As a plan sponsor, you play a critical role in managing your organization’s retirement and health plans. With the recent uptick in lawsuits, fueled by the Transparency in Coverage (TiC) legislation, many employers are taking a closer look at their responsibilities under the Employee Retirement Income Security Act (ERISA).
ERISA requires plan fiduciaries to act in the best interests of participants, make informed decisions, and ensure plan fees are reasonable. However, navigating these obligations can be complex, and failure to do so can lead to significant financial and legal risks.
While every employer’s situation is unique, taking proactive steps to assess plan governance, cost structure, and decision-making processes can help mitigate fiduciary risk. At Marsh McLennan Agency, we work with employers to understand key fiduciary considerations and provide insights into strategies that align with ERISA’s standards.
So, how confident are you that your plan meets today’s fiduciary expectations? Let’s explore the key responsibilities for plan sponsors—and how you can strengthen your oversight.
Understanding your fiduciary responsibilities
Under ERISA, plan sponsors have a duty to act in the best interest of plan participants. This fiduciary responsibility applies to decisions about plan investments, service provider selection, and overall plan administration. ERISA outlines certain key fiduciary principles:
- Exclusive benefit rule (ERISA §404(a)(1)(A)) – Plan fiduciaries must act solely in the interest of plan participants and beneficiaries, ensuring that decisions are made to benefit them—not the employer or service providers.
- Prudent person standard (ERISA §404(a)(1)(B)) – Fiduciaries must act with the care, skill, and diligence that a knowledgeable and experienced person would exercise under similar circumstances. This includes conducting regular plan reviews, evaluating vendor contracts, and maintaining thorough documentation of decision-making.
- Reasonable compensation (ERISA §408(b)(2)) – Employers must ensure that the fees paid to service providers, such as third-party administrators and investment managers, are reasonable in relation to the services provided. Excessive fees can be seen as a breach of fiduciary duty.
Fulfilling these responsibilities requires ongoing oversight, informed decision-making, and proper documentation. While fiduciary responsibility can seem overwhelming, taking proactive steps can help plan sponsors minimize risk and demonstrate prudent plan management.
The risks of non-compliance
Failure to meet ERISA’s fiduciary requirements can have serious consequences for plan sponsors. With increased litigation targeting plan sponsors, organizations that don’t actively manage their fiduciary obligations may face:
- Legal and financial penalties – Regulatory audits and lawsuits can result in substantial fines, legal fees, and settlement costs. Recent lawsuits highlight the growing scrutiny of plan fees and fiduciary decision-making.
- Personal liability for fiduciaries – Unlike corporate liability, ERISA fiduciary breaches can result in personal liability for those responsible for plan management. This means individual decision-makers can be held accountable for fiduciary missteps.
- Reputational damage – Lawsuits and regulatory actions can impact an organization’s credibility, creating concerns among employees and stakeholders about the integrity of their benefit plans.
Given these risks, plan sponsors must be proactive in evaluating plan governance, monitoring service providers, and ensuring fee transparency. By taking a structured approach to fiduciary oversight, employers can strengthen their plan’s integrity and reduce exposure to potential liabilities.
Let’s discuss your plan
Fiduciary responsibility isn’t just a compliance requirement—it’s a critical aspect of protecting your organization, your employees, and your retirement or health benefits program. Given the increasing legal and regulatory scrutiny of plan sponsors, now is the time to evaluate and document your plan governance practices.
While fiduciary responsibility ultimately rests with plan sponsors, working with the right partners can help mitigate risk and strengthen plan oversight. At Marsh McLennan Agency, we offer a suite of services designed to help employers strengthen their fiduciary oversight. Get in touch with an advisor now to learn more.
