Tom's Take Blog

August 8, 2018

Can you describe how fiduciary duty works in simpler terms?

Tom’s Take: The word “fiduciary” doesn’t exactly roll off the tongue, and its meaning can be a bit on the complicated side, too. A study published in CNBC’s Money this past fall revealed that, at best, only half of those surveyed could correctly identify the meaning of the term. And while that study was dealing with the topic of financial advisors, the concept is equally important – and often just as misunderstood – in the group health plan industry.


To give you a little background in terms of self-funding specifically, fiduciary duty guidelines are something the Department of Labor (DOL) established with ERISA, the primary law that has regulated self-funded health plans since 1974.


Fiduciary duty regulations were created all those years ago as a way to provide the utmost consumer protection. The entities that have fiduciary duty are responsible for administering a self-funded plan in the most prudent way. According to the Self-Funding Success website, this means “acting solely with the best interests of participants and beneficiaries in mind and with the exclusive purpose of providing benefits to them.”


Here’s who acts as a fiduciary in the self-funding structure:

  • The official plan administrator, which is typically the employer, plan sponsor or board of trustees
  • Other plan partners that exercise discretion or control over a plan or its assets, including third party administrators (TPAs), brokers and stop loss partners


If there are questions or concerns about an entity’s ability to adhere to the standards of fiduciary duty, the DOL can step in and investigate on a civil – and/or criminal – basis. Consequences can be severe, even if a fiduciary’s inappropriate actions were found to be unintentional.


For more information on how fiduciary duty works, check out these resources:

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