Expanding ERISA Fiduciary Reach: Third-Party Administrators’ Control Over Plan Assets and Compensation Structures

Introduction

Tiara Yachts, Inc. v. Blue Cross Blue Shield of Michigan is a landmark Sixth Circuit decision clarifying when third-party administrators of self-funded employee benefit plans qualify as ERISA fiduciaries. Tiara Yachts, a Michigan yacht manufacturer, hired BCBSM in 2006 to administer its self-funded health care plan under an Administrative Services Contract (ASC). Years later Tiara Yachts discovered two controversial practices: “flip logic,” which systematically overpaid certain out-of-state providers, and a “Shared Savings Program” (SSP) whereby BCBSM retained 30% of any dollars clawed back or prevented from being overpaid. Tiara Yachts sued under ERISA, alleging fiduciary breaches and prohibited self-dealing. The district court dismissed for failure to state an ERISA claim and for lack of available ERISA remedies. On appeal, the Sixth Circuit reversed, holding that BCBSM plausibly acted as a fiduciary whenever it controlled plan assets or exercised discretion over plan administration or its own compensation.

Summary of the Judgment

The Sixth Circuit, writing through Judge Bloomekatz, reversed the district court’s dismissal on two fronts:

Fiduciary Status: BCBSM exercised “any authority or control” over Plan assets when it interpreted and paid claims—including through flip logic—and therefore was a fiduciary under 29 U.S.C. § 1002(21)(A). BCBSM also exercised discretionary authority over plan administration by structuring its SSP fees to depend on the volume of overpayments it caused, which gave rise to fiduciary duties whenever it set or collected those fees.
Available Remedies: Tiara Yachts may pursue § 1132(a)(2) relief on behalf of the Plan—“to make good” plan losses and restore profits—and § 1132(a)(3) equitable relief (restitution/disgorgement) for traceable funds BCBSM retained from SSP fees.

The case was remanded for further proceedings consistent with these holdings.

Analysis

1. Precedents Cited

29 U.S.C. § 1002(21)(A) – Defines ERISA fiduciary (“any authority or control” over plan assets; “discretionary authority” over administration).
Briscoe v. Fine, 444 F.3d 478 (6th Cir. 2006) – Any control over plan assets triggers fiduciary status.
Pipefitters Loc. 636 Ins. Fund v. BCBS of Mich., 722 F.3d 861 (6th Cir. 2013) – Discretion over fee structures can create fiduciary obligations.
Guyan Int’l, Inc. v. Pro. Benefits Adm’rs, Inc., 689 F.3d 793 (6th Cir. 2012) – Exercising check-writing authority on plan accounts is a fiduciary act.
Saginaw Chippewa Indian Tribe v. BCBS of Mich., 32 F.4th 548 (6th Cir. 2022) – Duty to preserve plan assets gives rise to fiduciary status.
Seaway Food Town, Inc. v. Med. Mut. of Ohio, 347 F.3d 610 (6th Cir. 2003) – Fixed, contractually defined fees without discretion do not create fiduciary duties.
DeLuca v. BCBS of Mich., 628 F.3d 743 (6th Cir. 2010) – Business-wide rate negotiations do not, by themselves, create fiduciary duties under ERISA.
Mass. Laborers’ Health & Welfare Fund v. BCBS of Mass., 66 F.4th 307 (1st Cir. 2023) – Solely mechanical check-writing by an administrator is insufficient for fiduciary status when final authority rests with the plan.
Tullis v. UMB Bank, N.A., 515 F.3d 673 (6th Cir. 2008) – ERISA remedies under § 1132(a)(2) must be for plan losses, but formalistic labels are not dispositive.

2. Legal Reasoning

The Sixth Circuit adopted ERISA’s functional test for fiduciary status: examine whether BCBSM performed a fiduciary function when it engaged in the challenged conduct.

Control Over Plan Assets: Under the ASC, BCBSM had the unilateral authority to interpret plan terms, adjudicate and pay claims from Plan funds. By using “flip logic” and other processing errors to overpay providers, BCBSM wasted plan assets, triggering fiduciary duties. Contractual governance did not exempt BCBSM from ERISA obligations.
Discretion Over Administration and Compensation: Although BCBSM’s SSP fee was set at 30%, the volume of recoverable overpayments—entirely within BCBSM’s control—determined its compensation pool. That link between BCBSM’s claims-processing discretion and its own fee structure gave rise to additional fiduciary obligations concerning plan administration and self-dealing.
Available Relief:
- § 1132(a)(2): Authorized plan-level recovery for losses and disgorgement of profits “to the plan.” Tiara Yachts’ complaint sufficiently put BCBSM on notice it sought relief on behalf of the Plan.
- § 1132(a)(3): Equitable restitution/disgorgement for traceable funds—specifically, the SSP fees BCBSM retained. Funds still held by providers are not recoverable under equitable restitution’s tracing requirement.

3. Impact

This decision broadens ERISA’s protective reach by confirming that third-party administrators may be fiduciaries when they:

exercise any authority or control over plan asset disposition even under a service contract;
structure or collect fee arrangements tied to plan asset recoveries, creating potential conflicts of interest;
perform discretionary functions in claim adjudication or plan management.

Plan sponsors and administrators must now scrutinize embedded revenue-sharing models, ensure transparent claims-processing controls, and implement robust oversight to avoid ERISA fiduciary breaches and self-dealing challenges.

Complex Concepts Simplified

ERISA Fiduciary: Any party that controls plan assets or has discretionary authority over plan management—regardless of contractual labels.
Flip Logic: A legacy electronic‐processing rule that reclassifies out‐of‐state providers’ network status to pay them higher charges instead of customary host‐Blue rates, leading to systematic overpayment.
Shared Savings Program (SSP): A clawback mechanism where BCBSM recovered prior overpayments and shared a fixed percentage (30%) of those recoveries and avoided overpayments back to itself.
Equitable Relief: Remedies available in courts of equity—restitution or disgorgement—distinct from legal damages, often requiring traceability of assets.

Conclusion

Tiara Yachts v. BCBSM marks a significant extension of ERISA fiduciary principles to third-party administrators. By affirming that any exercise of control over plan assets or discretionary authority over administration and compensation structures triggers fiduciary duties, the Sixth Circuit reinforced ERISA’s protective framework. Third-party administrators must now carefully manage both claims-processing logic and revenue-sharing models to avoid conflicts of interest and potential fiduciary breaches. This precedent will guide courts and litigants in scrutinizing the fine line between commercial service arrangements and fiduciary conduct under ERISA.