New Artificial Intelligence (AI) Regulations and Potential Fiduciary Implications
Recent developments in artificial intelligence (AI) have prompted a wave of new regulations across various U.S. states, which have significant implications for fiduciaries in the realm of employee benefits. Understanding these changes is crucial for those tasked with managing retirement and health plans.
Recent State Law Changes
Numerous states have enacted new laws focusing specifically on AI, particularly in the context of employment practices. A few notable examples include:
- California – In 2024, California passed over 10 AI-related laws that address issues such as:
- The use of AI with datasets containing sensitive information like names and biometric data;
- Communication of healthcare information to patients using AI;
- AI-driven decision-making in medical treatments and prior authorizations.
- Illinois – Legislation in Illinois prohibits the use of AI in employment that could lead to discriminatory effects. Employers must notify employees and applicants about the use of AI in workplace-related decisions.
- Colorado – The Colorado Artificial Intelligence Act mandates that employers exercise “reasonable care” when using AI for certain applications, effective February 1, 2026.
While these laws do not explicitly target employee benefits, they reflect a broader trend of states regulating human resource practices and indicate an evolving regulatory environment.
Recent Federal Government Actions
The federal government has also been active in addressing AI’s implications, particularly in the healthcare and financial services sectors:
- U.S. Department of Health and Human Services (HHS) – HHS issued guidance to prevent discrimination in healthcare services through AI. The guidance underscores the necessity for compliance with federal nondiscrimination laws under Section 1557 of the Affordable Care Act.
- Treasury’s Request for Information (RFI) – In 2024, the U.S. Department of Treasury published an RFI concerning the uses and risks of AI in the financial services sector. The RFI highlights issues such as AI bias, consumer protection, and data privacy.
AI-Powered ERISA Litigation
AI is also transforming ERISA litigation by identifying potential claims against plan sponsors and fiduciaries. Tools like Darrow AI claim to simplify the analysis of large datasets, helping to pinpoint discrepancies and breaches of fiduciary duty with greater accuracy. This technology has implications for various employers, from small businesses to large corporations.
Moreover, AI tools can analyze claims data and provider networks to identify discriminatory practices in health and welfare benefit plans. This capability raises significant concerns for fiduciaries, who must now consider that claimants may employ AI to scrutinize their decisions.
Next Steps for Fiduciaries
To navigate the evolving landscape of AI regulation and its implications for employee benefits, fiduciaries should take several proactive measures:
- Evaluate AI Tools – Conduct formal evaluations of AI tools used in plan administration and compliance.
- Audit Service Providers – Perform comprehensive audits of plan service providers to assess their use of AI.
- Review and Update Policies – Formulate or revise internal policies to monitor AI usage and ensure compliance with nondiscrimination laws.
- Enhance Risk Mitigation – Consider obtaining fiduciary liability insurance and strengthen data privacy measures.
- Integrate AI Considerations into RFPs – Include specific AI-related criteria when selecting vendors.
- Monitor Legal and Regulatory Developments – Stay informed about new state and federal AI regulations.
- Provide Training – Educate relevant staff on the risks and benefits of AI.
- Document Due Diligence – Maintain thorough documentation of assessments and audits related to AI tools.
- Assess Applicability of Section 1557 – Determine if health plans are subject to Section 1557 and how it applies to operations.
In summary, as AI’s role in employee benefit plans grows amidst regulatory uncertainty, fiduciaries must remain vigilant and proactive. By adopting robust risk management strategies and ensuring compliance with both current and anticipated legal standards, fiduciaries can leverage AI’s benefits while safeguarding the interests of plan participants.
