Many employers and fund administrators rely on third party administrators (TPAs) for their benefit plans’ administration and compliance. But did you know that in performing their administrative functions, TPAs can help their clients save money? Knowing this aspect of the TPA’s value proposition is important in determining if you have the right TPA.
Rigorous Compliance and Due Diligence
A TPA that is committed to the highest standards of regulatory compliance and the related due diligence can help its clients avoid costly litigation and fines associated with their plans’ non-compliance. Given their fiduciary responsibilities, employers and fund administrators need to take steps to limit any potential breach of these duties. Specifically regarding their employee benefit plans, it’s essential that they be fully compliant with ERISA regulations, including maintaining plan documentation and summary plan descriptions that are legally-compliant. A TPA performs this complex task and, in doing so, helps minimize plan fiduciaries’ risk of litigation and the associated costs.
Lawsuits for breach of fiduciary duty relating to welfare benefit plans under ERISA have been escalating. Missteps such as failing to distribute summary plan descriptions have resulted in courts ordering employers and fund administrators to pay significant awards to their employees/plan participants. With a TPA on board, costly litigation and settlements can be avoided. Similarly, plan fiduciaries, who fail to recognize their legal obligation to manage a plan in the best interests of the plan participants and provide adequate oversight of their plans’ management, also place themselves at risk of incurring heavy fines and potential litigation. Further, lawsuits can stem not just from plan participants, but other entities such as health care providers who believe a fiduciary’s breach of duties resulted in economic losses to them.
In addition to ERISA, TPAs help employers and fund administrators comply with other regulations such as COBRA, HIPAA and HITECH. Failure to comply with these laws also can lead to hefty penalties. HIPAA violations are particularly punitive. Depending on the degree of negligence, penalties for noncompliance can rise to $50,000 per violation (one for each employee record) and, in some cases, result in criminal charges against the fiduciaries and potential jail time.
Saving Costs through Employee Education
High quality TPAs can save employers and funds money by educating their plan participants. Through online information and onsite education during benefit enrollment and renewal periods, TPAs help raise employees’ awareness regarding the impact of their healthcare and lifestyle decisions and a plan’s fiscal condition. In the case of self-funded plans, they become aware that dollars saved contribute to the business/fund’s overall financial strength.
Recovering Funds through Payroll Auditing
TPAs that offer their clients payroll auditing services not only help them save dollars, but also recover monies owed from contributions. Through a meticulous payroll auditing processes, encompassing a review of each contributing employee’s record over a period of one to five years, the TPA determines if the plan has received the right contribution and ascertains the accuracy of all data. This is critical for both meeting ERISA compliance requirements, but also in determining if the right contributions have been made. It is not unusual for TPAs offering comprehensive payroll auditing services to recover contributions in excess of hundreds of thousands of dollars.
Accessing the Right Medical Stop Loss Solution
Another area in which TPAs help their clients save money is in the selection of the right medical stop loss coverage at the best price. Leveraging their relationships with carriers, TPAs can help arrange for customized stop loss coverage (i.e., specific stop loss, aggregate stop loss) with the best options designed to meet a plan’s specific requirements. This coverage also helps protect against the risks and exposures associated with catastrophic illnesses, chronic conditions, specialty drug utilization and serious accidents all of which can seriously deplete available healthcare funds in the absence of stop loss protection.
Flexible, Customized Services Achieve Savings
The TPA’s ability to customize its administration services based on a plan’s requirements, whether for a self-insured fund, single employer, multi-employer Taft Hartley plan, municipal agency, school district and/or association, also can generate cost savings. Experienced TPA professionals, applying proven processes and advanced technologies, can deliver solutions that provide both peace of mind to plan fiduciaries relating to regulatory compliance, while also protecting and optimizing benefit dollars.