Benefits Governance and Fiduciary Responsibility

Executive Summary

As Canadian group benefits plans become more complex—and more expensive—plan sponsors are under growing scrutiny to govern them responsibly.

But while most HR and Finance leaders focus on coverage levels, pricing, and employee experience, far fewer understand their fiduciary obligations, compliance risks, or governance best practices. This blind spot can lead to:

• Legal exposure for errors or omissions

• Data breaches or privacy violations

• Tax penalties for improper plan administration

• Employee dissatisfaction and mistrust

This article outlines how Canadian employers can build strong governance frameworks for their group insurance plans. We’ll explore the legal landscape, best practices for oversight, common pitfalls, and how to integrate benefits into enterprise risk management.

1. Why Governance Matters in Group Benefits

Group benefits are one of your largest and most regulated expenses outside of payroll. Poor governance can lead to:

• Incorrect claims payments

• Tax penalties for misclassified benefits

• Data breaches from insurer or TPA errors

• Lawsuits over denial of coverage or poor communication

• Employee relations nightmares

Governance = accountability. It ensures that:

• Plans are administered fairly and consistently

• Roles and responsibilities are clear

• Risks are identified and managed

• Employees are informed and protected

2. Legal Framework for Plan Sponsors in Canada

Unlike pensions, group benefits in Canada are not governed by federal pension law (e.g., CAP Guidelines or PBSA). However, employers still have obligations under:

• Employment law (termination clauses, promises in offer letters)

• Tax law (CRA rules on taxable vs non-taxable benefits)

• Human rights law (accessibility, equality of coverage)

• Privacy law (PHIPA, PIPEDA, and equivalents)

• Contract law (enforceability of benefits promises)

• Common law fiduciary duties (in unionized and executive plans)

Implication: Benefits may not be “locked in” legally, but how you administer them is absolutely subject to legal risk.

3. What Is Fiduciary Responsibility?

A fiduciary is someone who acts in the best interest of plan members, with care, diligence, and loyalty.

While most Canadian benefits plans don’t have a formal fiduciary designation like pensions, employers still owe a duty of care when:

• Selecting and managing insurers

• Communicating benefit terms

• Administering eligibility

• Handling sensitive claims (e.g., disability)

Key fiduciary-like responsibilities:

• Make decisions with due diligence

• Avoid conflicts of interest

• Ensure fair and consistent application of rules

• Protect personal data and privacy

4. Key Governance Risks in Group Benefits Plans

5. Plan Design Governance: Who Decides What, and How?

Employers should clearly document:

• Who approves plan design changes (HR? CFO? Board?)

• How plan design aligns with compensation strategy

• When and how plan design is reviewed (annually? during budget?)

• How decisions are communicated to employees

No surprises. Governance means having a consistent, transparent process.

6. Contract and Booklet Oversight

Every year, hundreds of Canadian employers are blindsided by:

• Denied disability claims due to outdated booklets

• Legal disputes over coverage promised in employee letters but not in the contract

• Termination lawsuits citing benefits entitlements

Governance checklist:

• Match plan booklets to insurer master contracts

• Update booklets with each plan change

• Ensure alignment between employment agreements and benefits

• Retain archived copies of historical versions

7. Eligibility Management and Dependent Verification

Most overpayment risk stems from ineligible dependents or inactive employees.

Governance steps:

• Use clear eligibility rules (spouse definitions, student status, etc.)

• Conduct annual dependent audits

• Terminate benefits promptly after resignation/termination

• Use payroll integration to manage eligibility in real time

Insurers will pay claims—but you may be on the hook if ineligible members were improperly enrolled.

8. Privacy, Data Security, and PHIPA Compliance

As a plan sponsor, you’re responsible for protecting plan member data, even if a third-party insurer or administrator is handling it.

Governance responsibilities:

• Ensure PHIPA/PIPEDA-compliant data handling agreements

• Minimize data sharing with vendors (only what’s required)

• Audit vendors for cybersecurity and breach notification policies

• Train HR on privacy best practices for benefits data

Case in point: Many ASO plans involve weekly claims files being transferred between employer and insurer—are those files encrypted? Logged?

9. Cost Management as a Governance Issue

Cost containment isn’t just a financial task—it’s a governance function.

Governance responsibilities:

• Document rationale for plan design choices

• Review cost trends quarterly

• Establish plan review processes and thresholds (e.g., trigger RFP if renewal >15%)

• Align plan cost to payroll % and compensation philosophy

Example: Setting a 4% of payroll budget cap is a governance decision, not just a finance one.

10. Plan Committee Structures and Oversight Models

Larger organizations should establish a Benefits Governance Committee made up of HR, Finance, and Legal or Risk.

Smaller organizations can use a governance calendar or delegate to the CFO/CHRO with defined roles.

11. Integrating Benefits Governance Into Enterprise Risk Management (ERM)

Benefits plans intersect with:

• Financial risk (cost inflation, liabilities)

• Reputation risk (employee dissatisfaction or miscommunication)

• Legal risk (contract disputes or non-compliance)

• Cybersecurity risk (data breaches via insurer or TPA)

Include benefits in your:

• Annual risk review

• Internal audit scope

• Vendor risk assessments

Best-in-class organizations treat benefits like any other critical business function.

12. Best Practices for Annual Governance Reviews

Every 12 months, conduct a review that includes:

• Plan design and funding strategy

• Insurer/vendor performance

• Claims trends and renewals

• Eligibility audit results

• Privacy and compliance checks

• Communication materials and employee understanding

• Internal roles and responsibility review

Document this process—your governance file may protect you in a dispute.

Final Thoughts

Most employers think of benefits as a “set it and forget it” program. But in today’s environment—where costs are rising, compliance is tightening, and employees are demanding more—governance is no longer optional.

It protects you legally. It improves outcomes for employees. And it ensures your plan is aligned with your business and financial strategy.

If you’d like help building a governance calendar or reviewing your current oversight structure—we’re here to help.