Is your benefits broker an ERISA fiduciary? It depends on what the broker does.
ERISA decides fiduciary status by what a person does, not by job title. This guide explains the test, the broker compensation disclosure rule and the questions to put to any broker in writing.
Eight Pages On Provider Duties And Disclosures.
General information, not legal advice. Each page cites the statute or rule it relies on.
Selecting And Monitoring Service Providers
The employer’s own duty to choose providers prudently and watch them over time.
Broker And Consultant Compensation Disclosure
What a covered service provider must tell the plan about its pay.
Fee Reasonableness And Section 408(b)(2)
How the disclosure supports a fee review under the same section.
ERISA Fiduciary Duties For Health Plans
The wider guide to who is a fiduciary and what the duties are.
The Prudent Selection Duty
What a careful selection process looks like on paper.
TPA Contracts And Fiduciary Roles
How administrative services contracts allocate roles and authority.
Plan Administrator And Named Fiduciary
Who holds those titles for your plan and why it matters.
Consolidated Appropriations Act For Employers
The 2021 law that added the group health disclosure rule.
Fiduciary Status Follows The Job, Not The Title.
ERISA does not hand out fiduciary status by job title, and a firm’s own description of itself does not settle it either. Section 3(21)(A), 29 U.S.C. 1002(21)(A), says a person is a fiduciary with respect to a plan to the extent of what that person does. For an employer, the practical questions are what your broker actually does for the plan and what the written agreement says about it.
This page states the law neutrally. It does not say whether any particular firm is or is not a fiduciary. We recommend asking every broker, consultant and administrator you work with for the answer in writing.
The Three Functions That Make A Fiduciary.
The statute names three functions. A person is a fiduciary to the extent that he or she does any of the following.
1. Exercises discretion over management or assets. The person exercises any discretionary authority or discretionary control respecting management of the plan, or exercises any authority or control respecting management or disposition of its assets.
2. Gives paid investment advice. The person renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of the plan, or has any authority or responsibility to do so.
3. Holds discretion in administration. The person has any discretionary authority or discretionary responsibility in the administration of the plan.
The words “to the extent” matter. A firm can be a fiduciary for one task and not for another, so the question is always about a specific function.
Selling Coverage Is Not On The List.
Placing and servicing insurance coverage means gathering quotes, presenting options, helping with enrollment and answering service questions. None of those activities appears among the three functions above. Read on its terms, the definition means a broker that only sells and services insurance coverage is generally not a fiduciary. We say “generally” on purpose: this is our reading of the statute’s wording, and we did not find a Department of Labor statement on brokers that we could cite here.
The limits are plain. A broker, or anyone else, can become a fiduciary by taking on discretionary authority or control over plan management, plan assets or plan administration, or by giving paid investment advice about plan money or property. Whether that has happened depends on the facts: what the firm is authorized to do, what it actually does, and what the agreement says. Receiving a commission does not decide the question in either direction. The definition looks at function.
Even where a broker is not a fiduciary, someone is. The employer that sponsors a plan and exercises control over it will usually be a fiduciary for those functions under the same test.
The Disclosure Rule Puts The Question On Paper.
The Consolidated Appropriations Act, 2021 amended ERISA section 408(b)(2), 29 U.S.C. 1108(b)(2), to add a disclosure rule for group health plans. A contract or arrangement for services between a covered plan, meaning a group health plan, and a covered service provider is reasonable only if the provider makes the required disclosures.
A covered service provider is one that enters into a contract with the plan and reasonably expects $1,000 or more in compensation, direct or indirect, in connection with the services. The statute lets the Secretary of Labor adjust that amount for inflation, so confirm the current figure when you rely on it. Covered services include brokerage services and consulting related to them, along with services such as selecting insurance products, recordkeeping, stop-loss insurance and pharmacy benefit management.
The provider must describe its services, state whether it will provide, or reasonably expects to provide, services as a fiduciary, and disclose its direct and indirect compensation. Direct compensation is received directly from the plan. Indirect compensation is received from a source other than the plan. The information is due reasonably in advance of entering into, extending or renewing the contract, and changes must be disclosed within 60 days. Our compensation disclosure guide goes through the items in detail.
The Employer Still Has To Choose And Watch.
ERISA section 404(a)(1)(B), 29 U.S.C. 1104(a)(1)(B), requires a fiduciary to act with the care, skill, prudence and diligence that prudent people would use in similar circumstances. For health plans that includes how providers are chosen and how they are reviewed afterward. Hiring a broker does not by itself remove your own duty to run a careful process.
Our cluster on selecting and monitoring health plan service providers covers that process, including a review calendar and the written records that show it happened.
Five Questions For Any Broker.
1. Will you act as a fiduciary under ERISA section 3(21) for our plan, and will you confirm your answer in writing?
2. Which of your services, if any, involve discretionary authority or control over plan management, plan assets or plan administration?
3. What do you and your affiliates receive, directly and indirectly, from the plan, carriers and anyone else in connection with our business?
4. Will you provide the section 408(b)(2)(B) disclosure before we sign or renew, and tell us about changes within 60 days?
5. Does our agreement list the services you provide and say plainly which ones you do not?
Put The Role In The Agreement.
A services agreement is where the answers should live. It can list the services, say whether any are provided as a fiduciary, describe the sources and amounts of compensation, and show who holds final decision authority on plan matters. Because the statute looks at function, the paper and the day-to-day practice should match. If the firm starts making decisions the agreement reserves to you, that is a reason to revisit the agreement.
Keep the disclosure and the agreement with your plan records and review both at each renewal. For a decision about your own plan, talk to your ERISA counsel. This page is general information, not legal advice.
Laws And Sources
29 U.S.C. 1002, Section 3 of ERISA: Definitions, including the fiduciary definition in paragraph (21)(A).
29 U.S.C. 1108, Section 408 of ERISA: Exemptions, including the group health plan service provider disclosure in subsection (b)(2)(B).
29 U.S.C. 1104, Section 404 of ERISA: Fiduciary duties, including the prudence standard in subsection (a)(1)(B).
Public Law 116-260: Consolidated Appropriations Act, 2021, which added the group health plan disclosure requirement.
Quick Answers.
Brief answers to what employers ask about broker fiduciary status, each linked to the fuller page.
Is a benefits broker automatically an ERISA fiduciary?
No. Under ERISA section 3(21)(A), status follows function. A broker that only sells and services coverage is generally not a fiduciary under that definition, but one that takes on discretionary authority or control over plan management or assets, or gives paid investment advice about plan money, can be.
What does section 408(b)(2)(B) require from a broker?
A covered service provider that reasonably expects $1,000 or more in compensation must describe its services, state whether it will act as a fiduciary and disclose direct and indirect compensation, reasonably in advance of signing or renewing and with changes within 60 days.
Does hiring a broker transfer my fiduciary duty?
Hiring a broker does not by itself remove your own duty under ERISA section 404(a)(1)(B) to act prudently when choosing and monitoring providers. Keep a written record of how you did both.
Should I ask my broker for its fiduciary status in writing?
Yes. We recommend asking every broker, consultant and administrator whether it acts as a fiduciary and getting the answer in the services agreement or a signed letter, along with its compensation disclosure.
What counts as direct and indirect compensation?
Direct compensation is received directly from the covered plan. Indirect compensation is received from any source other than the plan. Ask for both, and for the method or amount of each.
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