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Audit your Benefit Plans to Clarify Roles and Duties and to Avoid Liability

Most employer-sponsored benefit plans – life, health, disability, and retirement – have some division of responsibilities between the employer/plan sponsor and other entities, who may be insurance companies, investment advisors, brokers, or other third party administrators. This division is generally a good thing for all involved, as organizations know their employees and can manage certain functions more efficiently than outside vendors, and vendors have valuable expertise for certain functions.

However, does your Human Resources and Benefits Group know where the lines are drawn? Do they understand what functions are their responsibility vs. what functions the third-parties should be providing?  The answer could lead to litigation and, ultimately, liability. 

In our Benefits Litigation Practice Group, we sometimes see a company make a decision under a plan that should have been made by a third party, the legal effect of which can be that the company is responsible for the decision except that the company often lacks the procedural protections designed into the plan for the third party (often designated a “fiduciary” with discretionary authority).  The possible outcome is that the company must pay benefits from its general assets rather than an insurer paying benefits from its reserves.

One way to avoid this risk is to hold periodic meetings with your vendors and/or brokers to ensure you and they agree on who is responsible for each plan function (e.g., sending COBRA notices, determining eligibility for life insurance, keeping records of designated beneficiaries).  Once this is clarified, it is essential that you provide training to your HR and Benefits staff who field questions daily from employees about these topics. Ensure they clearly understand when the HR and Benefits staff is responsible for providing assistance and when the staff should refer the employee to a third party for help.