Administering a Health & Welfare Fund is not a simple task. There are many complexities to manage not the least of which are numerous regulations designed to protect fund participants. Of the estimated 1,114 Health & Welfare Funds in the United States (Source: IBISWorld) with a market size value of $237 billion (Source: IBISWorld), it is likely that a good percentage of these funds are not in full compliance with all regulations under the Employee Retirement Income Security Act of 1974 (ERISA) and the Affordable Care Act (ACA).
A Breach of ERISA and the Affordable Care Act
Recently, trustees of the Teamsters Local 272 Welfare Fund of New York City learned they had fallen out of compliance with both ERISA and ACA. This came as a result of a lawsuit filed by the Department of Labor (DOL) against the fund for requiring its fund participants to bear 90% of the cost of medical and pharmacy claims above certain thresholds. The DOL alleged that the Local 272 fund and its trustees were in violation of both ERISA and the Affordable Care Act (ACA) when they replaced annual benefits limits of $125,000 for medical claims and $5,000 for pharmacy claims with a cost-sharing arrangement requiring fund participants to bear 90% of claims’ costs in excess of these limits. This caused the fund to lose its grandfather status and to be in violation of ACA’s requirement of capping participants’ annual out-of-pocket expenses. Additionally, the 90% cost-sharing requirement constituted an annual limit, which violates both ACA and ERISA.
As a result of the lawsuit, the trustees to the Teamsters Local 272 Welfare Fund agreed to eliminate the cost-sharing agreement and provide relief to those participants who were affected by the agreement in prior years.
In commenting on the case, Employee Benefits Security Administration Regional Director in New York, Thomas Licetti stated, “The actions by the Teamsters Local 272 Welfare Fund and its trustees denied the fund’s participants and beneficiaries the healthcare benefits guaranteed to them by law. The cost-sharing limits and prohibitions on annual limits are part of the essential guarantees of the Affordable Care Act. Plans and their trustees must ensure they comply with these important health care protections for workers.”
“This case demonstrates the U.S. Department of Labor’s ongoing commitment to ensuring that plans and their trustees respect the Affordable Care Act’s protections,” added Jeffrey S. Rogoff, Regional Solicitor of Labor in New York. It also emphasizes the importance of having experienced and knowledgeable individuals overseeing health and welfare funds’ administration.
Why Many Outsource Their Funds’ Administration to a TPA
For many funds, the smart choice has been in outsourcing this function to an experienced third party administrator (TPA) which places a high emphasis on fiduciary responsibility and regulatory compliance. A full-service TPA can provide end-to-end services. In addition to general administration, coordination and communication with other plan professionals, TPAs maintain records of participant benefits, eligibility and payment history, maintain financial records, assist with annual audits, distribute Summary Annual Report, attend and report at trustees’ meetings, prepare government filings, administer fiduciary liability and fidelity bond insurance, manage appeals, maintain plan records, and help ensure regulatory compliance.