
“If company executives or board members haven’t named a fiduciary or a governing body to oversee the management of their health plan, guess what? They themselves may be considered the legal fiduciaries,” she said.
This rising legal exposure makes fiduciary governance not only a compliance issue but a matter of risk management. Employers that fail to act may be exposing themselves to investigations, penalties or lawsuits.
“To reduce the risk of being targeted in an upcoming lawsuit (or even having the Department of Labor come knocking on the door), company leaders must actively demonstrate strong fiduciary governance over their health and welfare benefit plans,” Latchana said.
The shift in expectations has been accelerated by the Consolidated Appropriations Act of 2021 (CAA), which added a set of transparency requirements aimed at increasing employer accountability. These rules tie into ERISA’s mandate that plan costs be both reasonable and aligned with participants’ interests.
“The CAA amplified government scrutiny, created new disclosure and data-driven rules, and reinforced employers’ responsibility to make informed decisions in their plans’ cost management,” Latchana said.
This regulatory environment, she noted, makes clear that “under ERISA, plan sponsors have a legal obligation to ensure that all benefit plan arrangements – medical, pharmacy, and beyond – are cost-effective and provide clear value.”
Legal risks are not confined to court proceedings. Government oversight remains robust, with federal agencies actively pursuing investigations. In 2024, the Department of Labor concluded 729 civil investigations and recovered $1.384 billion for plans and participants. Its 177 criminal investigations led to 49 indictments and 63 guilty pleas.
Latchana pointed out that despite the growing attention, awareness and follow-through remain limited.
“Unfortunately, not all plan sponsors are ramping up their fiduciary efforts,” she said. “Some are only faintly aware of the need to do so. Ignoring this obligation, however, could lead to costly litigation or millions of dollars in penalties.”
Transparency obligations introduced by the CAA – and reinforced by the Affordable Care Act – are another critical part of fiduciary governance. These rules are meant to give plan sponsors and participants access to information about costs, services and outcomes.
“Transparency really means clarity. It’s an insight into what things cost and how they work,” Latchana said.
This level of insight enables employers to uphold fiduciary duties such as prudent oversight and payment of only reasonable fees.
“It can help ensure that benefits are paid for the exclusive benefit of these individuals, the ‘prudent expert standard’ is utilised, only reasonable fees to service providers are paid, plan documents are followed, and more,” she said.
While the compliance burden may seem significant, Latchana argued that a strong fiduciary governance framework can deliver operational benefits.
“Taking a more active role in safeguarding and controlling costs in their health and welfare plans can be a lot to unpack for employers. But it can create some opportunities as well,” she said.
Stronger governance may help employers better manage benefit spending and influence players in the healthcare value chain.
“It can help an organisation manage plan cost, and eventually lead to cost savings,” Latchana said. It can also “apply pressure through oversight on players like PBMs that are contributing to the rising health care costs.”
She concluded that companies do not need to navigate fiduciary governance alone.
“There are resources available to help employers understand how to implement a rigorous and reliable fiduciary governance process,” she said.
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