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Guest isg2013

tpa considered plan administrator

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Guest isg2013

Hello all,

what is the consensus (and I searched any case law about this and didn't find any) about a tpa firm who determines HCE or Key EE status or who is a stat exclusion as being considered a plan admin because of that ?

Obviously my feeling is no, if so most tpa's would fall under that label.

*as far as why or reg cite or case law --I didn't get that from the person who brought that up, so if a response was going to be to ask them to provide the cite, I don't have it.

Thanks

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The "Plan Administrator" under ERISA is a fiduciary who typically has complete discretion and power. A TPA is a service provider providing plan administration services on behalf of the "Plan Administrator". It's semantics when someone says they are a "plan administrator". If you closely read the definitions section of your plan document, the distinction should be clearer. I think it's ERISA 3(16) that defines the term "Plan Administrator".

Good Luck!

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I don't mean to oversimplify, but what you are asking is whether the TPA is a fiduciary. One can be a fiduciary by function or by designation. Perform a fiduciary function and you are a fiduciary (whether you want to be or not). In your example, the question would be, is there "discretion" in the management or adminsitration of the plan in performing the specific task that would render the TPA a fiduciary, or is it simply a "ministerial" function not giving rise to fiduciary status. I think it is ministerial - except where an issue arises that requires a "judgment call" giving rise to some level of discretion. We try not to exercise any discretion, preferring to lay the issue out for the plan sponsor (maybe with a recommendation as to what to do, but letting them make the call)

The "named" fiduciary is what 3(16) essentially is about - in that the fiduciary under 3(16) is the "Plan Administrator" - and if named as such, is a fiduciary without regard to the exercise of discretion. There is a lot of chatter in the world about whether the TPA should be (or not be) the 3(16) fiduciary - under the theory that by having a TPA/fiduciary, somehow the plan sponsor has more protection from fiduciary liability. My opinion is that that is hogwash - in that by "selecting" and "retaining" another fiduciary, the plan sponso is exercising a fiduciary function - and has increased liability for having done so, and, since most plan sponsors work closely with the TPA (and the TPA is certainly dependent on the plan sponsor to provide detailed and accurate data for the TPA to function), there most certainly is overlap (or an incomplete "delegation" of responsibility) that would shield the plan sponsor from co-fiduciary liability. Not only are held to the standard of a fiduciary in selecting a service provider, you are now held to a higher standard for selecting another fiduciary AND have the potential for co-fiduciary liability when the TPA screws up (whereas, when a non-fiduciary TPA screws up, you need to fire them, but you aren't co-fiduciarially liable for the screw up).

Just my 2 cents worth (and that said, we are looking at 3(16) services (as a TPA) basically for "marketing" purposes....

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Guest isg2013

I think it is ministerial - except where an issue arises that requires a "judgment call" giving rise to some level of discretion. We try not to exercise any discretion, preferring to lay the issue out for the plan sponsor (maybe with a recommendation as to what to do, but letting them make the call)

I agree with both posts above --I agree it comes down to this --their position is that determining HCE status is discretion --I don't agree. You don't ask P.A. to determine HCE status or review and sign off on the HCE determination? Just asking what some others may do.

Thanks

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Although the comments from Mojo are just side comments, I think the statements in the second paragraph about allocation of fiduciary responsibility, appointment of fiduciaries, delegation of fiduciary responsibilities, co-fiduciary liability, and exposure of plan sponsors need a lot more depth and detail to be accurate. The first paragarph is on the mark except for the presumption in the last sentence that the plan sponsor would be the plan administrator.

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Although the comments from Mojo are just side comments, I think the statements in the second paragraph about allocation of fiduciary responsibility, appointment of fiduciaries, delegation of fiduciary responsibilities, co-fiduciary liability, and exposure of plan sponsors need a lot more depth and detail to be accurate. The first paragarph is on the mark except for the presumption in the last sentence that the plan sponsor would be the plan administrator.

Thanks for the critique - care to elaborate? In a blog one cannot sufficiently encapsulate what I've been doing for a living for close to 30 years. My point was to raise the issue to a higher level of concern - so that those interested would pursue additional information, if not resources, to assist.

I agree that the topic requires considerably more depth and detail, but am currious as to what you find lacking that renders my position not "accurate" - especially considering I stated it was my "opinion"?

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I do not care to engage in the discussion that we agree would be interesting and beyond the typical scope of this forum. My intent was to apply a counterbalance to the opinon that it is "hogwash" to think that appointment of a fiduciary does not offer considerable protection to the appointing fiduciary, and may even increase exposure -- it all depends on how it is done and the circumstances. As a specific example of difference of opinion, if a plan sponsor is so foolish as to be the plan administrator of a retirement plan, I think that engaging aTPA as a fiduciary for services does not increase potential liability to the plan sponsor for a TPA screw-up on those services compared to a non-fiduciary engagement of the TPA for the sevices.

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I do not care to engage in the discussion that we agree would be interesting and beyond the typical scope of this forum. My intent was to apply a counterbalance to the opinon that it is "hogwash" to think that appointment of a fiduciary does not offer considerable protection to the appointing fiduciary, and may even increase exposure -- it all depends on how it is done and the circumstances. As a specific example of difference of opinion, if a plan sponsor is so foolish as to be the plan administrator of a retirement plan, I think that engaging aTPA as a fiduciary for services does not increase potential liability to the plan sponsor for a TPA screw-up on those services compared to a non-fiduciary engagement of the TPA for the sevices.

There is a difference between not wanting to engage in a discussion where you might profer a differeing opinion, and telling people that my comments are inaccurate.

I respect that there are other opinions on the matter - and even laid them out in my post (the part immediately proceeding the "hogwash" statement - without which my hogash statement would have had nothing to reference).

I will stand by my opinion - that hiring additional fiduciaries rarely reduces the fiduciary liability of the one who does the hiring - and that few people pushing the "TPA as 3(16) Plan Administrator" have a clue as to the issues involved, actually "properly delegate" responsibility, successfully "don't interfere" (thereby becoming again a fiduciary in their own right), and actually have a reason to sleep better at night.

Can it be done? Yes. Is it the norm in the industry to do it right? Absolutely not.

Next time, if you want to disagree - say "in my opinion" MoJo is wrong, but to say I'm not accurate is itself a misrepresentation.

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QDROphile and I usually agree. Not this time. I agree with MoJo that if the 3(16) named fiduciary enters into an arrangement with a service provider that accepts the mantel of fiduciary then co-fiduciary liability may result in greater exposure than if they had just hired the service provider to perform ministerial tasks.

But gettiing back to the OP's issue, it is my opinion that no matter how complicated the code and regs are with respect to a given issue (determining HCE's, providing proof that the benefits are non-discriminatory, proving that coverage satisfies 410(b)) in the absence of a specific delegation of fiduciary responsibility the service provider is not a fiduciary with respect to the plan.

Notwithstanding my opinion, it is helpful to state in one's engagement agreement that services are being provided in a manner that do not result in fiduciary status being conferred on the service provider.

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I agree with Mike on this. The mere determination of an HCE, by looking at the rules, regs and the Plan document does not, in and of itself, make the TPA a "plan administrator" or a fiduciary. I have performed these functions for more than 30 years and never have considered myself, or been considered a plan administrator or fiduciary in fulfilling those tasks. Of course, I also spelled out my duties and responsibilities in the engagement letter.

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--their position is that determining HCE status is discretion --

The only way determining an HCE could have a discretionary component is if you are using the top paid group and there are a bunch of employees who have the exact same compensation and there are more of them that would in into the TPG. Then you get to pick an choose who is in the TPG and who is not. As a TPA I would not make that decision, but have the client make the call. Maybe give some suggestions, but never just pick on my own.

Everything else is by code.

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BG5150, there are so many more components to the top-paid group determination. Check out all of Q&A9 of 1.414(Q)-1T.

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Guest davsun
My opinion is that that is hogwash - in that by "selecting" and "retaining" another fiduciary, the plan sponso is exercising a fiduciary function - and has increased liability for having done so, and, since most plan sponsors work closely with the TPA (and the TPA is certainly dependent on the plan sponsor to provide detailed and accurate data for the TPA to function), there most certainly is overlap (or an incomplete "delegation" of responsibility) that would shield the plan sponsor from co-fiduciary liability. Not only are held to the standard of a fiduciary in selecting a service provider, you are now held to a higher standard for selecting another fiduciary AND have the potential for co-fiduciary liability when the TPA screws up (whereas, when a non-fiduciary TPA screws up, you need to fire them, but you aren't co-fiduciarially liable for the screw up).

Just my 2 cents worth (and that said, we are looking at 3(16) services (as a TPA) basically for "marketing" purposes....

I certainly was not part of the original conversation, but I do disagree with parts of prior posts concerning potential "co-fiduciary" liability for a plan sponsor who delegates to another entity certain fiduciary functions (i.e., ERISA 3(38) investment manager, ERISA 3(16), etc.). From what I read, no one posted anything regarding "prudence," which is a critical component the courts look to when assessing whether there was a breach of fiduciary responsibilities. If a plan sponsor followed a prudent process by which they chose that provider and monitored that provider in an ongoing manner, that "prudence" has been found to be sufficient to relieve co-fiduciary liability listed in ERISA 405(a). In addition, 29 C.F.R. ยง 2509.95-1(c )(6) states that "nless they possess the necessary expertise to evaluate such factors, fiduciaries would need to obtain the advice of a qualified, independent expert." Yes, that interpretive bulletin was discussing the selection of an annuity provider to a DB plan; however, the process applies here too. The fact is that most plan sponsors are not experts at plan administration, fund analysis, benchmarking, etc., so they have an inherent duty to seek advice from a qualified, independent expert who does. By taking on responsibilities of which they have zero expertise, my opinion is that their fiduciary liability is greater than if they delegated away certain functions in a prudent fashion.

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