Sixth Circuit Expands Fiduciary Accountability Under ERISA for Third-Party Administrators
On May 21, 2025, the U.S. Sixth Circuit Court of Appeals issued a decision about ERISA’s fiduciary duties and transparency in Tiara Yachts, Inc. v. Blue Cross Blue Shield of Michigan. Blue Cross Blue Shield of Michigan (BCBSM) served as a third-party administrator (TPA) for Tiara Yachts, Inc., self-funded medical plan. The Sixth Circuit, in reversing the District Court’s opinion, determined that Tiara Yachts had made a plausible case in arguing that BCBSM acted as an ERISA fiduciary when it made decisions about the pricing and payment of claims and, therefore, could be subject to ERISA’s fiduciary standards. Further, the Court made clear that those standards, which require the highest standards of loyalty and prudence under the law, impose on fiduciaries responsibilities to act solely in the best interests of plan participants and beneficiaries. Finally, the Court confirmed that fiduciary status is not determined solely by title or contract, but by function and actions taken. The case was returned to the District Court for further exploration of the facts and whether BCBSM had improperly profited from its actions, and whether restitution and disgorgement were appropriate to rectify the situation.
This case highlights the obligations of third-party service providers (e.g., TPA’s) to plans subject to ERISA and the employer’s role in making certain that such providers are monitored for the benefit of both the employer and plan participants. Employers should review their TPA agreements and other service-provider agreements and ensure they clarify roles and responsibilities, especially as to plan assets, both contractually and functionally. Additionally, employers should review agreements for compensation structures that may incentivize self-dealing and request additional information from TPAs about pricing structures and the payments of claims. Finally, the Tiara Yachts decision should remind employers, who often act as ERISA plan fiduciaries, that in such roles they too are held to a high standard under the law. They should review their ERISA plan documents for transparency and accountability regarding monies paid by employees for plan benefits in matters relating to plan costs. These include areas such as expenses, insurance refunds, as well as rebates involving Pharmacy Benefit Manager (PBM) arrangements. In fact, recently several significant lawsuits have been brought by employees over issues involving PBM arrangements. Again, quality plan documents may mitigate risks in this area.
If you would like to read the Tiara Yachts, Inc. v. Blue Cross Blue Shield of Michigan in its entirety please see the link below: https://www.opn.ca6.uscourts.gov/opinions.pdf/25a0135p-06.pdf
