When making decisions about benefit plans, plan sponsors should take some time to consider what role they are playing. I am working with a company that is terminating its health plan and the distinction between “settlor” functions and “fiduciary” functions became very significant. So I thought I might share some thoughts on the topic.
Settlor functions are those typically related to plan design, such as establishment of a plan, determination of who the plan will cover and designing the benefit offerings. The creation or termination (or even amendment) of a plan is a settlor function. This is important because settlor functions are not subject to the same fiduciary status when making these decisions. For instance, the decision to amend or terminate a plan is a settlor function that does not give rise to a claim for breach of fiduciary duty. Similarly, the decision about what class of employees to make eligible for coverage would be a settlor function. You might have qualification issues and have to comply with IRS regulations, but the decision about design is not necessarily a fiduciary one.
