Employee benefit plans rely on third-party administrators, recordkeepers, investment professionals, pharmacy benefit managers, consultants, and other vendors to perform essential functions. Selecting a service provider, however, does not end the fiduciary inquiry. Plan fiduciaries must evaluate the arrangement, understand the compensation structure, negotiate appropriate protections, and monitor the provider’s performance.
This program will address prudent provider selection, key contract provisions, fee arrangements, termination rights, and ongoing fiduciary monitoring. It will also highlight common issues in agreements with retirement and health plan vendors.
Attendees will receive practical guidance for reviewing service provider agreements, documenting fiduciary decisions, and reducing operational and litigation risk.
Principles
- Fiduciary responsibility extends beyond provider selection.
- Retaining a service provider is the beginning—not the end—of the fiduciary process. ERISA requires prudent selection, ongoing monitoring, and documentation of fiduciary oversight throughout the relationship.
- Service provider contracts are fiduciary risk-management tools.
- Contract provisions governing fiduciary status, scope of services, compensation, performance standards, liability allocation, data security, and termination rights should be negotiated to protect the plan and preserve fiduciary discretion.
- Understanding fees, compensation, and responsibilities is essential to prudent oversight.
- Fiduciaries should evaluate both direct and indirect compensation, assess the reasonableness of fees under ERISA, clearly define responsibilities, and ensure compliance with applicable disclosure requirements, including Section 408(b)(2).
- Effective governance depends on a structured monitoring process.
- Regular performance reviews, documentation of decisions, periodic contract evaluations, and planning for transitions or provider changes help reduce operational failures, fiduciary breaches, and litigation risk.
Syllabus
- ERISA fiduciary duties in selecting and monitoring service providers
- Prudent selection and ongoing oversight
- Documenting the fiduciary process
- Evaluating services, fees, and compensation
- Scope of services and allocation of responsibilities
- Fee arrangements and direct and indirect compensation
- ERISA Section 408(b)(2) considerations
- Negotiating key contract provisions
- Standards of care and fiduciary status
- Indemnification and limitations of liability
- Performance standards, reporting, and audit rights
- Confidentiality and data security
- Termination and transition issues
- Contract duration and renewal
- Termination rights and notice periods
- Records transfer and post-termination cooperation
- Provider-specific concerns
- Retirement plan recordkeepers and investment providers
- Third-party administrators and claims administrators
- Pharmacy benefit managers and other health plan vendors
- Practical risk-management strategies
- Identifying provisions that warrant greater scrutiny
- Preserving fiduciary flexibility
- Creating a workable monitoring process
