A fiduciary advisor is legally bound under ERISA Section 404 to act solely in a health plan's best interest and disclose every source of compensation. A non-fiduciary advisor only has to recommend suitable options, often while earning commissions that reward higher-cost vendors. That gap can cost self-funded plans millions in unmanaged claims spend.
In 2024, an employee of Johnson & Johnson sued the company's own benefits committee, alleging that mismanaged pharmacy benefit contracts cost the health plan and its participants millions of dollars in inflated drug prices.
The Lewandowski v. Johnson & Johnson case has since been dismissed twice on standing grounds, but it opened a door that had stayed shut for years: ERISA fiduciary breach claims aimed squarely at health plan sponsors, not just retirement plan committees.
Average family premiums for employer-sponsored coverage hit $26,993 in 2025, according to the KFF Employer Health Benefits Survey, a 6 percent jump in a single year. Most plan sponsors have no idea whether the person advising them on that spending is legally required to act in their interest, or simply required to avoid recommending something unsuitable.
What Actually Separates a Fiduciary From a Non-Fiduciary Advisor
A fiduciary advisor owes your plan an undivided duty of loyalty. A non-fiduciary advisor only owes you a suitable recommendation. That single distinction determines who is legally exposed when a decision goes wrong, and it is where most plan sponsors get confused.
Under ERISA Section 404, a fiduciary must act with the care, skill, and diligence of a prudent expert, and must place the plan's interests ahead of their own. A non-fiduciary broker, operating under a suitability standard, can recommend a product that pays a higher commission as long as it technically fits the client's needs. Most employers assume their broker already carries fiduciary obligations. In practice, unless a broker or consultant has signed a written fiduciary acknowledgment for the health plan specifically, they almost certainly have not.
The confusion runs deeper because retirement plan fiduciary roles are well defined under ERISA 3(21) and 3(38), while health and welfare plan fiduciary roles were left comparatively vague for decades.
Why the Confusion Exists
The fiduciary rules that apply to 401(k) plans took shape starting in 2012, when the Department of Labor required retirement plan service providers to disclose their compensation. Group health plans went without an equivalent rule for nearly a decade. Brokers built entire compensation models around that gap, often earning commissions, override bonuses, and contingent payments from carriers without ever disclosing them to the employer.
The CAA closed part of that gap. Under ERISA Section 408(b)(2) as amended by the CAA, any broker or consultant who reasonably expects $1,000 or more in direct or indirect compensation must disclose it in writing to the plan's responsible fiduciary before the arrangement begins. The rule took effect December 27, 2021. Disclosure alone does not create a fiduciary relationship, and most plan sponsors still are not reviewing what lands in their inbox.
The Real Cost of Non-Fiduciary Advice
Family premiums have grown 26 percent over the past five years, according to KFF, while employer contributions absorbed most of that increase. A plan paying $27,000 per family per year has almost no room for advisor conflicts of interest or unreviewed claims spend. Every dollar steered toward a higher-commission vendor instead of the best available option compounds across thousands of employees.
Independent claims audits show why this matters beyond premiums. TPA self-reported error rates typically run 1 to 3 percent, according to Willis Towers Watson, but independent third-party reviews that examine claims the TPA never flagged routinely find error rates between 5 and 15 percent. On a plan processing tens of millions in annual claims, that gap alone can represent six figures in unrecovered overpayments every year.
EBSA's enforcement record adds another layer of cost. The agency recovered $1.4 billion for benefit plans, participants, and beneficiaries in fiscal year 2025, with 63 percent of closed civil investigations producing monetary or corrective results. Plan sponsors who cannot demonstrate a prudent process for selecting and monitoring advisors are the ones investigators focus on first.
What's Actually Happening Behind the Scenes
Commission Structures and Spread Pricing
Many non-fiduciary brokers are paid through carrier commissions tied to premium volume, which means their income rises when the plan's costs rise. Some arrangements also involve spread pricing, where a vendor bills the plan more than it actually pays a provider and keeps the difference. Neither practice is illegal on its own, but neither one is disclosed by default.
Undisclosed or Buried Compensation
CAA disclosures technically satisfy the law even when compensation is described in vague, bundled categories rather than itemized dollar figures. A plan sponsor who receives a disclosure but never asks a follow-up question has, in effect, accepted whatever arrangement the broker chose to describe.
Undisclosed or Buried Compensation
CAA disclosures technically satisfy the law even when compensation is described in vague, bundled categories rather than itemized dollar figures. A plan sponsor who receives a disclosure but never asks a follow-up question has, in effect, accepted whatever arrangement the broker chose to describe.
Claims Oversight That Never Happens
Most self-funded plans review a small sample of claims once a year through the TPA's own reporting, rather than an independent party examining the full claims file. That self-reported review structure is precisely why error rates identified by outside auditors run several times higher than what TPAs report internally.
Claims Oversight That Never Happens
Most self-funded plans review a small sample of claims once a year through the TPA's own reporting, rather than an independent party examining the full claims file. That self-reported review structure is precisely why error rates identified by outside auditors run several times higher than what TPAs report internally.
Why Current Broker Relationships Aren't Enough
How to Fix It
Red Flags That Signal the Problem Applies to Your Plan
The ROI of Doing It Right
Plans that move from TPA self-reporting to independent, full-file claims review typically recover findings in the range of $500 to $1,200 per employee per year, based on independent audit firm data. A 1,500-employee plan sitting in the middle of that range recovers well over $1 million annually in previously invisible overpayments. Fiduciary-grade compensation review adds a second layer of savings by exposing commission structures that inflate premium costs without improving service.
Beyond the dollar recovery, a documented fiduciary process is itself protection. When EBSA investigates or a participant files a claim, the plans that fare best are the ones that can show a prudent, ongoing process rather than a single annual conversation with a broker.
Conclusion and Next Steps
The gap between fiduciary and non-fiduciary advice is not a technicality. It determines who is legally required to put your plan first, and it shapes every dollar your organization spends on premiums, claims, and vendor fees. Plan sponsors who treat this as a compliance checkbox rather than an ongoing process are the ones facing DOL inquiries and participant lawsuits.
Start with a written fiduciary acknowledgment, an itemized compensation review, and an independent claims audit. These three steps alone move a plan from reactive to prudent.
Frequently Asked Questions
Is my benefits broker automatically a fiduciary?
No. Most brokers operate under a suitability standard unless they sign a written fiduciary acknowledgment for the health plan.
What does ERISA Section 404 require of a fiduciary?
Acting solely in the plan's interest with the care and skill of a prudent expert, avoiding conflicts of interest.
Does the CAA make brokers fiduciaries?
No. It only requires compensation disclosure for brokers earning $1,000 or more; it does not change their legal standard.
How often should a self-funded plan audit its claims?
At minimum annually, using an independent auditor reviewing the full claims file rather than a small sample.
What is spread pricing?
When a vendor bills the plan more than it pays a provider and retains the difference, often undisclosed.
Can a plan sponsor be personally liable for fiduciary breaches?
Yes. ERISA allows personal liability for fiduciaries who fail to act prudently or loyally.
What triggered the recent wave of health plan fiduciary lawsuits?
The 2024 Lewandowski v. Johnson & Johnson case, alleging mismanaged PBM contracts inflated drug costs plan-wide.
What's the fastest first step toward fiduciary protection?
Request itemized CAA compensation disclosures and an independent claims audit within the next renewal cycle.
