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Fiduciary violation?


Guest tintree73

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Guest tintree73

If a broker offers free benefit enrollment software for its clients (the software has nothing to do with plan assets - just allows the plan administrator to create and conduct open enrollment docs/process through the web) - is this a fiduciary violation and/or a prohibited transaction?

All benefits and plan options may be equally represented on the software (not just what the broker peddles, etc.).

Also - is the software company at issue if some of the plans are covered entities under HIPAA?

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As far as HIPAA is concerned, it depends on whether the vendor has access to any personal health information for tech support, etc. If so, you would need business associate agreements between the covered plans and the vendor.

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I'm having a hard time seeing how the transaction (loaning/providing of software to the employer) involves a "sale or exchange" of plan assets. The situation you described doesn't seem like a PT unless you have left something out. For example, is the software usage worth tens of thousands of dollars? Is this for a qualified plan or a health plan? Does the broker offer levels of perks that relates to the commissions he receives? (Might be rebating under state law, but still not likely an ERISA violation.)

And the fiduciary breach analysis is weaker. Which duty might have been breached? The duty to diversify? To act prudently? To operate the plan in accordance with the documents? The transaction you suggest does not involve the plan or the plan's assets.

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Guest tintree73

Sorry for the lack of information.

Health plans - some funded and some insured and some self-insured (and combos thereof - basically whatever situation the Broker introduces the software provider to).

I was not looking at the plan asset violation sections, but I was looking at the definition party-in-interest at ERISA Section 3(14)(B) (providing services to the plan-software provider that holds HIPAA information in their own databases and has to access it for maintenance - yes, we have BAAs) and (2) the ERISA Title I prohibited transaction rules at 406(a)(1)© prohibiting the furnishing of goods, services, or facilities between teh plan and a party-in-interest.

I was wondering if this, coupled with a broker (who arguably may be a fiduciary of the plan) would be a problem. E.g., the broker is offering this as an additional service - and may or may not charge the plans/plan administrator for it (or maybe we should be charging the employer?).

I was just unsure how the fiduciary, PII and prohibited transactions interrelated in this type of situation and we don't want to get the plan involved in anything that it shouldn't be doing, etc.

Thanks!

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The broker would not be a fiduciary except under unusual circumstances, but would be a party in interest. However, your inital statement of facts clearly specified that the transaction did not involve "plan assets". A transaction between a broker and an employer is not a transaction between the plan and a party in interest. The only plan asset you have referred to (obtusely) is plan information that the Employer, Administrator and broker are all required to work with in the course of discharging their duties to the Plan.

If the asset involved is (properly) seen as the computer software which is used for an appropriate administrative purpose, the only potential problem would be if the broker sold or leased the software to the Plan (not to the Employer nor to the Administrator). That would violate the multiple-services prohibition of ERISA, and no on-point DoL ruling applies.

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Guest boston431

Vebaguru - just for curiosity's sake, what would be the implications if the broker and the software company (as their corporate entities) had an agreement to provide the software to these employer groups groups.

Then, the broker also had a contract with the employer groups as a corporate entity (not plan sponsor or plan administrator) to get paid.

And the software company had a contract with the employer (as itself, plan sponsor to the plan and as plan administrator to the plan - signing in those capacities - but intending to bind the plan so that the plan would issue a business associate agreement)? That makes a total of three contracts.

Seems like HIPAA may make this area difficult (because - and I could be wrong here - but I think the plan is the covered entity that has responsibility to sign the Business Associate contract with the software provider that is holding the plan's PHI)? What do you do in this situation?

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Guest darburson

I would like to play the devil's advocate on the PT and Fiduciary issues raised by the posed issue of offering free enrollment software to a health plan by a broker. While the actions of the broker may seem innocent enought on the surface, there are a significant number of questions that must be answered before an answer can be given to this question. A few of which are; One: Do all competitors for this book of business offer similar enrollment software; Two: Does this broker offer the enrollment software to all potential clients; Three: Is the software package offered to the plan or to the plan sponsor. Based on the answers to these three questions there could be a breach of fiduciary duty, a prohibited transaction, and, while it may be hard for those who only look at the possible civil violatons of a transaction, there could be a criminal violation of Title 18 U.S.C. One must think about what the plan is getting and what the plan sponsor (employer) is getting (quid pro quos). In the final analyst there is not any easy answer to the question, without a significant amount of additional information. My analysis of this issue is based on my 20 years as a PWBA Pension Investigator, I retired in 1994.

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Guest tintree73

I truly appreciate your comments. Here's the best I am able to do by way of answers:

(1) some of the competitors have similar software-probably a 50/50 split-it is generally out there in the market place (e.g., the plan sponsor could get similar products from insurance companies, HRIS vendors, TPAs or direct from some companies),

(2) from what the broker is telling me they are offering it to a test group for the first 30 days to work out the kinks and then to everyone and

(3) the software is offered through the broker (broker holds the license that is given by the software company-typical ASP agreement) to the plan sponsor and the employer; however, the Business Associate Agreement is signed by the plan, the broker and the software provider (because HIPAA requires it to be between the Covered Entity and the business associates who are performing functions for the plan--and fyi-the software company is holding PHI in a database after it is submitted by the participants).

What is the significance of these questions - I just want to know so I can know as much as possible and/or have enough to start researching any issues that we haven't hit on yet. Is this similar to bundled services? I would appreciate any help you are able to send my way.

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Guest boston431

Could the answer be that the employer is contracting for the services and therefore the employer and the broker/software company have a relationship - instead of the plan having a relationship with the broker/software company? Would that mean that the broker/software company is not providnig a service to the plan and therefore is not a business associate to the plan? That seems like stretching it too far as the definition of a business associate includes an entity thtat performs services covered by the privacy rules on BEHALF of the plan or DIRECTLY to the plan. Is this splitting hairs?

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