Heightened Fiduciary Liability? We’ve Seen This Play Out Before

Q: What are employee benefits practices doing to respond to their clients’ heightened fiduciary liability?

Jamie Greenleaf, co-founder, Fiduciary In A Box; Julie Selesnick, founder and principal attorney, health plan legal counsel and of counsel, Berger Montague; Rory Akers, vice president, senior ERISA compliance attorney, Lockton Companies; and Jacob Mattinson, partner, McDermott Will & Schulte, answer below:

A: Some would say we might have seen this movie before. Retirement plan brokers once focused primarily on product placement and commissions. As fiduciary scrutiny intensified and employers began viewing their retirement plans not as “check-the-box” benefits, but as powerful recruiting and retention tools, the market forced an evolution. Brokers became consultants, compensation structures shifted toward transparency, processes became documented, and many advisers ultimately stepped into co-fiduciary roles.

Heightened liability reshaped the advisory model. There was a general shift to prioritize process, rather than product. Now, health care benefits are at the beginning of a similar transition, as evidenced by increasing litigation, heightened scrutiny from the Department of Labor, recent legislation and market trends.

In response to clients’ rising fiduciary exposure, employee benefits practices have made several concrete shifts:

• Governance Support: They help employers establish fiduciary committees, meeting cadence and documentation protocols;
• Compensation Transparency: They provide more clarity related to broker revenue and the move to flat-fee arrangements, including fee disclosures to employers;
• Education Investment: They pursue additional resources for both the employer and the benefit consultant related to fiduciary and Employee Retirement Income Security Act duties and best practices;
• Data-Driven Oversight: They increase support for employers by investing in claims data analytics, fee benchmarking, audits and vendor analysis to create a defensible process; and
• Distinction Between Advisory and Placement: Some firms are redefining their roles as governance partners, not just market negotiators.

At the same time, we are seeing retirement consultants enter health care markets not as brokers, but as fiduciary consultants. Their focus is establishing a prudent, defensible framework for the fiduciary decisionmaking process in the health plan.

The broader shift is clear: Employers are no longer asking benefits providers only about whether they will receive a competitive rate, but also—out of necessity—if they can demonstrate a prudent process. Will benefit brokers ultimately move toward formal co-fiduciary status in health plans, as many did in retirement plans? Time will tell. But the classic movie plot suggests that when liability increases, the advisory model evolves.

NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.