Fiduciary oversight is essential for self-insured health plan sponsors to ensure the financial integrity of the plan and protect participant benefits. Recent Department of Labor (DOL) investigations into fiduciary failures highlight the importance of adhering to best practices when monitoring third-party administrators (TPAs), pharmacy benefit managers (PBMs), and other vendors. Implementing best practices is critical to addressing potential risks.
Learning from Fiduciary Failures
Several high-profile cases serve as reminders of the risks associated with insufficient oversight and the serious consequences of failing to meet fiduciary obligations. These cases underscore the importance of proactive governance, rigorous compliance, and robust internal controls.
DOL vs. Suffolk Administrative Services
In the 2024 case of Suffolk Administrative Services, a lack of oversight over vendor activities resulted in the approval of millions of dollars in unreasonable and excessive fees, directly violating fiduciary obligations to act solely in the interest of plan participants. This failure depleted plan assets and revealed critical weaknesses in vendor contract reviews and fee auditing processes. The case highlights the importance of implementing rigorous vendor monitoring practices, establishing benchmarks for reasonable fees, and conducting regular, independent audits to ensure compliance with fiduciary duties.
DOL vs. Axim Fringe Benefit
For Axim Fringe Benefit group’s case in 2024, the misuse of plan assets for non-plan purposes revealed systemic failures in internal controls and accountability mechanisms. Funds intended for the benefit of plan participants were redirected, undermining the trust placed in fiduciaries and exposing the plan to significant financial and legal liabilities. This case demonstrates the necessity of strong segregation of duties, regular financial reconciliations, and detailed documentation of plan expenditures to prevent unauthorized use of plan assets.
DOL vs. EmblemHealth
The improper practice of cross-plan offsetting, where overpayments in one plan were used to cover deficits in another, demonstrated a breach of fiduciary responsibility and regulatory compliance in the 2023 EmblemHealth Settlement. This practice violated plan documents and participant expectations and subjected the organization to costly settlements and reputational damage. The case underscores the need for strict adherence to plan terms, transparent financial practices, and frequent compliance reviews to avoid similar breaches.
Each of these cases demonstrates how lapses in fiduciary oversight can lead to financial losses, regulatory penalties, and erosion of trust. They serve as lessons for trustees, plan sponsors, and administrators, reinforcing the need for governance frameworks, effective monitoring systems, and a proactive commitment to fiduciary responsibilities to safeguard the interests of plan participants and beneficiaries. All of this can be achieved by implementing best practices to strengthen oversight and safeguard the interests and plan participants.
These cases serve as a powerful reminder that fiduciary responsibilities cannot be taken lightly. When oversight is weak or inconsistent, the consequences can be severe, impacting plan finances, participant benefits, and the reputation of those entrusted with stewardship. Fortunately, these failures also provide a clear roadmap for what not to do.
In the next article, we will explore practical steps plan sponsors can take to strengthen fiduciary oversight and reduce risk. From vendor due diligence and contract management to ongoing performance monitoring and the use of data analytics, these best practices can help ensure that fiduciary obligations are consistently met and that plan participants receive the full value of their benefits.
Contact Us
To discuss our service offerings and how Withum can help, contact a member of our Self-Insured Health Plan Advisory Services Team.
