The ERISA Advisory Council has thrown its support behind the notion of multiple employer plans as a means of encouraging plan formation.
The recommendation came as part of a series of suggestions regarding outsourcing employee benefit plan services following hearings held by the ERISA Advisory Council last summer. The council examined the role that outsourcing plays in helping plan sponsors and other ERISA plan fiduciaries meet what it termed “the increasingly complex task of managing and administering their employee benefit plans.”
The council’s recommendations included encouraging the Department of Labor (DOL) to consider:
1. The benefits of MEPs and similar arrangements in rulings, regulations and interpretations.
2. Developing a sample structure for MEPs that will help ensure that conflicts of interest, prohibited transactions, fiduciary independence and disclosure are addressed.
3. Developing rules or safe harbors for multiple employer plan sponsors and adopting employers that would minimize their liability from acts of non-compliant adopting employers.
The council’s report noted that outsourcing allows plan sponsors to gain access to expertise and technology, achieve economies of scale, and reduce costs, while also allowing them to focus on their core business, rather than managing employee benefit plans. However, it acknowledged that most outsourcing arrangements also involve a transfer of responsibility and liability, and that while “…this transfer has important consequences both for plan fiduciaries and participants, its implications are not always well defined or understood.”
The council also recommended that the DOL:
1. Educate plan sponsors on current practices regarding outsourced services, specifically by providing industry information about the range of outsourcing options and types of providers, and on contracting practices such as termination rights, indemnification, liability caps, service level agreements, etc., that might assist plan sponsors and other fiduciaries in negotiating service agreements.
2. Clarify the legal framework under ERISA for delegating responsibility to service providers including, among other things, the plan sponsor’s responsibility under ERISA Section 404 where the plan document designates a “named fiduciary” under ERISA Section 402(a) that is not the plan sponsor, the scope of liability of a fiduciary who appoints a non-fiduciary service provider to perform functions necessary for the operation and administration of the plan, and the application of the co-fiduciary provisions of ERISA Section 405.
3. Provide additional guidance on the duty to select and monitor service providers by consolidating prior guidance on a fiduciary’s duty to select and monitor service providers, providing guidance on frequency and scope of monitoring required, and on managing potential conflicts of interest in engaging fiduciary service providers, and identifying “questions to ask” and other best practices in selecting and monitoring service providers.
4. Update and provide additional guidance on insurance coverage and ERISA bonding of outsourced service providers. The recommendation specifically cited the need to clarify and modernize the fidelity bond regulations and Field Assistance Bulletin 2008-04, and to educate plan sponsors on the availability of fiduciary insurance coverage, including information on scope of coverage, deductibles, policy limits, and ratings of insurers.
The full report is available online here.
The recommendation came as part of a series of suggestions regarding outsourcing employee benefit plan services following hearings held by the ERISA Advisory Council last summer. The council examined the role that outsourcing plays in helping plan sponsors and other ERISA plan fiduciaries meet what it termed “the increasingly complex task of managing and administering their employee benefit plans.”
The council’s recommendations included encouraging the Department of Labor (DOL) to consider:
1. The benefits of MEPs and similar arrangements in rulings, regulations and interpretations.
2. Developing a sample structure for MEPs that will help ensure that conflicts of interest, prohibited transactions, fiduciary independence and disclosure are addressed.
3. Developing rules or safe harbors for multiple employer plan sponsors and adopting employers that would minimize their liability from acts of non-compliant adopting employers.
The council’s report noted that outsourcing allows plan sponsors to gain access to expertise and technology, achieve economies of scale, and reduce costs, while also allowing them to focus on their core business, rather than managing employee benefit plans. However, it acknowledged that most outsourcing arrangements also involve a transfer of responsibility and liability, and that while “…this transfer has important consequences both for plan fiduciaries and participants, its implications are not always well defined or understood.”
The council also recommended that the DOL:
1. Educate plan sponsors on current practices regarding outsourced services, specifically by providing industry information about the range of outsourcing options and types of providers, and on contracting practices such as termination rights, indemnification, liability caps, service level agreements, etc., that might assist plan sponsors and other fiduciaries in negotiating service agreements.
2. Clarify the legal framework under ERISA for delegating responsibility to service providers including, among other things, the plan sponsor’s responsibility under ERISA Section 404 where the plan document designates a “named fiduciary” under ERISA Section 402(a) that is not the plan sponsor, the scope of liability of a fiduciary who appoints a non-fiduciary service provider to perform functions necessary for the operation and administration of the plan, and the application of the co-fiduciary provisions of ERISA Section 405.
3. Provide additional guidance on the duty to select and monitor service providers by consolidating prior guidance on a fiduciary’s duty to select and monitor service providers, providing guidance on frequency and scope of monitoring required, and on managing potential conflicts of interest in engaging fiduciary service providers, and identifying “questions to ask” and other best practices in selecting and monitoring service providers.
4. Update and provide additional guidance on insurance coverage and ERISA bonding of outsourced service providers. The recommendation specifically cited the need to clarify and modernize the fidelity bond regulations and Field Assistance Bulletin 2008-04, and to educate plan sponsors on the availability of fiduciary insurance coverage, including information on scope of coverage, deductibles, policy limits, and ratings of insurers.
The full report is available online here.
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