The Stacks To Be, Or Not To Be … A Fiduciary by Andrew Silverio, Esq. The Employee Retirement Income Security Act (“ERISA”) provides the federal regulatory framework for private sector employee benefit plans. As one of the primary goals of ERISA is to establish a uniform statutory framework for employee benefit plans, a major feature is the preemption of most state regulation which touches on employee benefit plans falling within its scope. It is because of this that a self funded employee benefit plan under ERISA is essentially immune to most forms of state regulation, and must look primarily to ERISA (and of course, the Affordable Care Act in the case of health and welfare plans) for regulatory guidance. Plan fiduciaries are those exercising discretionary authority over plan assets, plan management, or both. ERISA holds these plan fiduciaries to a high standard; such fiduciaries have significant duties toward their respective benefit plans and their participants, and must carry out these duties prudently, faithfully adhere to the applicable plan document, and act in the best interests of the plan and its participants. A significant aspect of this fiduciary status, and the reason it is so important to know whether one is acting as a fiduciary, is the personal liability imposed on fiduciaries for breaches of their duties. In the context of a health plan, a breach of fiduciary duty can result in enormous damage to the plan, damages which can then be claimed from the responsible fiduciary’s personal assets. Most agreements in the industry contain numerous disclaimers and indemnifications, purporting to evade any fiduciary liability and adamantly denying fiduciary status. However, many plans, TPAs and vendors focus far too much on contractual disclaimers and indemnifications, and too little on the nature of their actual activities. While it is required that an ERISA plan have at least one “named” fiduciary pursuant to its plan document, this is by no means the only way to attain fiduciary status. “An entity’s status as a fiduciary hinges not solely on whether it is named as such in a benefit plan, but also on whether it ‘exercises discretionary control over the plan’s management, administration, or assets.’” Hartsfield, Titus & Donnelly v. Loomis Co., 2010 WL 596466, 2 (Dist. N.J. 2010), citing Mertens v. Hewitt Assocs., 508 U.S. 248, 252 (1993). In addition to precluding any attempt to disclaim fiduciary status, ERISA also does not allow one to disclaim fiduciary liability. See 29 U.S. Code § 1110(a), “Any provision in an agreement or instrument which purports to relieve a fiduciary from responsibility or liability for any responsibility, obligation, or duty under this part shall be void as against public policy.” Although this liability cannot be “extinguished”, it can be allocated, by one who understands the nature of the fiduciary status and its corresponding duties and liabilities. Pursuant to 29 U.S. Code § 1105(c), the “instrument under which a plan is maintained” may expressly provide for an allocation of fiduciary responsibilities (other than those of a trustee) among named fiduciaries. Additionally, the instrument may allow such named fiduciaries to designate persons or entities other than named fiduciaries to carry out fiduciary responsibilities. More importantly, if a fiduciary allocates such a responsibility to another person, “…then such named fiduciary shall not be liable for an act or omission of such person in carrying out such responsibility…” 29 U.S. Code § 1105(c)(2). In other words, once a named fiduciary properly delegates away a fiduciary duty, they are released from liability to the extent of the scope of the duty delegated. They are not released from all liability, however. The original fiduciary still has fiduciary duties in prudently selecting a party to appoint as a fiduciary, as well as following the proper plan procedure for doing so, and reasonably monitoring the actions of the appointed fiduciary. Once a fiduciary duty is properly allocated, the original fiduciary can be held liable for a breach of that duty only through ERISA’s rules on liability between co-fiduciaries (or through his own breach in imprudently selecting or failing to monitor the designated fiduciary). Under these rules, one is liable for the actions of a co-fiduciary only if he knowingly participates in or conceals the co-fiduciary’s breach, enables the co-fiduciary’s breach through his own breach of fiduciary duties of prudence and diligence, or has knowledge of the co-fiduciary’s breach and makes no effort to cure the breach. 29 U.S. Code § 1105(a). Once an examination of an entity’s activities in relation to the plan is complete, the next question is of course what to do about this liability. An option is to identify activities which subject your company to fiduciary liability and manage this liability by delegating them out to another party as discussed above, making sure to follow proper plan procedure in doing so. Another option is to acknowledge this responsibility and ensure adequate protections are in place, via various forms of insurance policies. It is important to note that the “fidelity bond” required by ERISA will not protect a fiduciary from personal liability. This bond, required for any person who handles plan funds, is in place to protect the plan in the event of dishonest conduct which damages the plan. It will not help the responsible party in the event of a breach. No matter which course of action is undertaken, a thorough understanding of one’s responsibilities and liabilities in any given situation gives crucial insight into the true value of the services being provided. There is a good reason agreements which openly assume fiduciary status and liability come with higher fees than those which disclaim such status. If the activities to be performed under an agreement will subject one to fiduciary liability regardless of contract language, why not assume that liability in the agreement? If assuming additional liability in the agreement, this risk and its potential costs should be taken into account in calculating the TPA’s fee. Additionally, an entity armed with this knowledge is better equipped to assess the extent of the liability it truly wishes to take on. Never More Important … By: Ron E. Peck, Esq. Sr. VP & General Counsel The Phia Group, LLC As employers begin to seriously consider self-funding for providing health benefits to their employees, figuring out how to contain costs is a balancing act we must all master. Before the Patient Protection and Affordable Care Act (PPACA) was implemented, carriers and employers knew there would be costs involved. In the wake of these new expenses, many employers’ knee jerk reaction was to analyze the “Pay or Play” mandate, and realize that the penalties for not offering coverage was less than the cost they’d incur maintaining their policies. Many savvy employers and brokers, however, learned about the benefits of self-funding. No wonder that we saw growth in self-funding in Massachusetts following the passage of “RomneyCare,” and similar self-funded growth nationwide following the passage of “ObamaCare.” As employers with healthy, low risk lives, chose to self-fund; so too did employers with high risk lives take advantage of the health insurance exchanges. Paying a relatively small penalty to send costly employees to the exchange is an enticing option. As this influx of costly lives flooded the exchanges, the hope had been that healthy lives would join them, balancing the risk. Sadly for supporters of PPACA, the healthy lives remained (or became) self-funded. Seeing this disaster as a risk to PPACA, many have joined forces with state insurance commissioners and the NAIC to make self-funding less attractive for otherwise healthy employee groups. Due to the federal preemption created by the Employee Retirement Income Security Act of 1974 (“ERISA”), they have been unable to attack self-funded plans directly. Instead, they have restricted the ability of stop-loss insurance carriers to offer protection to self-funded plans. Without being able to secure stop-loss with a reasonable deductible, many employers who were interested in self-funding cannot accept the kind of increased risk they are now being asked to bear. Only if the costs can be contained, can the risks inherent in a “higher deductible” stop-loss policy be deemed acceptable. Some believed that by giving “everyone” insurance, the amount charged for medical care would decrease. Once the number of patients with deep pockets increased, however, so too did prices. Changing “who” pays had no effect upon “how much” is paid. Six years following the passage of RomneyCare in Massachusetts, a so-called “cost control” or “Health Reform 2.0” law was passed; (the legal name is Chapter 224 of the Acts of 2012). The bill sets annual spending targets, encourages the formation of accountable care organizations, and establishes a commission to oversee provider performance. We can hope that we see such change at a federal level, but in the meantime, it falls upon us to identify ways to contain costs, and keep self-funding viable. Health plans must renew their focus on such “classic” cost containment measures as: – Subrogation & Recoupment of Funds from Liable Third Parties – Overpayment Identification and Recovery – Eligibility Audits & Fraud Detection In addition, now is the time to consider “new” cost containment methods, such as: – Revisiting How Out of Network Claims are Priced – Revisiting How The Plan’s Network is Structured, and Negotiating Better Deals in Exchange for Steerage – Carving Out High Cost Procedures, and Negotiating for Their Payment on a Case-by-Case Basis – Focusing on Preventative Care, Wellness, and Other Low Cost / High Reward Benefits By focusing on cost-containment, employers can take steps to reduce the risk they face, making the attack against stop-loss and self-funding less impactful upon our ability to self-fund. UPDATE: SCOTUS Denies CERT in the 2nd Circuit … Now What? By Christopher M. Aguiar, Esq. A few months ago, the 2nd Circuit took it upon itself in the case of Wurtz v. Rawlings to throw a bit of a wrench in the ability of a benefit plan to remove a law suit brought to enforce anti-subrogation laws to federal court. Industry pundits advocated for the Supreme Court of the United States to once again step in and resolve a pre-emption dispute relating to subrogation for an almost unprecedented 4th time in 15 years. Unfortunately, this time it was not to be. Just last week the Supreme Court denied an application to hear the case and now leaves a bit of a dispute in the law; essentially, the standard for removal to federal court is different in the 2nd Circuit than in almost any other federal jurisdiction in the country. Self funded benefit plans can take solace in the fact that it seems the 2nd Circuit case does not apply to them, but plaintiff lawyers in the pertinent states are doing a great job at ignoring the part of the case that excepts those plans from this rule, so those handling subrogation claims in the 2nd Circuit must be prepared for a bit of a war to ensure their ability to preempt state law anti-subrogation laws continues unfettered.