Construction businesses are under constant pressure to reduce health plan costs. But many cost-cutting decisions create fiduciary exposure that doesn't surface until there’s a claim, an audit, or a lawsuit.
Cost-cutting isn’t just a finance issue. It’s a fiduciary one.
In an industry where labor shortages, competitive bidding, high materials costs, and increasing wages dominate financial planning, benefits decisions are often reduced to what most directly and transparently affects the bottom line. But focusing only on premium reduction or the latest vendor pitch about cost containment can lead to decisions that aren’t defensible under ERISA.
The challenge is that decisions based solely on the lowest upfront cost ignore the fiduciary obligations imposed by the law for employee benefit plans.
“Pick the lowest number, rely on the broker’s recommendation, and move on” is no longer sufficient. That approach misses the actual standard: a reasonable, well-documented process.
Under current laws and regulations, employers are expected to understand how their vendors are compensated and to evaluate whether fees and services are reasonable. Simply relying on a recommendation is not enough.
What should you be doing instead?
- Evaluate more than price. The lowest-cost option isn’t always the most defensible if you don’t understand what you’re getting and what gaps may exist that ultimately impact your bottom line in a significant way.
- Ask how everyone is paid. Broker compensation, vendor fees, and indirect payments all matter. If you don’t ask, you are still responsible for the answer.
- Document your decisions and your due diligence. Why you chose an option matters just as much as what you chose.
Cost containment is absolutely the right goal. But it must be done in a way that holds up under scrutiny and adheres to ERISA fiduciary standards. Otherwise, routine benefits decisions can become long-term liabilities.
If you can explain the decision and show your process, you’re in a much stronger position to defend it.
This article is not intended to serve as legal advice. If you are a construction employer evaluating your benefit plans or would like to discuss these issues, please contact Anne Greene at Saul Ewing LLP.
