A fiduciary can also hire a service provider or providers to handle fiduciary functions, setting up the agreement so that the person or entity then assumes liability for those functions selected. If an employer contracts with a plan administrator to manage the plan, the employer is responsible for the selection of the service provider, but is not liable for the individual decisions of that provider. However, an employer is required to monitor the service provider periodically to ensure that it is handling the plan’s administration prudently.
As an additional protection for plans, every person, including a fiduciary, who handles plan funds or other plan property generally must be covered by a fidelity bond. A fidelity bond is a type of insurance that protects the plan against loss by reason of acts of fraud or dishonesty on the part of individuals covered by the bond. Many individuals dealing with group health plans that pay benefits from the general assets of an employer or union (unfunded) or group health plans that are insured (benefits are paid through the purchase of a group health insurance contract from a licensed insurer) may be eligible for exemptions from the fidelity bonding requirements.
In addition, the DOL maintains a voluntary correction program for fiduciary breaches. The Voluntary Fiduciary Correction Program (VFCP) allows plan officials who have identified certain violations of ERISA to take corrective action to remedy the breaches and voluntarily report the violations to the DOL, without becoming the subject of an enforcement action.
ERISA includes standards of conduct for those who manage an employee benefit plan and its assets, who are called “fiduciaries.” This Legislative Brief includes a set of frequently asked questions (FAQs) to help employers understand the basic fiduciary responsibilities applicable to group health plans under ERISA.