Fiduciary Duties of Self-Insured Plan Sponsors
It's your plan...and you own it!
Employers who sponsor self-insured medical plans take on significant fiduciary responsibilities under the Employee Retirement Income Security Act of 1974 (ERISA). These responsibilities are legal obligations that require employers to act in the best interests of plan participants and beneficiaries.
For some employers, their healthcare benefits are a source of pride and weigh heavily in their recruiting and retention efforts. For others, they are simply a necessary evil. In either case, for most with 100 or more employees, self-insuring (and hybrids such as level-funding), simply make the best business sense.
Managing the plan is not something to simply be outsourced.
What Every Employer Needs to Know
1. Understanding Fiduciary Responsibility
Under ERISA, a fiduciary is anyone who:
Exercises discretionary authority or control over plan management or assets,
Has discretionary responsibility in plan administration
For self-insured plans, employers typically serve as both the plan sponsor and administrator, making them fiduciaries by default. While operationalizing the plans is often outsourced to third-parties, that does not relieve the employer of its responsibilities.
2. Core Fiduciary Duties Under ERISA
ERISA defines key fiduciary duties that apply to all self-insured medical plans:
Duty of Loyalty: Act solely in the interest of plan participants and beneficiaries.
Duty of Prudence: Use care, skill, and diligence that a prudent person would exercise.
Duty to Follow Plan Documents: Administer the plan according to its terms.
Duty to Monitor: Regularly evaluate service providers (e.g., TPAs, PBMs, Carriers, ancillary services) for performance, cost, and compliance.
Duty to Avoid Conflicts of Interest: Avoid self-dealing or transactions that benefit the fiduciary personally.
A case in-point. An HR executive had a child with the need for a very high-cost medication that was not covered by the company’s drug plan. The family was paying more than $100k/yr to get the drug for their child.
The following year, in an effort to ensure the HR executive remained loyal to the employee benefit broker, the company’s employee benefits broker ensured the drug was covered, explaining to the PBM that the employer wanted to include it in the plan. Most plans do not cover it, and this plan never had. The result was saving the HR executive more than $100,000 per year, but at the cost of considerably higher premiums to all employees and higher costs to the company.
Unaware of their duties and failing to recognize the conflict of interest, the HR Executive responded as any parent might. They were simply grateful that the drug was now included in the plan and did not even realize they were “being bought,” by their broker.
3. Special Considerations for Self-Insured Plans
Self-insured employers’ responsibilities include funding claims and managing plan administration and operations. This includes:
Selecting and Monitoring Carriers, Networks, TPAs and PBMs: Employers must prudently select plan elements and continuously monitor their performance and compensation. The Consolidated Appropriations Act of 2021 requires employee benefit brokers and consultants provide sweeping disclosures on all of their sources of income related to the plan. Many plan sponsors are failing to demand these disclosures, and when they receive them, they are failing to ensure they are complete and all-inclusive. In many cases, considerable information remains undisclosed.
Ensuring Transparency: Compliance with the Transparency-in-Coverage Rules and the Consolidated Appropriations Act (CAA) is essential. These laws require access to claims data, pricing information, service provider compensation.
3. The Plan Sponsor is Ultimately Responsible for Claims Appeals
While many employers prefer to leave decisions to others (“out-of-sight, out of mind” or “plausible deniability”) most do not realize that as plan sponsors, they bear ultimate responsibility. Ensuring appeals are handled timely and in a manner consistent with plan documents is the responsibility of the plan sponsor. Few employers request or receive reports on the number of appeals, how many times a claim was appealed, the timing of responses to appeals, and the outcomes. It’s also the fiduciary’s responsibility to ensure that employees are provided with adequate explanation and a full understanding of their rights. Without this information, it is nearly impossible for a sponsor to fulfill their duty of oversight. These duties may not merely be assigned to third party administrators.
4. Best Practices for Fiduciary Governance
To fulfill their obligations and mitigate risk, employers can consider some of the following:
Establish a Fiduciary Committee: Delegate responsibilities and maintain oversight. While not a requirement, much like a company’s audit committee at the board level, a Medical Plan Fiduciary Committee is well-advised.
Document All Decisions: Keep detailed records of fiduciary decisions and the rationale behind them.
Conduct Regular Audits: Review claims, fees, and vendor performance.
Train Fiduciaries: Ensure all fiduciaries understand their legal duties.
A Case in Point: In 2025, JPMorgan Chase was sued for allegedly breaching its fiduciary duties under ERISA by allowing its pharmacy benefit manager, CVS Caremark, to charge its employee medical plan inflated prices for generic drugs. The lawsuit claims JPMorgan failed to monitor or negotiate better terms, resulting in overcharges—sometimes thousands of dollars more than retail prices. Plaintiffs argue this mismanagement affected hundreds of drugs and violated federal rules on transparency and prohibited transactions. They seek damages, removal of CVS Caremark, and appointment of an independent fiduciary to oversee the plan.
The Perils of Failing to Provide Proper Plan Oversight
Failing to meet fiduciary responsibilities can result in:
Personal Liability: Fiduciaries may be held personally liable for plan losses due to breaches.
Civil Penalties: The DOL can impose fines and require restitution.
Lawsuits: Participants and class-action firms are increasingly suing over mismanagement, especially in pharmacy benefit arrangements.
Reputational Damage: Fiduciary breaches can erode employee trust and public confidence.
Employers must recognize that sponsoring a self-insured health plan is not just a financial decision—it’s a legal and ethical commitment. By understanding and fulfilling their fiduciary duties, employers can protect their organizations, support their employees, and ensure long-term plan sustainability.
If you have questions about your plan and how you manage it, you can always write to me confidentially at David.Silverstein@BrokenHealthcare.com.