The fiduciary survival guide for HR and health benefits

Fiduciary responsibilities in health benefits are becoming an increasingly important topic for HR professionals. With rising regulatory scrutiny and the growing risk of class action lawsuits, understanding ERISA fiduciary duties is critical. We recently sat down with John Schembari, Partner at Kutak Rock, to talk about navigating fiduciary responsibilities in health and welfare plans. This blog explores what it means to be a fiduciary, common missteps HR teams make, and actionable steps to mitigate risks while ensuring compliance.

Many HR leaders are familiar with fiduciary duties as they apply to retirement plans, but those same responsibilities extend to health and welfare benefits. Under ERISA, fiduciaries must act solely in the best interest of plan participants, following a strict set of guidelines to ensure decisions are prudent and compliant.

First thing’s first: What does fiduciary mean?

A fiduciary is a person or organization that has both a legal and ethical duty to act in the best interest of another party. The most common types of fiduciaries that you’ll recognize are in roles like estate executors or financial advisors, but for the purposes of this blog, we’re focusing on administrators of employee benefits.

Why fiduciary duties in health benefits matter now more than ever

HR professionals are facing increased scrutiny regarding fiduciary responsibilities, as class action lawsuits targeting employer-sponsored health plans continue to rise. High-profile cases against companies like Wells Fargo and Johnson & Johnson highlight the growing legal risks. As John Schembari warns, “we’ve seen a wave of litigation in the retirement space over the last 15 years. That focus is now shifting toward health and welfare plans. Companies need to act now to protect themselves.”

Taking proactive steps today can help HR leaders safeguard their organizations and mitigate potential liabilities.

Additionally, regulators like the Department of Labor are tightening enforcement, and companies failing to meet fiduciary standards could face penalties, lawsuits, and reputational damage.

The Five Fiduciary Commandments

If you take anything away from this blog, let it be the Five Fiduciary Commandments. These rules give you a simple framework for staying compliant when it comes to your ERISA-based fiduciary responsibilities.

1. Act in the exclusive best interest of plan participants

Fiduciaries must prioritize maximizing benefits and reducing costs for employees, not just saving money for the company.

2. Exercise a high level of expertise and prudence

HR leaders are judged by an expert standard, meaning they must approach decisions as a specialist would. If you don’t know the answer to something, seek out someone who does. (Your benefits broker is a great place to start!)

3. Follow the plan documents

Fiduciaries must adhere to the written terms of the benefits plan to avoid legal trouble.

4. Diversify plan assets (when applicable)

While more relevant to retirement plans, this applies to any pooled benefit funds.

5. Avoid prohibited transactions

Fiduciaries cannot engage in self-dealing or make decisions that benefit themselves or related parties.

Understanding the Five Fiduciary Commandments is not just about compliance—it’s about ensuring employees receive the best possible benefits and protections. As Schembari puts it, “When you make a fiduciary decision, your boss is no longer the CEO or CFO—it’s the plan participants. Keeping that distinction clear is critical to avoiding missteps.”

By prioritizing employees' best interests, HR leaders can mitigate legal risks while making more informed, ethical, and impactful decisions.

Common fiduciary mistakes HR leaders make

Many HR teams unknowingly put themselves and their organizations at risk by overlooking key fiduciary responsibilities. The most common pitfalls include:

• Failing to establish a fiduciary process: Unlike retirement plans, many companies lack a structured governance process for health benefits decisions.
• Relying on non-expert guidance: Internal legal counsel or brokers without fiduciary expertise may not be sufficient for ERISA compliance.
• Not understanding the full extent of personal liability: Fiduciaries are personally responsible for breaches, meaning their own assets could be at risk.
• Lack of documentation: Poor record-keeping makes it difficult to prove that decisions were made prudently and in employees' best interests, leaving HR leaders vulnerable to legal challenges.

Best practices for HR leaders to ensure compliance

To minimize fiduciary risks and ensure compliance, HR teams should take the following steps:

1. Develop a fiduciary governance process: Establish a structured approach, such as a fiduciary committee, to oversee benefits decisions.
2. Work with expert partners: Engage with brokers, third-party administrators, and legal advisors who specialize in fiduciary compliance to ensure informed decision-making.
3. Ask the right questions: Act as a "two-year-old fiduciary" and ask "why" at every step to justify decisions.
4. Benchmark against industry standards: Use external data to compare plan costs and provider performance.
5. Document everything: Keep detailed records of decision-making processes to demonstrate compliance if audited or sued. Strengthening documentation should be a top priority to mitigate risk. As Schembari emphasizes, “if a class action lawsuit is filed, the first thing they’ll ask is to see documentation of your fiduciary process. If you don’t have it, you’re already behind.” Establishing a clear paper trail not only ensures compliance but also provides crucial protection in the event of litigation.
6. Ensure proper insurance coverage: Traditional Directors & Officers Liability insurance does NOT cover fiduciary liability. Companies must invest in fiduciary liability insurance to protect decision-makers.

Take the next steps on fiduciary compliance

Navigating fiduciary responsibilities in health benefits can be complex, but HR leaders can protect themselves and their organizations by taking a proactive approach.

Key takeaways:

• Understand that fiduciary duties apply to health benefits, just as they do to retirement plans.
• Fiduciaries must act in the best interest of employees and make informed, documented decisions.
• Lawsuits and regulatory scrutiny are increasing, making proactive compliance critical.
• Developing a fiduciary governance process and securing liability insurance can mitigate risks.

As John Schembari reassures, fiduciary compliance doesn’t have to be overwhelming: “Don’t panic, just take the first steps. Fiduciary compliance is a journey, and the earlier you start, the better positioned you'll be.”

Watch the full session on navigating fiduciary responsibilities in health and welfare plans below, and register for our upcoming webinars here.