Administering health and welfare, pensions, 401k and annuities funds is a complex and challenging task. These plans are governed by various federal laws which frequently change, requiring plan sponsors to remain vigilant and up to date on their compliance requirements. For the self-insured, single-employer, multi-employer and Taft-Hartley plans that do not have personnel with adequate experience and knowledge of employee benefit plan administration and regulations, a viable option is to outsource this function to a Third Party Administrator (TPA). For brokers, being able to guide their clients in understanding the role and value of a TPA, and how to select one, is a service that positions them as trusted, knowledgeable advisors.
Some believe the TPA industry was established with the codification of the 1947 Taft-Hartley Act, also known as the Labor Management Relations Act. This legislation primarily restricted the activities and power of labor unions, prohibiting certain practices and requiring their disclosure of financial and political activities. Today, IBISWorld estimates that there are 129,348 TPAs and insurance claims adjusters in the United States; a 0.4 percent increase over 2021 figures. From 2017 to 2022 the industry has achieved this 0.4 percent annual growth rate with continued growth projected.
Simply stated, a TPA works on behalf of a fund providing oversight and management of its pension, 401k and annuity plans as well as health and welfare plans including health, dental, disability and paid family leave claims processing. Many also provide other related services such as payroll auditing, medical stop loss and medical care and utilization management. Depending on the plan sponsor and the contracted service, the TPA will provide a customized offering.
For example, a TPA contracted for its pension, 401k and annuity plan administration will maintain records of participant benefits, eligibility and payment history; maintain full financial records; process pension and 401k applications in compliance with fund benefit rules; work with plan professionals; process annuity plan distributions and loan applications; assist in preparing government filings; and prepare and issue 1099s as well as administer fiduciary liability and fidelity bond insurance. Additionally, the TPA’s role will extend to attending and reporting at trustee meetings; assisting with annual audits; managing billing, collection and reconciliation of monthly employer contributions or withdrawal liability payments; data maintenance; and delinquency and standard reporting. Other functions include handling plan member inquiries, managing appeals, maintaining plan records, and providing the general administration, coordination and communications with plan professionals such as the accountant, auditor, attorney and actuary.
TPAs providing health, dental, paid family leave and disability claims processing are responsible for the complete administration and processing of these claims and their accurate adjudication in compliance with benefit rules. Detailed claims reporting is also provided along with a medical management partner for the clinical review and analysis of high dollar claims. As part of the claims processing service, the TPA will also respond to member inquiries regarding their eligibility and claims status, along with providing member-friendly communications designed to promote responsible benefits utilization.
Plan sponsors who enter into a TPA agreement for health and welfare fund administration can expect a focus on due diligence, fiscal prudence, and the fund’s fiduciary responsibilities. Towards achieving these objectives, and as with pension, 401k and annuity administration services, the TPA maintains records of employer contributions and participants’ benefits, eligibility and payment history, as well as full financial records. The TPA will assist with annual reports; distribution of Summary Annual Reports; attend and report at trustee meetings; assist in the preparation of government filings; administer fiduciary liability and fidelity bond insurance; manage appeals; maintain records; and provide for the general administration, coordination and communications with other plan/fund professionals.
In all of these service areas, the TPA strives to help plan sponsors meet their fiduciary responsibilities, maintain regulatory compliance, optimize their benefits administration, achieve more cost-efficient benefit programs, and support a positive employee/plan member experience.
TPA Selection Criteria
- Brokers advising their clients on the selection of a TPA should focus on several key criteria. Besides seeking out a TPA that has years of experience and a proven track record serving your client’s business/plan model (i.e., self-insured, single-employer, multi-employer, Taft-Hartley plan), seek out a TPA that has:
- A highly qualified and credentialed team of experienced benefits administrators, claims analysts, finance and eligibility processors, and payroll auditors;
- A broad portfolio of solutions which, in addition to pension and annuity administration; health, dental and disability claims processing; and health and welfare fund administration; includes medical stop loss coverage, payroll auditing and medical care and utilization management;
- Experience working with a broad network of HMOs, PPOs, and other managed care providers;
- Advanced information technologies designed to support employee benefits administration processes;
- The willingness to be flexible and customize services to meet each client’s needs;
- A strong focus on regulatory compliance, fiduciary responsibility, and risk mitigation;
- Stringent quality controls backed by regular performance benchmarking; and,
- High standards of customer service including courteous, responsive customer service representatives to address both plan sponsors and members inquiries promptly as well as plan participants’ education via online information and/or live/virtual seminars to raise awareness of how their benefit decisions and health and lifestyle choices influence a plan’s fiscal condition.
The TPA’s Value Proposition
In addition to helping address tasks for which many organizations are not qualified to perform, TPAs deliver a strong value proposition across the entire employee benefits continuum. For funds, alleviating a cumbersome burden and replacing it with a seamless, high quality plan administrator cannot be underestimated. Neither can the financial benefits received when potential litigation and related fines for non-compliance are reduced, health plan utilization optimized, and employee retention improved for lower recruitment costs. Plan members gain a competent, fully-engaged resource to address their questions, protect their benefits, and facilitate their claim payments.
For brokers and other benefit consultants, TPAs deliver both soft and hard benefits. There is the peace of mind gained in knowing they have steered a client to a reliable, valuable resource to manage a complex area of their operations, and the enhanced client trust and loyalty that elicits. There are also the financial opportunities that can stem from aligning with a reputable TPA, which can refer clients to the broker or consultant. Additionally, through the TPA relationship, brokers and consultants can gain greater insight into their clients’ claims history which can be leveraged to present other products such as voluntary benefits, to help shift benefit costs from plan sponsors to members, and medical stop loss to address high medical claims.
When discussing a TPA with a client, it is important that brokers and consultants also remind their clients that they still must recognize their fiduciary and recordkeeping responsibilities. An agreement with a TPA does not constitute a plan sponsors’ complete abdication of their responsibilities in accordance with government regulations including those imposed by the IRS.