What is a "Fiduciary?"
I happen to be working on a matter regarding the status of an entity as a "fiduciary" for a plan and it has caused me to revisit some basic principles of ERISA that reminded me of the importance of understanding fiduciary status.
ERISA defines fiduciary status as (i) exercising discretionary authority or discretionary control respecting management of such plan or control of the disposition or management of plan assets, (ii) rendering investment advice for a fee with respect to money or property of the plan, or (iii) having discretionary authority or responsibility for administration of the plan. It is this third one that caused me to look a little deeper into the issue. What types of things would qualify as having discretion in plan administration?
In 29 CFR 2509.75-8, the Department of Labor looked at some purely administrative functions and decided the following:
"Q: Are persons who have no power to make any decisions as to plan policy, interpretations, practices or procedures, but who perform the following administrative functions for an employee benefit plan, within a framework of policies, interpretations, rules, practices and procedures made by other persons, fiduciaries with respect to the plan:
(1) Application of rules determining eligibility for participation or benefits;
(2) Calculation of services and compensation credits for benefits;
(3) Preparation of employee communications material;
(4) Maintenance of participants' service and employment records;
(5) Preparation of reports required by government agencies;
(6) Calculation of benefits;
(7) Orientation of new participants and advising participants of their rights and options under the plan;
(8) Collection of contributions and application of contributions as provided in the plan;
(9) Preparation of reports concerning participants' benefits;
(10) Processing of claims; and
(11) Making recommendations to others for decisions with respect to plan administration?
A: No. Only persons who perform one or more of the functions described in section 3(21)(A) of the Act with respect to an employee benefit plan are fiduciaries. Therefore, a person who performs purely ministerial functions such as the types described above for an employee benefit plan within a framework of policies, interpretations, rules, practices and procedures made by other persons is not a fiduciary because such person does not have discretionary authority or discretionary control respecting management of the plan, does not exercise any authority or control respecting management or disposition of the assets of the plan, and does not render investment advice with
respect to any money or other property of the plan and has no authority or responsibility to do so.
However, although such a person may not be a plan fiduciary, he may be subject to the bonding requirements contained in section 412 of the Act if he handles funds or other property of the plan within the meaning of applicable regulations."
There is a wide body of case law on this topic, but it seems fairly clear that it is not all that clear. It is possible to make decisions with respect to the administration of a plan, without being a fiduciary. It is also possible to make decisions and be a fiduciary. This duality is where I believe plan sponsors make the mistaken assumption that the insurance company administering the plan is necessarily a fiduciary of the plan. If a service contract only provides for general administration of the plan without some form of discretionary authority, it is more likely that the role of the insurance company will be administrative only and not fiduciary in nature. Thus, the plan sponsor would likely be held to the fiduciary standard, not the insurance company.
I bring this up to caution plan sponsors to carefully read service contracts to make sure that they know what status the service provider has agreed to take. Don't assume they are a fiduciary of the plan merely because the administer the plan. Because if the administrator makes a mistake, it may ultimately be the plan fiduciaries who are held responsible for that error.
