If You're Not a Fiduciary, Say So
Significance: ERISA imposes a wide range of responsibilities and obligations on plan fiduciaries. With those responsibilities go serious liability risks. For employers and plan service providers, it is critical to spell out who is and who is not a fiduciary.
Discussion: We recently represented a third-party administrator (TPA) who provided services to a self-funded health plan. The TPA's service agreement with the plan sponsor provided for the plan sponsor to make regular deposits to a bank account, and the TPA had signature authority to pay covered claims. The TPA frequently advanced claims payments on behalf of the plan, and was reimbursed from the deposits to the bank account. The plan sponsor went out of business and stopped funding the bank account. The TPA terminated the service agreement according to its terms because the plan sponsor failed to fund the claims account. Since there was no money in the account and no expectation that money would be forthcoming, the TPA ceased paying claims.
A plan participant submitted health claims to the TPA for payment, but the claims were returned unpaid. The participant sued the plan sponsor and the TPA for, among other things, breach of fiduciary duty, for payment of plan benefits, and for penalties under ERISA for failing to provide requested information.
On behalf of the TPA, we moved for summary judgment, arguing that: (1) benefit claims can be asserted only against the plan—not the TPA, (2) the TPA was not a fiduciary of the plan because it provided only ministerial benefit claims administration services, and (3) the TPA was not the "ERISA Plan Administrator" designated by the terms of the plan and therefore was not obligated to provide information to the participant.
The service agreement and summary plan description made it clear that the TPA was not the ERISA Plan Administrator. Rather, the ERISA Plan Administrator was the plan sponsor. That fact carried the day on the claim for penalties for failing to provide information.
Whether someone is a fiduciary depends upon a functional test of what the person actually does in connection with the plan. In our case, the TPA did not make discretionary benefit determinations (that was the ERISA Plan Administrator's responsibility), and the TPA did not exercise other discretionary control over the plan. The service agreement spelled out that our client (the TPA) would have no discretionary authority and would not undertake other activities that would cause it to be a fiduciary. Our client was vigilant not to undertake activities that would make it a fiduciary. As a result, the court found that our client was not a fiduciary.
Ultimately, what a TPA does, rather than what the TPA says it does, will determine whether it will be an ERISA fiduciary. However, plan documents and descriptions which expressly state that the TPA does not perform fiduciary functions are powerful evidence in cases where the TPA's status is challenged. Carefully worded language in plan documents and in TPA service agreements is the one sure way to minimize the risk that TPAs will be sued for breach of fiduciary duties (and, if sued, to minimize the possibility of being found to be a fiduciary). Even though a clear agreement cannot prevent lawsuits (especially by plaintiffs' attorneys who are not well versed in ERISA), it will likely make disposing of these claims more expeditious and less expensive.
Conclusion: Whether you are a service provider to plans, or you retain plan service providers, be certain that you have a written service agreement. Also, make sure your service agreements clearly spell out who is the ERISA Plan Administrator and who has what responsibilities. These simple steps can go a long way to avoiding misunderstandings, liability, and litigation.
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Reish & Luftman. All rights reserved. The Reish & Luftman ERISA Controversy Report is published as a general informational source. Articles are general in nature and are not intended to consitutute legal advice in any particular matter. Transmission of this report does not create an attorney-client relationship. Reish & Luftman does not warrant and is not responsible for errors or omissions in the content of this report.
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Employee Benefits
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