Team & Fiduciary Responsibility | Third Party Administrators
Role
If you are the third party administrator (TPA), your role is to:
- Advise the employer and the plan administrator regarding the administration of the plan in general.
- Assist the plan administrator in keeping track of the participants' eligibility for benefits under the plan.
- Assist the plan administrator and the employer in determining the appropriate funding for the plan.
- Assist the plan administrator in handling benefit claims and the payment of benefits.
- Assist the employer and the plan administrator with reporting and compliance.
Because most employers and plan administrators are not familiar with the rules and regulations that govern employee benefit plans or do not have the human resources to handle all of the administrative requirements of such plans internally, you are hired to assist the employer, the plan administrator, and the trustee(s). You help them to determine who meets the plan's eligibility requirements, the amount of the contributions, and the extent of the participants' benefits. You also assist them in keeping their employee benefit plans in compliance with the numerous employee benefit plan laws. This function is extremely important because a plan that does not comply with such laws can result in adverse tax consequences to the employer and the participants and subject the plan's fiduciaries to personal liability. You should have a written service agreement with each employer or plan administrator that hires you in order to avoid misunderstandings as to your role and their responsibilities in allowing you to provide services to them.
Although you can provide important assistance to the employer and the plan administrator as the plan's TPA, all responsibility ultimately falls on the employer and the plan administrator to make sure that the plan is properly maintained. Therefore, you may give advice, but the employer and plan administrator must make the final decisions and oversee the operation of the plan.
Third Party Administrator (TPA) Liability In General
Whether a TPA will be exposed to fiduciary liability under ERISA depends on how it establishes and maintains its service relationship with the plan sponsor or plan administrator. The TPA is in business to render aid to plan administrators but not to do the plan administrator's job. A plan administrator may employ a TPA to give it options and advice, to help it keep abreast of the changes in the law that do or may affect the plan, its operation and its participants, to perform the ministerial tasks, such as number crunching, and to do whatever other recordkeeping tasks that the parties agree upon. Note that the TPA is working at the plan administrator's direction just as any other agent would. The TPA gives advice, but the plan administrator makes the decisions. The TPA prepares reports based on information from the plan administrator (and from the trustee), the plan administrator distributes and signs those reports as the party responsible for their accuracy. The TPA should not be able to make discretionary decisions about the plan's operation and should not have any control over the plan or its assets. In most cases, the TPA is not a plan fiduciary.
If, however, a TPA exercises discretion and control over the plan, or some part of it, then, to that extent, the TPA may become a plan fiduciary. The courts often examine the issues of differing fact patterns to determine who is and who is not a plan fiduciary and although they seem to be becoming more and more liberal in their interpretations of facts the underlying rule remains the same. Discretion and control over the plan, its operation and its terms are the key. If you are a TPA, make sure that the plan administrator you are assisting takes its position seriously.
Limiting TPA Liability
The best way for a TPA to control and limit its ERISA liability is to educate the plan sponsor, the trustee and the plan administrator about their roles regarding the operation and administration of the plan and to make sure it does not make discretionary decisions with respect to the plan. In order to keep the respective roles and duties straight, we strongly recommend that the TPA use a written service agreement that clearly spells out its role, its services, and most importantly, those responsibilities that do not belong to it but rather to the other parties.