Fiduciary responsibility entered federal law after workers discovered that decades of promises could disappear. Fifty-two years later, the same question has reached the employer health plan: Who is watching the people who handle the money?https://youtu.be/KT3O7e30Ucc …
RosettaFest 2026: Why Fiduciary Risk Is Taking Center Stage
Fiduciary responsibility entered federal law after workers discovered that decades of promises could disappear. Fifty-two years later, the same question has reached the employer health plan: Who is watching the people who handle the money?
In 1974, I attended meetings where benefits professionals were trying to understand a new federal law called ERISA. Someone in the room decided the acronym stood for “Everything Rotten Invented Since Adam.” That got a laugh, although it also told you how the industry felt about it.
Jim Farley
People saw regulations, disclosures and a great deal of paperwork. Congress had seen something else. It had seen workers reach retirement after 20 or 30 years and discover that the money they had counted on was gone, underfunded or being used for purposes that had very little to do with them.
The paperwork came later. The wreckage came first.
A Factory Closes in South Bend
In December 1963, Studebaker closed its automobile plant in South Bend, Indiana. Some of the people walking out of that factory had spent most of their adult lives building Studebakers. They left expecting the pension benefits they had been promised.
About 4,000 active employees received roughly 15 percent of their expected benefits. Thousands of younger workers lost their pension benefits entirely. According to the Pension Benefit Guaranty Corporation, the affected active employees had worked for Studebaker for an average of 23 years and were, on average, 52 years old. The Studebaker collapse became one of the events that pushed pension reform into the national conversation.
Imagine being 52 years old in 1963. You have spent more than two decades inside an automobile plant, and now someone explains that the pension you were counting on is worth about fifteen cents on the dollar. There is no federal pension insurer to call because the Pension Benefit Guaranty Corporation does not exist yet.
The promise existed. Unfortunately, the protection did not.
The Miners’ Money Sitting in a Bank
Around the same period, trouble was building inside the United Mine Workers of America. These were men who went underground every morning, breathed coal dust and lived with the possibility that the roof above them might come down before the end of their shift. Their pension and welfare money was supposed to protect them and their families from the consequences of that work.
The union owned 74 percent of the National Bank of Washington, and union officials held influential positions connected to the bank. In Blankenship v. Boyle, a federal court examined how the United Mine Workers’ Welfare and Retirement Fund had been managed.
The numbers remain astonishing. At the end of 1967, the fund had $75 million sitting in non-interest-bearing demand deposits at that bank – 44% of the fund’s total resources. The court found that the balances far exceeded the fund’s operating needs and that the money could have earned income for the miners in safe government securities. Instead, it sat in the union-connected bank and benefited the bank. The court described a long course of dealing in which the beneficiaries’ interests had been pushed aside.
That period also included the murder of union reformer Jock Yablonski, his wife and their daughter. Union president Tony Boyle was later convicted of ordering the killings and died in prison. The murder did not single-handedly produce ERISA; legislation of that size never has just one origin. It belonged to the same national reckoning over concentrated power, conflicted decision-making and money that was supposed to serve working people. By 1974, Congress had seen enough.
What ERISA Was Trying to Prevent
ERISA established standards for the people who exercise discretion over private-sector retirement and health plans. A fiduciary must act solely in the interests of participants and beneficiaries, carry out the work prudently, follow the plan documents and pay only reasonable plan expenses.
Prudence under ERISA is largely about process. Did the fiduciaries ask appropriate questions? Did they compare reasonable alternatives? Did they understand the contract? Did they monitor the service provider after hiring it? Can they show how the decision was made?
The Department of Labor is very direct about the consequences. A fiduciary who fails to meet the required standards may be personally liable for restoring losses to the plan or returning profits made through improper use of plan assets. The Department also advises employers to document their decisions, compare providers, examine fees and regularly monitor performance. Those obligations apply even when much of the daily work has been delegated to outside professionals.
ERISA also begins from a rather severe position regarding service providers. A broker, consultant, TPA, PBM or other provider is generally considered a “party in interest.” Transactions between a plan and a party in interest are prohibited unless an exemption applies. The principal service-provider exemption requires necessary services, a reasonable arrangement and no more than reasonable compensation.
That is how a health plan can legally pay people to do the work. The fiduciary must be able to determine that the arrangement qualifies for the exemption.
The Discount That Lasted Until the Claims Arrived
The next chapter arrived in the late 1970s and 1980s with multiple employer welfare arrangements, commonly called MEWAs. The idea itself was reasonable: bring smaller employers together so they can gain some of the purchasing advantages of a larger group.
Some MEWAs were legitimate and well managed. Others were built on a funding trick.
Medical claims do not arrive the afternoon an employee leaves the doctor. The provider creates the bill, submits it and waits while the claim travels through the system. That delay can last weeks or months.
A bad MEWA operator could use that lag to offer an attractive first-year price. The plan collected 12 months of contributions while initially paying perhaps 10 months of claims. The missing two months made the rate look unusually competitive.
By the second year, the arrangement needed enough money to pay a full year of claims. The operator could raise rates sharply or keep enrolling new employers and use their incoming contributions to cover the older claims. Eventually, growth slowed, the arithmetic caught up and the money ran out.
I once reviewed a MEWA for a hospital that wanted to support its local chamber of commerce. I told them the arrangement did not have enough money. They joined anyway, and approximately two years later the MEWA failed.
The hospital was caught twice. As an employer, it had claims the MEWA could not pay. As a medical provider, it was also owed money for employees and families covered through other participating businesses.
This was happening far beyond one hospital. A 1992 Government Accountability Office investigation found that MEWAs had left at least 398,000 participants and beneficiaries with more than $123 million in unpaid claims between January 1988 and June 1991. More than 600 arrangements had failed to comply with state insurance laws. Some employees were left with medical bills even though premiums had been paid for their coverage.
The names changed. The underlying problem remained familiar: people controlling benefit money without adequate funding, oversight or accountability.
Retirement Plans Learned the Lesson First
By the early 2000s, attention had shifted heavily toward retirement-plan fees and investments. Lawsuits questioned whether employers were properly examining investment expenses, recordkeeping charges and the performance of options inside their plans.
Retirement committees responded. They created investment policies, compared fees, recorded meeting minutes and periodically evaluated advisors and investment options. They learned that hiring a reputable provider did not end the fiduciary process.
The Supreme Court reinforced that principle in Tibble v. Edison International and later in Hughes v. Northwestern University. Fiduciaries have a continuing duty to monitor plan investments and remove imprudent ones. A reasonable decision at the beginning does not eliminate the need for continued oversight.
Many employers now govern their retirement plans with considerable discipline. There is a committee, a schedule, an investment policy, a record of alternatives considered and minutes explaining what happened.
The health plan may sit a few doors down and consume far more money each year. Yet in many organizations, its principal governance event remains the renewal meeting.
Now the Lawyers Have Reached Healthcare
One of the most closely watched cases has been Lewandowski v. Johnson & Johnson. A participant alleged that Johnson & Johnson and its benefits committee had imprudently managed the company’s prescription-drug program, causing the plans and their members to pay excessive amounts.
The irony attracted immediate attention: a pharmaceutical company was being challenged over its management of pharmacy benefits for its own employees. Still, the allegations should be described accurately. The district court dismissed the amended case in November 2025 because the plaintiffs had not established legal standing; it did not decide that the alleged PBM arrangements were prudent. An appeal was filed in January 2026. The underlying allegations therefore remain allegations rather than judicial findings.
The case matters because it revealed the questions plaintiffs’ attorneys are prepared to ask:
How did the employer select its PBM? What alternatives were considered? Did the committee understand the pricing arrangement? Were rebates, spread-pricing revenue and affiliated-pharmacy incentives examined? Were drug prices benchmarked? What did the committee do when the numbers appeared unreasonable?
A benefits committee should be able to answer those questions before a lawyer asks them.
Everything Means Everything
ERISA’s general requirements concerning reasonable services and reasonable compensation go back to 1974. The disclosure machinery has become much more specific in recent years.
Effective December 27, 2021, Congress required covered health-plan brokers and consultants expecting at least $1,000 in direct or indirect compensation to disclose that compensation to a responsible plan fiduciary. The disclosure generally must be provided before the employer enters into or renews the arrangement. Its purpose is to help the fiduciary evaluate compensation and identify conflicts created when a service provider receives money from another party. The requirement expressly reaches direct and indirect compensation connected to the plan.
That includes more than the commission printed neatly on the front page. It can include overrides, bonuses, revenue sharing, referral payments and incentives tied to the volume or placement of business.
For years, parts of the industry treated those additional payments as belonging outside the disclosure conversation. The reasoning was that an override was different from a commission, and a payment made somewhere above the individual case did not need to be connected back to the plan.
ERISA uses broader language. If compensation is received in connection with the services and falls within the disclosure requirement, the fiduciary needs enough information to understand it.
In January 2026, the Department of Labor went further and proposed detailed compensation disclosures for PBMs serving self-insured employer plans. The Department estimates those PBMs serve plans covering approximately 90 million Americans. The proposal would require information about manufacturer rebates, spread-pricing compensation, pharmacy recoupments and other payment streams, along with a right for plan fiduciaries to audit the disclosures. Its stated purpose is to let fiduciaries understand PBM compensation, identify conflicts and determine whether the arrangement is reasonable.
That proposed rule tells employers something important. The government itself believes many health-plan fiduciaries still lack the information required to understand how their pharmacy arrangements make money.
A good fiduciary process produces a file. It identifies who holds fiduciary authority, which decisions were made, what information the committee received and why one course was selected over the alternatives.
That file should include contracts, compensation disclosures, RFP comparisons, fee benchmarks, performance reports and meeting minutes. It should show that the employer examined the total compensation received by the broker, consultant, TPA, stop-loss partner, PBM and any affiliated vendors, not merely the most visible fee.
The committee should understand whether its contracts permit access to claims and pricing data. It should know who owns rebates, whether vendors may steer business toward affiliates, which payments change as volume grows and how the plan can audit the information it receives.
None of this requires the employer to choose the cheapest provider. ERISA allows consideration of service, expertise, clinical performance, network access, employee experience and many other forms of value. It requires a prudent process capable of explaining why the arrangement and compensation are reasonable.
Documentation matters because human memory becomes remarkably creative after a lawsuit is filed.
Why This Is Good for the Health Plan
RosettaFest has made fiduciary risk and transparency a central part of its 2026 program, including practical playbooks for employers and advisors. That attention reflects where the healthcare conversation is heading. Employers are being asked to understand how their plans procure services, use data and compensate the organizations operating between the plan and the patient.
I believe that scrutiny can improve healthcare plans. It can push hidden compensation into the open, force committees to examine contracts more carefully and make service providers explain how their incentives affect the people covered by the plan.
A health plan ultimately has a human purpose. It should help an employee obtain appropriate care, recover and return to work. It should allow a parent to concentrate on a sick child without also wondering whether the family will be financially ruined.
Every dollar lost through an undisclosed payment, an unexamined contract or an unreasonable price is a dollar that cannot serve that purpose. Fiduciary responsibility brings the plan back to the people whose money and health were entrusted to it.
That was the idea in 1974. In 2026, employers are finally being asked to apply it to healthcare with the same seriousness they already bring to retirement plans.
JAMES FARLEY | CEO | J.P.FARLEY CORP | TPA | SINCE 1979
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