Healthcare Plan Abuses Mirror 401(k) Issues of Past
After three TPSU for Healthcare Fiduciaries programs this summer with Adjunct Lecturer Jamie Greenleaf, a renowned retirement plan advisor who sold her practice to OneDigital, it’s clear to me that the abuses rampant in 401(k) and 403(b) plans 20 years ago are now coming to light in healthcare and benefits plans with one major difference—the stakes are higher because of the costs and immediate ramifications.
Along with ERISA benefits attorney Julie Selesnick, executive director at Judi Group, and Jennifer Stanley, founder at StanleyKup Compliance, Greenleaf outlines the issues for many of the same professionals who have attended TPSU retirement programs with actionable steps.
So why is this happening now, and what are the likely outcomes?
Just like with defined contribution plans, reform must start with disclosure, without which everyone is in the dark. The 2021 Consolidated Appropriations Act, which is basically the federal government’s budget, included disclosure requirements while eliminating gag clauses that prohibit providers from sharing costs. The 2026 CAA included further reforms resulting in new U.S. Department of Labor pharmacy benefit manager fee disclosure rules.
Healthcare costs, which average $26,000 per employee, according to Greenleaf, are rising rapidly, with a recent report indicating that 79% of small- to mid-sized employers’ plans saw double-digit increases, with one in five increasing by 50%. Yikes!
ERISA lawsuits are ramping up, with 22% focused on healthcare plans. Filed in May 2026 against Banner Health, the Schlichter Bogard lawsuit alleges that the healthcare system mismanaged its employee voluntary benefits program. The suit claims fiduciaries failed to monitor and negotiate supplemental insurance, forcing workers to pay inflated premiums while brokers collected excessive commissions. Their insurance broker Lockton Companies allegedly collected over $20 million between 2020 and 2024, averaging 38.6% of premiums for accident, critical illness and hospital indemnity insurance—far above the typical industry norm of around 10%. Banner Health and co-defendants (including Lockton and BCInsourcing) allegedly failed to prudently oversee and negotiate the plan terms, violating ERISA. Because employees paid the full cost of these non-subsidized voluntary plans, the high commissions and poor loss ratios resulted in workers paying excessive fees for limited coverage value.
The norm is 10%?
Like DC plans, healthcare and benefits plans are overseen by DOL’s EBSA division and must follow 408(b)(2) and 404(a)(5) disclosure rules. And like DC plans, limited or poor oversight by the DOL has and will continue to open the door for lawsuits to address the abuses. Because most benefits brokers are complicit in receiving over half of their compensation indirectly, there is limited incentive to make improvements, especially with prescriptions, where abuses are rampant.
The DC industry reformed because fiduciary advisors attacked high and, in some cases, exorbitant provider fees, conflicts of interest by commissioned brokers, and poor-performing high-cost investments. Lawsuits highlighted abuses by plan sponsors who were either asleep at the wheel or using their DC plans to offset costs for DB and healthcare plans—in other words, putting their own interests ahead of participants and their beneficiaries.
Some will argue that DC plans have gone too far with provider and advisor fees racing to zero and a rush to low-cost index funds. But plans and participants are clearly better off. Weaker providers have been weeded out with advisor firms selling off conflicting business divisions like BlackRock acquiring Merrill’s asset management group, Smith Barney trading its investment division to Legg Mason for its advisors, and Wells Fargo divesting its record keeper to Principal.
Why should RPAs care about the coming tsunami about hitting healthcare and benefit plans and brokers?
Few RPAs will become Fiduciary Benefit Consultants, just as few have become proficient wealth advisors, as Nevin Adams eloquently articulated in his recent column about convergence. RPA aggregators owned by benefits shops may be reluctant to disrupt a system that enriches them and may not want to ignite a race to the bottom, while those focused on wealth have bigger fish to fry.
But healthcare costs impact not just how much resources an organization can devote to its DC plan, but also, as employees bear a higher percentage of the benefits costs, how much they can save for retirement.
Will a new breed of FBCs emerge as RPAs did 20 years ago, pushing for more disclosure, advocating for benchmarking and RFPs, while educating clients about their fiduciary liability and how to protect themselves?
Maybe there will be more like Jamie Greenleaf, not trying to be the broker, and some brokers will be willing to act as fiduciaries and put their clients’ interests ahead of their own. RPAs that partner with these FBCs or even acquire them will have a clear competitive advantage over those that focus only on DC plans and even those offering wealth services.
It is the third leg of convergence at work—wealth, retirement and benefits. Participants do not see them as silos.
