Plan Sponsors Increase Focus on Health Plan Fiduciary Roles

As plan sponsors grapple with how to establish best practices for their role as health plan fiduciaries, consultant Jamie Greenleaf, founder of Greenleaf Advisors and co-founder of Fiduciary In A Box, is hearing frequent queries about the subject.

“Plan sponsors are still struggling to understand everything they need to do,” says Greenleaf, based in Red Bank, New Jersey. “The questions that they’re asking tend to be ‘Who can help me with this?’ and ‘How come nobody told me about this?’”

Attorneys and advisers helping plan sponsors navigate their fiduciary duties under the Employee Retirement Income Security Act report growing awareness of the need to establish and to follow prudent fiduciary guidelines when monitoring health plans. They are watching for a final rule from the Department of Labor, formally called Improving Transparency Into Pharmacy Benefit Manager Fee Disclosure, which is expected to arrive this fall, to provide guidance that will be effective for 2027 plan years. Plan sponsors and their advisers, therefore, are examining and updating their fiduciary duties when it comes to health plans and how to oversee the pharmacy benefits managers their health insurance provider engages.

For Julie Selesnick, director of legal and compliance at the Judi Group and the founder of and principal attorney at Health Plan Legal Counsel, based in Washington, D.C., the ideal time for plan sponsors to consider their fiduciary duties is when they are considering entering into a contract. Particularly with pharmacy benefits managers, she advocates beginning with a competitive request-for-proposal process to help secure stringent financial oversight.

“That’s where you want to put in the types of terms governing the oversight abilities you’ll have,” Selesnick says. She recommends negotiating a range of financial controls.

In particular, Selesnick says it is important for plan sponsors to review treatment of the so-called “rebate pass-through,” in which rebates from drug companies are returned to the employer or health plan, rather than retained by the pharmacy benefit manager.

DOL Rules Could ‘Give Plans What They’ve Been Screaming For’

Negotiations related to financial controls also provide an opportunity for plan sponsors to eliminate any spread pricing—pricing based on the potential difference between the price the PBM charges the health plan for prescription drugs and the potentially lower cost the PBM pays the pharmacy that dispenses it—to ensure the pharmacy costs are accurate. In addition, negotiations offer plan sponsors the opportunity to audit the pricing and establish continuous oversight ability, with the right to audit fees. Selesnick says she expects the upcoming DOL rules will require ERISA plan sponsors to monitor all, or most of, these costs.

In addition, she also stresses the importance of plan sponsors benchmarking their plans based on the reasonableness of per-member and per-month fees. To do so, she suggests plan sponsors clarify upfront access to claims data on a regular cadence. This enables plan sponsors to review claims, reconcile invoices, confirm that their plan design is being followed, and confirm they are not paying for brand-name drugs when generic drugs are available, she says.

“It’s ambitious,” Selesnick says. “One thing that all plans should go in realizing is: You’re not going to get 100% of what’s on your list of demands, but you maximize your ability to do proper oversight when you demand it during an RFP and focus on areas where [plan sponsors] currently have less rights than their fiduciary duties require.”

In addition to reviewing and updating contracts, Greenleaf suggests that plan sponsors establish and follow a fiduciary process; demonstrate how the plan is benchmarking administrative fees; explain the plan provider’s selection process pertaining to the selection and monitoring of vendors who support the plan, such as a recordkeeper and third-party administrator; and gather compensation disclosures from all vendors for the health plan from any company who receives at least $1,000 in any year in connection with the plan.

“It’s confusing right now, and I truly understand why plans are saying, ‘Oh my gosh, what am I supposed to do?’” Greenleaf says. “But the purpose is to give plans what they’ve been screaming for for years: … more insight into why the hell they’re spending so much money. … What’s going to happen is: What is confusing today will be less confusing in a year, and five years from now, it’ll all be standardized. Then plans are going to be in a much better position.”

Monica De Agostino, senior director of compensation and benefits at Dairy Management Inc., has not been as involved directly in PBM oversight, but describes it as a “timely and relevant topic” and says she is following the ongoing discussion of best practices.

“Our plan is fully insured, which is a different experience from the self-funded plans I’ve worked with in the past,” De Agostino wrote in response to questions. “The PBM comes as part of our Blue Cross arrangement, so we don’t have the same flexibility to independently select or manage that relationship.”

Overseeing Various Vendors

Selesnick encourages plan sponsors to collaborate with their vendors and prioritize the areas in which they currently have gaps or are not complying with existing or pending laws and regulations. She suggests they focus on all the elements that allow for real vendor oversight, such as negotiating better contract terms, ensuring data are going to a data warehouse, setting up regular audits, and conducting claim review. She says she is watching the pharmacy benefits manager legal case filed against J.P. Morgan, in particular, as a cautionary tale since it involves a prohibited transaction claim. She is also eyeing at least five prohibited transaction or fiduciary breach lawsuits in voluntary benefit cases against plan sponsors and their brokers.

“The case against J.P. Morgan does have a prohibited transaction claim, which has a lower pleading standard—this is a big concern for plan sponsors right now,” Selesnick says.

Health plan fiduciary duty litigation parallels 401(k) plan sponsor litigation that began with unreasonable fee claims. Selesnick’s advice to avoid engaging in a prohibited transaction is to demonstrate that any arrangement is for something the plan actually needs and that both the arrangement and compensation are reasonable.

“Employers are extra concerned with that, particularly when it comes to PBMs and if you’ve been in a legacy PBM contract where you don’t know your rebates,” Selesnick says.

She adds that sponsors can struggle to make a case that compensation in the company’s pharmacy plan is reasonable if the people running it don’t know the spread between what the company paid for a medication and what the PBM may have actually paid for the same drug.

Selesnick advises plan sponsors to insist, at a minimum, that the spread is disclosed.

‘Once-in-a-Lifetime Opportunity’ Lies Ahead

She also warns sponsors of ERISA plans to ensure all drug pricing spread is eliminated from PBM contracts by August 1, 2029, when the ERISA-fiduciary related provisions of the Consolidated Appropriations Act of 2026 take effect, increasing accountability for healthcare plan fiduciaries by legally treating PBMs as covered service providers under ERISA.

She also points out that even for plan sponsors that do not have a contract that protects them from PBM-related litigation, the forthcoming DOL rule is an opportunity to revisit contract terms, as it will take effect by January 1, 2027. The rule was proposed in January and is expected to be effective this fall.

“You can call your vendors and say, ‘Look, we need to renegotiate some of this stuff to match the law,’” Selesnick says. “This is a once-in-a-lifetime opportunity.”

Greenleaf sees changes in health plan oversight mirroring what occurred with retirement plans.

“This is kind of a rinse and repeat of what the retirement space went through: that employers didn’t know who got paid or how they got paid, and once they understood how to run a fiduciary process on retirement plans, they were able to reduce costs and enhance benefits,” Greenleaf says.

While Greenleaf anticipates some employers will hit roadblocks, she urges plan sponsors to follow several clear steps:

• recognize the company is a fiduciary;
• establish a fiduciary committee for the health plan;
• gather all documents and understand the contracts the company has signed;
• ask for compensation disclosures; and
• understand where the potential conflicts of interest lie.

Greenleaf does not expect employers will necessarily get everything they want in negotiating with their providers, but the negotiations demonstrate that plan sponsors are making their best attempts within the facts and circumstances of the moment.

Greenleaf suggests that plan sponsors benefit from hiring third parties, that have extensive experience with claims, to provide checks and balances and help determine that payments are accurate.

“That’s what I tell employers: that this is about the process that you go through, not whether you make the right decision or wrong decision,” Greenleaf says, adding that it is hard to be a prudent health plan fiduciary if the plan team are experts in healthcare. “Really your best practice right now is to educate yourself, because most employers have been kept in the dark, and they don’t even know some of the basics that they need in order to dig into the data.”

Rory Kane Akers, a senior ERISA compliance attorney and associate director of business development at Lockton Companies, based in Kansas City, Missouri, says many organizations are in the process of establishing a formal governance structure to ensure consistent oversight of their health plans.

Some practical examples cited by Akers include: maintaining a health and welfare benefits committee or other designated fiduciary group for the plan; and holding periodic meetings to review plan operations, costs, vendor performance and compliance matters. In addition, he recommends creating meeting agendas and retaining minutes that capture key discussions, data reviewed and decisions made; documenting vendor reviews; and benchmarking exercises, audits and requests for proposals. Maintaining written governance policies and procedures that outline responsibilities, review cycles and decisionmaking protocols is also important, to demonstrate the basis for significant plan and vendor-related decisions.

“I find myself reminding plan sponsors: Prudence is a process,” Akers wrote in an email response to written questions. “Demonstrating that decisions were made through a thoughtful, informed, and documented review process is often just as important as the decisions themselves.”