The Pros and Cons of a Health and Welfare Plan Fiduciary Committee

Question: Should employers consider establishing a benefits committee to act as the plan administrator responsible for satisfying ERISA’s fiduciary duties? 

Short Answer: Recent litigation alleging the breach of fiduciary duties under ERISA for failure to prudently monitor prescription drug costs has created a new impetus for employers to consider a fiduciary committee to oversee the plan.  While a health and welfare plan committee offers some risk-mitigation advantages over the default approach, maintaining a fiduciary committee demands significant resources to operate properly and therefore may not be the most efficient way to manage the plan or operate the business.   

“There are no solutions.  There are only trade-offs.” — Thomas Sowell, A Conflict of Visions  

Starting Point: ERISA’s Default Fiduciary Structure with Employer as Plan Administrator 
ERISA is designed to impose on employers the same type of fiduciary obligations as apply to trustees of a trust, who must act in the best interest of trust beneficiaries. These fiduciary duties are commonly described by courts as “the highest known to the law.” Employers in a fiduciary role must act in accordance with that same “best interests” standard with respect to plan participants and their dependents based on the fiduciary duties set forth under ERISA.  

In the vast majority of situations, the employer is an ERISA fiduciary. Employers sponsoring a single employer plan are the default ERISA “plan sponsor,” which in turn means they are the default ERISA §3(16) plan “administrator”. The DOL has confirmed that the ERISA plan administrator role is always a fiduciary position by the nature and responsibilities of its position.  

ERISA requires that all plans be established and maintained pursuant to a written plan document that sets forth one or more named fiduciaries. In most health and welfare plans, the named fiduciary is the ERISA plan administrator, which is almost always the employer.  

• Note: Employers delegate many aspects of plan administration to outside service vendors, frequently referred to as “third party administrators” or “TPAs”. However, these TPAs are not acting as the ERISA §3(16) plan administrator—that fiduciary role is almost always occupied solely by the employer. 

The Core Four ERISA Fiduciary Duties 
ERISA sets forth four fiduciary duties that form the foundation for employer responsibilities as the named fiduciary and ERISA plan “administrator” with respect to most employee benefit plans: 

1. The Duty of Loyalty (Exclusive Benefit Rule) 

2. The Duty of Prudence 

3. The Duty of Diversification 

4. The Duty to Follow Plan Terms 

 For more details: 

• The Core Four ERISA Fiduciary Duties Part I 

• The Core Four ERISA Fiduciary Duties Part II 

• Newfront Office Hours Webinar: ERISA for Employers 

 When Do the ERISA Fiduciary Duties Apply? 
ERISA’s structure recognizes that the employer must act in a business capacity (settlor) for some functions and in the best interest of employees/dependents capacity (fiduciary) for other plan functions.  

Fiduciary Functions 
The individuals who act in a fiduciary capacity for the employer are those who perform fiduciary functions for the plan. ERISA sets out those functions to include individuals who: 

• Exercise any discretionary authority or discretionary control respecting management of the plan or disposition of its assets; 

• Render investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of the plan, or have any authority or responsibility to do so; or 

• Have any discretionary responsibility in the administration of the plan. 

Settlor Functions 
Even those individuals who are a plan fiduciary will nonetheless act in a non-fiduciary role when making decisions relating to the establishment, design, amendment, and termination of the plan. The DOL refers to these roles as “settlor” functions, and it takes the position that such activities related to the formation (rather than the administration or management) of the plan are not within the scope of ERISA’s fiduciary obligations. 

For example, employers are not bound to a best interest fiduciary standard when amending the plan to reduce benefits. It makes sense that such business-type decisions would not be subject to fiduciary restrictions because otherwise the plan could only be made more generous. However, any activities undertaken to implement the employer’s settlor decisions (e.g., to implement the plan amendment) generally are fiduciary in nature and therefore are subject to the ERISA fiduciary obligations. 

The J&J Cases: Why Some Employers are Considering a Benefits Committee 
Since the start of 2024, there have been three cases filed targeting fiduciary failures to properly contain health plan prescription drug costs.  The first and most prominent of the trio is the class action lawsuit filed against Johnson & Johnson (Lewandowski v. Johnson & Johnson) as employer-plan sponsor of its group health plan and its benefits committee (“J&J”).  

The plaintiffs in the J&J case principally alleged that the company and its benefits committee breached its fiduciary duty by mismanaging the health plan’s prescription drug benefit program, costing their ERISA plans and their employees millions of dollars in the form of higher payments for prescription drugs, higher premiums, higher deductibles, higher coinsurance, higher copays, and lower wages or limited wage growth.  The core allegation is that J&J breached its fiduciary duty of prudence that requires they prudently select and monitor plan service providers, such as the pharmacy benefit manager (PBM). 

The complaint argued that J&J breached its fiduciary duty by failing to engage in a prudent and reasoned decision-making process that would have drastically lowered the cost of prescription drugs in general and generic-specialty drugs in particular, and would have resulted in other cost savings for the plan. The allegation was that a fiduciarily prudent approach would have saved the plan and employees millions of dollars.  The words “fiduciary” and “fiduciaries” were used over 150 times in the original J&J complaint. The document walked through the fiduciary duties imposed by ERISA, and specifically homed in on the duty of prudence as the central focus of the allegations.  

Following the J&J case, similar litigation was filed against Wells Fargo and JPMorgan’s health plans (Navarro v. Wells Fargo & Co.; Seth Stern v. JPMorgan Chase & Co.), again alleging breaches of fiduciary duty by the companies and their benefits committees for mismanaging prescription drug costs.  Collectively, this trio of cases (and any that may come in the future) is typically referred to as the “J&J Cases.”  

Piggybacking on the Retirement Side: Why 401(k) Plan Committees are Prevalent 
We now have two decades of experience with prolific excessive fee litigation against 401(k) and other similar retirement plans.  These types of cases have become so commonplace since 2006 (the first year with a large wave of such cases filed) that employers have taken protective measures over the years to minimize their potential exposure.  One of the most common defensive steps has been to establish and maintain a retirement plan fiduciary committee. 

While imposing fiduciary duties on a committee with oversight of health and welfare plan benefits has traditionally been a practice reserved almost exclusively for only the very largest employers, the fiduciary committee approach is much more common with respect to 401(k) and other retirement plan governance where excessive fee litigation has been broadly pervasive—and in many cases quite costly to employers.   

The Pros of a Health and Welfare Plan Fiduciary Committee 
In light of the potential liability risks that have been exposed by the J&J Cases, some have suggested that the best way to combat those concerns is to mirror the fiduciary committee model that has already been widely adopted throughout the industry for retirement plans.  These benefits committees can be tasked with oversight of the health plan’s prescription drug costs as a specific response to the J&J Cases, but also serve in an overarching capacity to address all applicable fiduciary concerns tied to ERISA, the ACA, the CAA, etc. 

In general, those advocating this approach would have the board designate the benefits committee as the plan administrator, and in some cases going farther to assign the committee as plan’s named fiduciary.  The committee’s role is formalized through some combination of a board resolution, committee charter, bylaws, fiduciary acknowledgment letters, summary materials describing committee responsibilities, as well as the wrap plan document and wrap SPD.  Most recommend that such committees meet three or four times per year with counsel and maintain formal meeting minutes (also reviewed/prepared by counsel) documenting the meetings and demonstrating compliance with applicable law.  

The main arguments made by those in favor of establishing a benefits committee are: 

• The J&J Cases show the potential for increased liability of health plans. 

• A benefits committee can be better informed and tasked with oversight of the plan’s prescription drug costs to defend against J&J-type allegations. 

• The ACA and CAA have added significant complexity (and related vulnerabilities) that demand greater oversight (e.g., price transparency rules, MHPAEA NQTL comparative analyses, gag clause prohibitions and certifications). 

• A regular cadence of committee meetings with educational sessions can result in better-informed plan decisions. 

• Committees are in a better position to prudently select and monitor plan vendors—including PBMs—with a formal process designed to address that function. 

• A collective approach to making fiduciary decisions will bring input from more parties and thus drive less risky consensus approaches from the organization. 

• Committees provide more clarity on who acts in a fiduciary, in what capacity, and the specific tasks/roles that apply. 

• The regular committee meetings will result in formal documentation of fiduciary determinations embedded within committee meeting minutes. 

These motivations are generally all consistent with the reason that so many employers have established a retirement plan fiduciary committee in recent decades.  The basic idea is primarily that employers should view recent developments such as the J&J Cases, the ACA, and the CAA to spur the same health and welfare plan benefits committee movement that we have already seen reach full fruition with respect to 401(k) plans.  

In the context of the J&J Cases specifically, the argument is that the companies breached their fiduciary duty by failing to engage in a prudent and reasoned decision-making process that would have lowered the cost of prescription drugs. The allegations are that a fiduciarily prudent approach could have saved the plan and employees millions of dollars.  Those advocating for employers to adopt a benefits committee maintain that its formal structure is in the best position to drive strong fiduciary practices to avoid these adverse outcomes.  

The Cons of a Health and Welfare Plan Fiduciary Committee 
On the retirement plan side, the fiduciary committee structure has become the mainstream approach for employers in response to the wave of (often successful) excessive fee cases over the past two decades.  On the health and welfare side, benefits committees have almost exclusively been reserved for the largest of employers with health plans funded by a trust.  But should this approach persist?  There are some significant factors weighing in favor of continuing that general industry standard even after the J&J Cases.  

Potential Conflicts of Interest 
Those arguing that taking a benefits committee approach mainstream is the appropriate response to the J&J Cases and recent legal changes often appear to do so myopically.  In fact, it is exceedingly rare to find any commentary even considering the downsides of a benefits committee approach.  Why is this the case?  For one, most commentary in this area is by those who have a financial stake in seeing broader committee adoption in the health and welfare space.  That does not of course mean they are incorrect in their position, but there is at least a potential conflict of interest that could be animating the efforts to reshape the industry norms.  

Safety Third? 
It’s never easy to weigh the trade-offs when deciding whether to take an active step that might reduce risk or exposure.  For example, Mike Rowe (host of Dirty Jobs) famously coined the phrase "Safety Third" as a lens through which to view this calculus.  Rowe places safety third in priority—behind personal responsibility and common sense—suggesting that situational awareness leads to better outcomes in dangerous work environments.  He argues that these individualized qualities should be emphasized ahead of rigid rule systems that primarily focus on checking boxes on a safety checklist.  

For example, in one post, Rowe posits the following rhetorical question: “would you be OK if the government reduced the posted speed limits by 50%, required all motorists to wear helmets, and outlawed all left turns? If not, why not? Doing so would save almost 40,000 lives a year.”  He answers this with the somewhat uncomfortable truth that although cars have become far safer in recent years with various enhancements and technological developments, ultimately we will never do everything we can to eliminate traffic fatalities because it would impose impediments that are too burdensome for mainstream acceptance.   

While the employee benefits workplace fortunately does not face the same physical dangers encountered by those with the types of occupations explored by Mike Rowe, the ERISA sphere certainly has legal risks.  Which raises the important question: Is a health and welfare plan fiduciary committee a reasonable, targeted intervention—like requiring seat belts—that is appropriately tailored to the context of delivering benefits?  Or is the committee approach more akin to putting everyone in a protective “Bubble Boy” suit, excessively guarding against one category of legal risk at a broader net cost to the organization’s enterprise goals?  

In other words, should the resources (time, effort, personnel, legal costs, general bandwidth) spent forming and dutifully maintaining a fiduciary committee for the health plan come in third behind the company’s actual mission of providing a superior product/service and maximizing profitability?  

Of course, if the answer were clear there would be little here to discuss.  But the lawyers and other advisers in this space often have little to no insight into the actual business operations of the company, and due to the nature of their profession have an inherent bias toward risk minimization specifically in the benefits sphere—without clear regard to the costs.  The point is not whether one of these approaches is correct, or even (more reasonably) where on the spectrum of these extremes a benefits committee implementation falls.  The point is that there are two sides with various shades of gray in-between, and it is important to consider both sides to make an informed decision about where your organization should fall.  

Why The J&J Cases May Not be a Strong Argument for a H&W Plan Fiduciary Committee 

1. The J&J Cases Have Not Succeeded: None of the cases have made it past the motion to dismiss.  The J&J and Wells Fargo cases have already been dismissed for lack of standing, and the JPMorgan case was just recently filed.  These are novel legal theories that have not yet shown any ability to prevail in court. 

2. Resources Required to Establish and Maintain Committee: It would be a large undertaking of time, effort, legal services, and procedural documentation and application to properly establish and maintain a benefits committee.  Before allocating such resources to a radical change in plan governance, employers should consider whether it would be an efficient use of the company’s time and efforts, which has not yet been established by the (so far unsuccessful) J&J Cases. 

3. Only Very Large Employers Targeted: Of the three companies that have had these cases filed against them, all have 100,000+ employees.  At this point, it does not appear that employers outside of that category have the same risk of this type of potential liability. 

4. Only Plans Funded by a Trust Targeted: All of the J&J Cases companies have health plans funded by a trust.  Funded trust for health plans are extremely unusual outside of the very largest-sized employers.  The risk of litigation is greatly reduced when plan benefits are paid by general assets, as is the case for virtually all companies. Without a trust, there is not a clear connection to ERISA plan assets subject to fiduciary duties and recoveries for the plaintiff to target. 

5. All of the J&J Cases Companies Have a Benefits Committee: The companies facing the J&J Cases litigation all have a benefits committee.  Therefore, the committee approach appears to have been an ineffective strategy in avoiding this type of lawsuit so far. 

6. The Benefits Committee Members are Personally Named: The individuals who serve on the J&J Cases benefit committees as fiduciaries are personally named in the complaints, including the CHRO and VPs of HR. Although these companies likely have strong employer indemnification and fiduciary liability insurance coverage to address potential personal liability concerns derived from a breach of fiduciary duty claim, it is nonetheless rather unpleasant for these individuals to face such public scrutiny. 

Have We Already Started Coming Down the Other Side Peak H&W Plan Risk? 
Anyone who has been in the employee benefits field since the pre-ACA days will remember how different the space used to be.  ERISA compliance was fairly straightforward, COBRA was mostly delegated to TPAs, and HIPAA was primarily focused on providers/carriers.  When a difficult Section 125 election change question was a primary concern, clearly the compliance landscape was far sleepier than the current status quo.  Sure there was always plenty to learn and keep everyone intellectually engaged, but there was a sense that the universe of legal requirements for health and welfare was manageable.    

That all changed on March 23, 2010.  Ever since the ACA’s enactment, we have seen complexity spike and the sense that employers are overwhelmed by the unending array of new rules—particularly with the addition of the CAA in 2020 being the proverbial straw that breaks the camel’s back—drive employers to the point of being overwhelmed.   

Part of the emerging argument making the rounds among lawyers, advisers, and commentators for a benefits committee is that laws have piled on top of laws so high that a committee is needed to keep up.  While the argument certainly carries some weight, it does not seem to recognize the other side of the coin: the health and welfare plan compliance burden appears to have already started trending back in the opposite direction.  

For example: 

• The current Republican-led Congress seems unlikely to impose new compliance burdens on industry. 

• The change in administration has brought a significant shift toward regulatory policy.   

• The DOGE efforts have apparently only begun the process of deregulating and streamlining compliance requirements to promote economic efficiency. 

• The initial version of the One Big Beautiful Bill Act included a version of the REINS Act, which would have allowed Congress to much more easily overturn costly regulations—and the Senate has pledged to revisit this. 

• President Trump’s Executive Order 14219 “Ensuring Lawful Governance and Implementing the Presidents’ ‘Department of Government Efficiency’ Deregulatory Initiative” direct federal agencies to review regulations and undo those that impose undue burdens on businesses. 

• We have already seen the Tri-Agencies (DOL/IRS/HHS) temporarily cease enforcement of the new MHPAEA rules (including the burdensome employer fiduciary certification requirement) pending litigation and a more complete review. 

• The inability of any of the plaintiffs in the J&J Cases to even demonstrate standing—much less make it past the crucial motion to dismiss—might actually mean the cases are a sign of diminishing risk, not expanding. 

These all raise the question of whether it would be an appropriate time to consider injecting significant resources into risk prevention in an area that appears to have a contracting sphere of exposures.  

Summary 
Many employers are weighing whether the current hype surrounding health and welfare plan benefit fiduciary committees is just what the doctor ordered, or an excessive, knee-jerk reaction to the J&J Cases.  The primary question in this analysis is whether the consideration of establishing a health and welfare plan benefit fiduciary committee in response to the J&J Cases is appropriate given that it would involve a considerable commitment of time, funds, and other resources.   

The J&J Cases have either been dismissed or are merely at the initial complaint stage. If a case making claims along the lines of those alleged in the J&J Cases succeeds, with a court finding the company to have breached its fiduciary duties in this area, it is possible that there could be a wave of claims targeting similar situations—much as we have seen on the 401(k) side.  That would be a significant factor, potentially changing the calculus weighing in favor of establishing such a committee.  But it has not happened yet.  

Even if such wave of litigation with realistic prospects of success were to develop, it is likely the initial targets of such claims would be very large employers with plans funded by a trust to establish both a significant area of liability and a clear connection to ERISA plan assets subject to fiduciary duties.  We have already seen that from the initial trio targeting extremely large employers (J&J, Wells Fargo, JPMorgan).  So, whether it would truly be appropriate for the vast majority of employers that do not have 100,000+ employees and a health plan funded by a trust would still be an interesting matter of debate. 

As an alternative at this stage before considering radical changes to plan governance that may be costly, time consuming, and of indeterminable benefit, we have consistently recommended that employers return to the basic ERISA principles that have long-proven effective at avoiding potential liability.  Regardless of whether a health and welfare plan benefit fiduciary committee is right for your organization, make best efforts to engage in strong compliance practices.  We are committed to partnering with you in this endeavor—while maintaining an eye on the horizon for how the J&J Cases (and potentially others) develop in litigation. The outcomes will drive best practices, including revisiting whether new approaches and processes might be warranted.  

For more details: 

• Newfront Office Hours Webinar: ERISA for Employers 

• J&J Case Practical Considerations: The Core Four ERISA Fiduciary Duties (Part 1) 

• J&J Case Practical Considerations: The Core Four ERISA Fiduciary Duties (Part 2) 

• J&J Case Practical Considerations: The ERISA Trust Rules for Health Plans (Part 1) 

• J&J Case Practical Considerations: The ERISA Trust Rules for Health Plans (Part 2) 

Relevant Cites:  

ERISA §3: 
(16) 
(A) The term “administrator” means— 
(i) the person specifically so designated by the terms of the instrument under which the plan is operated; 
(ii) if an administrator is not so designated, the plan sponsor; or 
(iii) in the case of a plan for which an administrator is not designated and a plan sponsor cannot be identified, such other person as the Secretary may by regulation prescribe. 
(B) The term “plan sponsor” means (i) the employer in the case of an employee benefit plan established or maintained by a single employer, (ii) the employee organization in the case of a plan established or maintained by an employee organization, (iii) in the case of a plan established or maintained by two or more employers or jointly by one or more employers and one or more employee organizations, the association, committee, joint board of trustees, or other similar group of representatives of the parties who establish or maintain the plan, or (iv) in the case of a pooled employer plan, the pooled plan provider. 
… 
(21) 
(A) Except as otherwise provided in subparagraph (B), a person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan. Such term includes any person designated under section 405(c)(1)(B). 

ERISA §402(a): 
(a) Named fiduciaries. 
(1) Every employee benefit plan shall be established and maintained pursuant to a written instrument. Such instrument shall provide for one or more named fiduciaries who jointly or severally shall have authority to control and manage the operation and administration of the plan. 
(2) For purposes of this title, the term “named fiduciary” means a fiduciary who is named in the plan instrument, or who, pursuant to a procedure specified in the plan, is identified as a fiduciary (A) by a person who is an employer or employee organization with respect to the plan or (B) by such an employer and such an employee organization acting jointly. 

ERISA §404(a)(1): 
(1) Subject to sections 403(c) and (d), 4042, and 4044, a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and— 
(A) for the exclusive purpose of: 
(i) providing benefits to participants and their beneficiaries; and 
(ii) defraying reasonable expenses of administering the plan; 
(B) with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; 
(C) by diversifying the investments of the plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so; and 
(D) in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of this title and title IV. 

29 CFR §2509.75-8: 
Q. D-3  Does a person automatically become a fiduciary with respect to a plan by reason of holding certain positions in the administration of such plan? 
A. Some offices or positions of an employee benefit plan by their very nature require persons who hold them to perform one or more of the functions described in section 3(21)(A) of the Act. For example, a plan administrator or a trustee of a plan must, be the very nature of his position, have “discretionary authority or discretionary responsibility in the administration” of the plan within the meaning of section 3(21)(A)(iii) of the Act. Persons who hold such positions will therefore be fiduciaries.  

DOL Advisory Opinion 2003-04A: 
The Department has long taken the position that there is a class of discretionary activities which relate to the formation, rather than the management, of plans, explaining that these so-called “settlor” functions include decisions relating to the establishment, design and termination of plans, and generally are not fiduciary activities governed by ERISA. However, while such decisions may be settlor functions, activities undertaken to implement the decisions generally are fiduciary in nature and must be carried out in accordance with the fiduciary responsibility provisions. 

Donovan v. Bierwirth, 680 F.2d 263 (2d Cir. 1982): 
The fiduciary obligations of the trustees to the participants and beneficiaries of the plan are those of trustees of an express trust – the highest known to the law.  Restatement of Trusts 2d § 2, comment b (1959). 

Chao v. Hall Holding Co., Inc., 285 F.3d 415 (6th Cir. 2002): 
Clearly, the duties charged to an ERISA fiduciary are “the highest known to the law.” 

Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship.  Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).