Would a TPA (fiduciary or not) be liable if an employer stops funding the plan so the TPA cannot pay participant claims?

The TPA may have a fiduciary responsibility to take timely and appropriate steps towards assuring that the ER makes the contributions required.

John is absolutely correct.
We know that salary reduction contributions have to be forwarded within a certain time for welfare benefits.
I think it is 90 days.
In one case decided in the 10th circuit, this year, almost all of the medical funding was done (or to be done) by the employer.
With bankruptcy looming, the court found that the employer never wore his fiduciary hat; that other expenses took precedence.
The case is Holdeman v. Devine.
Go to:
http://caselaw.lp.findlaw.com/data2/circs/10th/074235p.pdf.
Don Levit

I figured if the TPA was a fiduciary he could be liable as you stated.

If not a fiduciary, the only thing I can think of that could make the TPA liable is as a knowing participant based on the Harris Trust decision, and even this probably wouldn't hold up.

Thanks.

When we went through this we determined we had a legal obligation to notify the participants once we suspected the plan could not meet its obligations. When we told the employer we had to do it they decided they had to take action and shut the plan down.

Since then, this was a few years ago, a hospital is threating to sue us for verifying eligibility and benefits and not telling them the plan might not be able to pay. I doubt they will win but the hassle is unneeded.

The status of the TPA as a potential fiduciary is a facts and circumstances test. If the TPA adjudicates the claims and provides a pay list to the employer, it would not likely be a fiduciary. If the TPA adjudicates the claims and writes out checks for the employer to sign, same result. Even if the TPA adjudicates the claims and prints the checks with the employer's signature, it would not likely be a fiduciary.

However, it would be very difficult for a TPA who controls plan assets (ie, writes checks out of its own claims payment account over its own signature) not to be deemed a TPA. It would still not be impossible, however, if the TPA could show that it had no discretion or control over plan assets other than simply notifying the employer of the amount to transfer to its claims payment account so that it could release the claims payment checks.

To be held to be a fiduciary the plan administrator has to prove that a person has exercised discretionary authority or control over plan asset management. Signing checks to pay benefits is not enough to be a fiduciary if party does not have discretion over which creditors to pay. Finkel v. Romanowicz, 2nd circuit 2009