Fiduciary Duties Series: Vendor Selection & Management

July 2026 

Natashia Wright, Director, Benefits Compliance 

The Employee Retirement Income Security Act (“ERISA”) establishes minimum standards that apply to most employee benefit plans as well as retirement plans. Plan sponsors are typically familiar with ERISA’s disclosure and reporting requirements, such as providing Summary Plan Descriptions (“SPDs”) and filing Form 5500s, but compliance extends far beyond these administrative obligations. Those who manage and oversee employee benefit plans are required to act in the interest of plan participants and beneficiaries. Recent regulatory activity and litigation have placed a renewed focus on fiduciary compliance, making it an increasingly key area for plan sponsors. Group health plan sponsors can better defend against litigation and honor their duties by documenting and taking proactive steps to ensure appropriate service providers are selected and will continue to meet the terms of their agreements.

Who is a fiduciary and what are their responsibilities?

It is important to understand who qualifies as a fiduciary to review fiduciary obligations related to vendor selection and oversight. Under ERISA, a fiduciary is one who:

• has any discretionary authority or responsibility in the administration of the plan; or
• exercises discretionary authority or control over a plan’s administration or assets.

ERISA-covered plans must identify a named fiduciary, typically through the plan document. However, fiduciary status is not limited to individuals formally designated within plan documents. In practice, fiduciary status is often determined through a fact-specific analysis of an individual’s actions and decision-making authority. As a result, an individual or organization may be considered a fiduciary regardless of the title assigned to them.

Plan sponsors should also understand that most service providers perform administrative or professional services without assuming fiduciary responsibility. For example, insurance companies, third-party administrators, consultants, brokers, and pharmacy benefit managers may provide valuable services to a plan, but their fiduciary status depends on the specific authority and responsibilities they exercise.

Under ERISA, fiduciaries have four fundamental duties that include:

• Follow plan terms: Fiduciaries must follow the terms written in the plan document. This means ensuring the written terms of the plan are applied on a uniform and consistent basis.
• Duty of loyalty: Fiduciaries must act solely in the interest of plan participants and beneficiaries.
• Exclusive benefit rule: Fiduciaries must make decisions for the exclusive purpose of providing benefits and paying reasonable plan administrative expenses.
• Prudence requirement: Fiduciaries must act with the care, skill, prudence, and diligence that a prudent person would use under similar circumstances.

These duties apply to a wide range of plan activities, including the selection and ongoing management of plan service providers. Subsequent articles in this series will explore how these principles apply in practice, and the steps plan sponsors can take to help meet their fiduciary obligations.

ERISA and vendor selection and management responsibilities

One of the most important applications of ERISA’s duty of prudence is the selection and oversight of service providers. Under ERISA’s prudent expert standard, fiduciaries are expected to act with the care, skill, prudence, and diligence that a knowledgeable person would exercise under similar circumstances. Good intentions alone are not enough to demonstrate compliance.

It is important to note that the duty of prudence does not require fiduciaries to make perfect decisions. Instead, plan sponsors should focus on the process used to reach a decision, acting thoughtfully, gathering appropriate information, considering relevant factors, and maintaining adequate documentation.

When a service provider performs functions that involve discretionary decision-making, the selection of that provider is itself a fiduciary act. While certain activities, such as claim processing, may be considered administrative in nature, other functions, such as making benefit appeal determinations, often involve discretion and may carry fiduciary responsibility. As a result, plan sponsors should exercise appropriate due diligence when selecting vendors that perform these services.

A good vendor selection process should consider multiple factors, including the provider’s experience, service capabilities, performance history, customer satisfaction, administrative practices, and fees. Although cost is an important consideration, ERISA does not require fiduciaries to select the lowest-cost provider. Instead, fiduciaries should evaluate whether the services and fees are reasonable in relation to the value being provided. Selecting the least expensive option may not be prudent if it results in poor service, participant dissatisfaction, or increased compliance risk.

ERISA also requires ongoing monitoring of service providers and assessment of whether they continue to meet the needs of the plan and its participants. While fiduciaries are not expected to review every claim, determination, or operational decision made by a vendor, they should maintain reasonable oversight and address concerns when performance issues arise.

The Department of Labor (“DOL”) has published guidance on selecting and monitoring service providers for employee benefit plans. Key recommendations include:

• Evaluating prospective providers’ qualifications, experience, and reputation.
• Considering competitive bids when appropriate.
• Understanding all fees and associated expenses.
• Maintaining written records of the selection process and decision-making rationale.
• Periodically reviewing provider performance, service quality, and continued suitability for the plan.

Ultimately, a well-documented and thought-out process for selecting and monitoring service providers is one of the strongest ways plan sponsors can demonstrate compliance with ERISA’s fiduciary standards while acting in the best interests of plan participants and beneficiaries.

Employer action items

• Select and designate a fiduciary committee.  
• Document a formal RFP process in the event the ultimate decision choice in service provider is ever questioned. 
• Consider vendor fees, services, processes, and how the vendor handles plan participants. 
• Review the claims appeal process.  
• Decide if periodic audits are necessary.  
• Reach out to your broker for guidance. 

Additional information and resources 

• DOL Website: Employee Retirement Income Security Act (“ERISA”) 
• DOL Website: Fiduciary Responsibilities