ERISA health plan fiduciary governance

Over the last few years, there have been a significant increase in class action litigation against employer plan sponsors of health and welfare plans asserting that employers failed to comply with their fiduciary obligations under ERISA. According to Bloomberg Law, almost 70 proposed ERISA class action lawsuits were filed in the first quarter of 2026, which is significantly higher than the 38 that were filed in the first quarter of 2025. In addition to increased class action fiduciary litigation risk, the failure to follow ERISA’s fiduciary duties could result in serious and significant civil and criminal penalties and even personal liability.

In light of this recent wave of class action litigation, it is critical that employers understand the importance of having a robust governance process in place for their health and welfare plans. A recent WTW governance survey found that four out of five employers plan to reevaluate their plan governance structure and/or policies within the next two years, over 50% of employers plan to conduct fiduciary training, and over 30% plan to reevaluate their existing fiduciary insurance policies.

What employers need to know about ERISA fiduciary requirements

ERISA was designed to protect employee benefit plans, including health and welfare plans, and plan participants and beneficiaries. The individuals responsible for operating health and welfare plans are bound by ERISA’s fiduciary duties and failure to fulfill those duties can expose both the plan and individuals to significant legal and financial risk.

Who is considered a fiduciary under ERISA?

A person is considered an ERISA fiduciary if they:

• Exercise authority over the management of an ERISA plan or the disposition of plan assets,
• Provide investment advice for a fee regarding plan assets; or
• Have any discretionary authority or responsibility in plan administration

Fiduciary status is not only a result of being named as such but also determined by function. Examples of an individual performing a fiduciary function include the following:

• Appointing fiduciaries and delegating fiduciary and other plan-related duties and responsibilities
• Selecting/replacing plan service providers
• Determining investment policy and making investment decisions (funded arrangements)
• Approving payment of fees and expenses from plan assets
• Interpreting/construing plan provisions
• Deciding claims
• Functioning as the plan’s “administrator” (e.g., ensuring that government reporting and participant disclosure requirements are satisfied and that plan administration complies with the plan’s terms and relevant law)

Key ERISA fiduciary duties for health plan sponsors

ERISA requires that fiduciaries meet the following duties:

• Duty of loyalty. Known as the exclusive benefit rule, fiduciaries must discharge their duties solely in the interest of plan participants and beneficiaries. Fiduciaries must act to provide plan benefits and use plan assets only to pay for benefits and reasonable administrative expenses.
• Duty of prudence. Fiduciaries must act with the care, skill, prudence and diligence that a prudent person would use in similar circumstances.
• Duty of diversification. Fiduciaries must diversify plan investments to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so.
• Duty to follow plan documents and applicable law. Fiduciaries must act in accordance with plan documents and ERISA. Plans must be in writing, and a summary plan description of key terms should be provided to participants.

Fiduciaries also have a duty not to cause a plan to engage in prohibited transactions. While exemptions exist, these transactions generally involve dealings between the plan and “parties in interest” (i.e., individuals or entities with a relationship to the plan), and are restricted to prevent conflicts of interest and misuse of plan assets.

Penalties for failure to comply with ERISA’s fiduciary requirements

Failure to adhere to ERISA’s fiduciary duties could result in various forms of civil and criminal penalties.

• Civil penalties. The most common penalty for a breach of fiduciary duty involves paying damages to make the plan whole by restoring losses caused by the breach. Additionally, penalties may apply for failing to meet ERISA’s requirements, such as failing to file a Form 5500. The Department of Labor (DOL) could also charge a fine equal to 20% of an award or settlement when a fiduciary breach occurs.
• Criminal penalties. ERISA fiduciaries may be subject to criminal penalties of up to a $100,000 fine and/or 10 years’ imprisonment for “willful violation” of ERISA Title I, Subtitle B, Part 1 (which primarily includes ERISA’s reporting and disclosure requirements). A corporation (including an employer plan sponsor) can face fines of up to $500,000 for large-scale misconduct. A fiduciary can also be subject to penalties and/or imprisonment for theft, embezzlement, mail fraud, wire fraud and the like.
• Co-fiduciary liability. In some cases, fiduciaries can be liable for the breaches of other fiduciaries. This standard generally requires knowingly facilitating, covering up, or acquiescing in the other fiduciary’s breach.
• Personal liability. Beyond government enforcement, ERISA creates direct personal liability for plan losses and/or profits made as a result of a breach. A court can also order removal of the fiduciary and any other equitable relief it considers appropriate.

Why employers are taking a proactive approach to fiduciary governance

A recent WTW governance survey found that four out of five employers plan to reevaluate their plan governance structure and/or policies within the next two years. Over 50% of employers plan to conduct fiduciary training and over 30% plan to reevaluate their existing fiduciary insurance policies.