ERISA Plan Structure

In its simplest terms, a "Plan" is a mechanism for paying employee benefits. It is a series of formal arrangements for determining who is entitled to employee benefits and providing for their funding.

There are a number of entities that make up the ERISA Plan. First, you have Participants and Beneficiaries. Participants are employees or former employees who, because of their employee status may be entitled to benefits under the plan. [29 U.S.C. § 1002(7)]. A Beneficiary is a non-employee who is or may be entitled to a benefit. [29 U.S.C. § 1002(8)]. Then there is the employer (or employee organization) who established the Plan, known in ERISA parlance as the "Plan Sponsor." [29 U.S.C. § 1002(16)(B)]. Under the statutory scheme, the Plan Sponsor is responsible for ensuring a source of funding for Plan benefits, which could be accomplished straight out of the Sponsor’s pocket, through contributions from employees, through the purchase of insurance, or some combination of the above.

ERISA also recognizes a creature called a "Plan Administrator." As the name implies, the administrator is responsible for administrative details with respect to the plan, such as complying with statutory disclosure requirements [e.g. 29 U.S.C. §§ 1023; 1024(a)] and providing information to Plan participants and beneficiaries. [e.g. 29 U.S.C. § 1024(b)]. Under the statutory language, this administrative role is automatically assumed by the Plan Sponsor, unless it is explicitly delegated. [29 U.S.C. §§ 1002(16)(A)(i), (ii)].

Then, there is the Plan Fiduciary. Unlike the preceding categories, the Plan Fiduciary is not a role which is specifically designated, rather the Plan Fiduciary is any party who undertakes fiduciary–i.e. decision making–duties pursuant to the functioning of a plan. [29 U.S.C. §§ 1002(21)(A)(i)-(iii)]. In the context of benefits payments the fiduciary is person or entity who determines whether benefits will be paid, and in the traditional insured plan this will be the insurance company.

However, the Plan Structure 1 fiduciary is only a fiduciary when it makes decisions respecting the conduct of a plan, so that, for example, an HMO that acts as a Plan Fiduciary in determining whether a particular treatment is a covered benefit is not necessarily a fiduciary when it determines what incentive structures it will use for the physicians who provide those benefits. [Pegram v. Herdrich, 530 U.S. 211, 225-25 (2000)]. Given the flexible definition of "fiduciary," while a Plan would have to have at least one entity acting in that capacity, there can certainly be more than one.

Finally, there is the most misunderstood entity of all, which is the "Plan" itself. In an insured context the Plan is not the employer, in spite of the fact that claims for ERISA benefits will generally be styled "Plaintiff v. The Widget Co., Inc., Long Term Disability Plan." And the Plan is also not the insurance company or HMO responsible for providing benefits. As the Pegram Court noted: "One is thus left to the common understanding of the word 'plan' as referring to a scheme decided upon in advance . . . [which] comprises a set of rules that define the rights of a beneficiary and provide for their enforcement." [Pegram, 530 U.S. at 223].

Understanding that a Plan is the arrangement for paying benefits, one can see that, depending on the arrangement, there can be wide divergence in the nature of a particular plan. For example there are self-funded plans where the participant/employees pay into a fund managed by the employer or its agent (or in some cases a labor union or its agent). The contributed funds are invested by the employer, who owes fiduciary duties over the funds and is responsible to the employees for the management of the trust.  Benefits are paid out of the proceeds of the invested funds contributed by the participants.  A plan of this type might be very substantial, with millions of dollars in assets and numerous employees.

At the opposite end of the spectrum is the basic insured plan. Here, the benefits are secured by the employer’s purchase of an insurance policy (often with employee contributions). The employer provides premiums to the insurer, and in return the insurer issues a policy which provides the employee with benefits pursuant to the terms of the policy. In this context the "plan" is nothing more than a legal arrangement for payment of benefits between the employer (i.e. the plan sponsor), the insurer (the plan fiduciary) and the employees (the plan participants), as set forth in the group insurance policy.


© 2015 The Law Offices of Russell G. Petti