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Noncompliant client - What is TPA responsibility and exposure?


Guest SBlack

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My firm provides recordkeeping services for all types and sizes of plans. It seems that the plan sponsors for some of the smaller plans have a total disregard for ERISA and the repercussions of noncompliance. For example, we have a client who is issuing loans out of the plan to unrelated parties. He is paying his gambling debts out of the assets and he refuses to provide us with the information necessary to prepare 5500s, required communications to participants, etc. We have advised him against this over and over, but to no avail. What is our responsibility and, more important, our exposure?

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Simple. Write a letter detailing all of the failures on compliance and operations. At the end of the letter resign from any additional work, refund any unearned fees. Send it registered, return receipt.

DO NOT UNDER ANY CIRCUMSTANCE DO ANY MORE WORK UNLESS THE CLIENT AGREES AND PAYS TO CLEAN IT ALL UP UNDER CAP.

You could be sued by the participants for complicity in the crimes and for covering up fiduciary failures. Do they have a case? Not yet under current cases and regulations. But it will be VERY expensive to defend youself.

Give Reisch and Luftman in California a call. If they will talk to you without a fee (this is their specialty, defending TPAs who don't know enough to come in out of the rain) they will tell you the same.

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To respond to the comments by rcline46, I'm not sure I would advise the TPA to continue servicing the plan even if the client did file under CAP. Who knows how truthful they will be with the IRS?

That sounds like a client to avoid at all costs. I'd recommend resigning immediately, even if they still owe you money. If you get sued, your defense costs will be many multiples of any fees that they might currently owe you.

Kirk Maldonado

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Having worked at a few TPA's I can sympathize with anyone nervous about the manner in which a client's plan is being run. I have seen the gamut from straight-up to almost totally lawless. The attitude at a lot of TPA's seems to be that it's the client's plan and it is their neck on the block if it ever comes to that.

On the other hand, it seems that hardly anyone ever gets caught. What could really happen to the administrators of a self-funded plan for breaking the law? And what could the collateral damage be for the TPA involved?

As an example, say a self-funded plan leaves properly submitted medical claims lying around unpaid for nearly two years, then decides it will never pay them, because they are simply too old. Of course a situation like that will generate uncounted customer service inquiries, all of which are answered with "the claim is in process". Would that be an example of a TPA's complicity?

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