A Cautionary TPA Selection Tale
For employee benefit plan sponsors, one of the most important decisions they will make is their selection of a third party administrator (TPA). Most plan sponsors, whether a single-employer plan or multi-employer plan, will seek out a TPA that has the benefits administrative services they require, the experience and proven track record they desire, and a reputation for high quality work and professional integrity. While the first two criteria are fairly easy to assess, the third one is not. Even if references are checked and come back favorable, we all know they do not necessarily present a full picture. The recent criminal case involving Vantage Benefits Administrators is a perfect example*.
What went wrong in Red Oak, Texas?
From the outside, Vantage Benefits Administrators appeared to be a solid TPA. Owned and operated by the husband and wife team of Jeffrey and Wendy Richie, the firm managed the administration of various retirement and pension plans. In late October 2018, the couple was indicted by a Red Oaks, Texas grand jury for embezzling $14.5 million from the retirement plans they managed. Over 1,000 plan participants and at least 20 employers’ retirement plans were affected. Their alleged crime consisted of posing as various beneficiaries and submitting fraudulent distribution requests to the retirement fund custodian, Matrix Trust Company. Rather than deposit the money into the legitimate beneficiaries’ accounts, the funds were transferred into Vantage’s operating account and used to pay its payroll and other expenses. Funds were also used for personal expenses of the Richie’s including their mortgage and escrow payments, home furnishings and even farming equipment. In a secondary lawsuit filed by the firm of MBA Engineering on behalf of its 401(k) and cash balance plans, Vantage, which served as MBA’s TPA and recordkeeper, was charged with stealing money from 20 other retirement plans.
Justice and Fiduciary Rules Prevail
After all the evidence was heard in what ultimately became a $15.2 million embezzlement scheme, the Richie’s pled guilty to several counts in June 2020. Ms. Richie admitted to using the personal information of fund beneficiaries to submit $15.2 million in fraudulent distribution requests to Matrix Trust, and to transferring the funds into Vantage’s operating account, and subsequently into personal bank accounts. Her husband was aware of at least $6.2 million of the $15.2 million having been embezzled based on the testimony of a former Vantage employee. In total, the Richie’s admitted to over 90 unauthorized distribution requests from 13 pension plans and 7 retirement plans between 2014 and 2017. For their crimes, Mr. Richie received the maximum prison sentence of 87 months, 3 years supervised release, and ordered to pay restitution of $7,445,000, while his wife was sentenced to 132 months in prison and 3 years supervised release. They are scheduled to report to federal prison on January 5, 2021.
What Could the Plan Sponsors Have Done Differently?
Clearly, trust is an essential component of any professional relationship. This is especially critical when there also exists a fiduciary responsibility on the part of plan sponsors who maintain their fiduciary responsibility even when third party administrators and/or other financial/investment advisors are contracted. The moral of this case is that plan sponsors must remain vigilant, informed, and involved in their plans. They must seek out regular reports, documentation supporting those reports, and demand nothing less from their TPAs and financial/investment advisors. There are multiple regulations in place that clearly assign fiduciary responsibilities to plan sponsors and hiring a TPA in no way diminishes this responsibility.
The best, most qualified experienced and honest TPAs will have, as part of their normal operations, a defined and ongoing reporting function; and are able to provide all documentation required for a successful annual audit. These are the TPAs with which plan sponsors should be trusting their employee benefit plans.
*Insurance Journal, December 4, 2020