Following the flurry of regulatory guidance and informal comments from officials at the Employee Benefits Security Administration, and other agencies of the Federal government, health and welfare plans should be a primary focus for plan sponsors in the upcoming year.
Designating a Committee or Fiduciary for the Company Health and Welfare Plans
As with retirement plans, under the Employee Retirement Income Security Act of 1974 (“ERISA”) there may be personal liability if fiduciaries of health and welfare plans breach their fiduciary obligations. The definition of a fiduciary under ERISA includes individuals or groups of individuals who actually perform fiduciary functions with respect to a health and welfare plan, regardless of whether such persons have been formally designated as fiduciaries. In the absence of evidence otherwise, the company, itself, will be deemed the plan administrator of the company’s health and welfare plans – and in such role will be deemed a fiduciary under ERISA. Consequently, companies should consider formally delegating fiduciary responsibility for its welfare plans to a committee or named officer. This will both insulate members of the board and create a framework that demonstrates a fiduciary process.
Delegating responsibility to a committee or individual officer requires formal action pursuant to the company’s governance documents, and aligning coverage under fiduciary liability insurance so that it appropriately covers the committee members. Plan documents can also be amended to provide that the company will indemnify committee members and individuals who perform ERISA fiduciary duties.
More than merely insulation for the board, delegation to a committee creates a body to review claims and complaints by participants and track and ensure implementation of new legal requirements applicable to the plans.
Describing Obligations in a Committee Charter
The actual responsibilities of a committee and its obligation to the board is generally contained in a committee charter. This committee charter often also contains other relevant information related to the frequency and conduction of meetings, voting procedures, recordkeeping and the delegation of responsibilities both within the committee and to other company employees or officers.
The committee charter and meeting documentation build a record that the company’s health and welfare plans have been operated in accordance with a prudent process consistent with ERISA’s fiduciary duties and obligations.
In two steps: (1) designating a committee and (2) developing a charter, the company will have taken meaningful steps to insulating the board, demonstrating a fiduciary process to meet the requisite standards under ERISA, and, importantly, creating a system to streamline legal updates in the area of health and welfare plans.
In the next article, we will provide thoughts on a task list or work plan which may be attached to the health and welfare committee charter.
