Claim Fiduciary—a Named Fiduciary having the authority and responsibility to adjudicate claims in accordance with the provisions of the Plan. In the event of a member appeal for review of a denied claim, the Claim Fiduciary makes the final determination as to whether the claim is covered. The Plan Sponsor cannot overrule this determination. The Claim Fiduciary defends its decision and bears the legal costs of the defense. For insured plans, the carrier is typically the Claim Fiduciary. However, for self-insured plans, the Plan Sponsor/Administrator can name itself or an independent third party as the Claim Fiduciary.

Exclusive Benefit Rule—Plan Assets must be used for the exclusive purpose of paying Plan benefits and reasonable administrative expenses of the Plan.

Fidelity Bond—must be purchased and in place at the beginning of the Plan Year for any Funded Plan. It covers anyone who handles Plan assets, and it insures against a fiduciary's fraud or dishonesty. The bond must be for at least 10% of the Plan's assets, with a $1,000 minimum and a $500,000 maximum. As a practical matter, this requirement can be met by adding a sponsor's Welfare Benefit Plan to the same Fidelity Bond covering its pension plan. A bond may not be needed for Unfunded Plans, which accept employee contributions that are not actually segregated from the employer's general assets.

Funded/Unfunded Plan—a Plan may have assets (e.g., Participant contributions which can be segregated from an employer's general assets), but it is considered Unfunded until the assets are actually segregated. At that point the Plan becomes a Funded Plan. Plan Assets may only be used to pay for Plan benefits and reasonable administrative expenses.

Health & Welfare Benefit Plan—a plan, fund, or program established or maintained by an employer to provide welfare benefits to its Participants and their Beneficiaries. It may be self-insured, partially self-insured, or fully insured.

Named Fiduciary—has the authority to control and manage the operation of the Plan, and generally decides benefit appeals. A fiduciary can be a person or an entity. The Fiduciary has the duty to operate the Plan prudently and in the best interests of its Participants. An individual acting as a Named Fiduciary who breaches his duty can be personally liable under ERISA. Although ERISA does not require a Plan Sponsor to carry Fiduciary Liability Insurance, it is prudent for the Sponsor to carry this coverage. Note—this is not the same coverage as Employee Benefit Liability insurance or a Fidelity Bond (which is required by ERISA). This is because a relatively benign mistake could turn into an expensive fiduciary liability problem. For example, this could be the case where a Benefits Manager forgets to enroll an employee for coverage, and that employee later dies, becomes disabled, or incurs expensive medical treatment, which is not covered because the insurance company never received his enrollment form.

Other Fiduciaries—anyone (even employees, whether or not they are a Named Fiduciary) who performs fiduciary functions, such as exercising discretionary responsibility, authority, or control over Plan management decisions, disposition of Plan assets, or rendering investment advice. An ERISA fiduciary is held to a very high standard, which requires more careful decision making and disclosure than would otherwise be required in a business relationship. He must act solely in the best interests of the Plan and its Participants and Beneficiaries, and use Plan assets for the exclusive purpose of paying Plan benefits or reasonable expenses of the Plan. He must act with care, skill, prudence, and diligence to diversify the Plan's assets to minimize the risk of large losses, and to act in accordance with the Plan Documents governing the Plan. ERISA fiduciaries, whether or not named who breach their fiduciary duties are personally liable for damages to the Plan. They may also be liable for additional special DOL penalties and be subject to criminal penalties.

Participants and Beneficiaries—employees, former employees, their dependants and beneficiaries who are eligible to benefit from an ERISA plan.

Plan Administrator—is typically the Plan Sponsor, or employer, unless another party is designated. The Plan Administrator is directly responsible for Plan compliance and is liable for compliance penalties—even if it has delegated the performance of its duties to another party. The Plan Administrator may amend, modify, or terminate the Plan, if this right is reserved in writing properly. The term "Plan Administrator" is a source of much confusion because it is often thought that when an employer uses a Third Party Administrator (TPA) to administer its Plan and adjudicate claims, the TPA should be named as Plan Administrator. However, the Plan Administrator is almost always the employer, not a TPA or an insurance company.

Plan Assets—there are at least three ways a Plan could be considered to have assets:

• Participant & Beneficiary Contributions—are Plan Assets by definition (even though participant contributions may be treated as employer contributions by the IRS for tax purposes). Salary reductions or withheld amounts become Plan Assets as soon as they can be reasonably segregated from the employer's general assets, but not later than 90 days. For practical purposes, such contributions become Plan Assets shortly after they are withheld from pay.
• Use of a Separate Account to Pay Benefits—when the employer pays benefits out of a formal trust fund or an ordinary bank account held in the name of the Plan.
• Amounts Attributable to Plan Assets—insurance company refunds, reimbursements, subrogation recoveries, and payments from stop-loss policies.

Plan Number—a three digit number assigned by the Plan Administrator. If there is one Plan, it should be numbered 501. If there is more than one plan, they should be numbered 501, 502, 503, 504, and so on.

Plan Sponsor—the name of the sponsoring employer.

Plan Year—any twelve month period chosen by the Administrator. Note—this is not necessarily the same as the policy year of underlying insurance contracts.

Trust Rule—Plan Assets must be held in a formal trust account for the benefit of the Plan, and deposits to the trust must be made within certain timeframes, except:

• Participant contributions made under a Cafeteria Plan.
• COBRA premium payments, regardless if they are made under a Cafeteria Plan.
• Participant contributions made for an insured benefit plan.

Therefore, most Participant pre-tax contributions will not need to be held in trust.

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