Form 5500 - TPA Disbursement Accounts and Self Funding

[Guest TXAtty]

A client just returned from a seminar on Form 5500s and asked whether use of a TPA's disbursement account to pay claims could adversely affect the self funded status of their health care plan (which has less than 100 participants).

The client sends fund to the TPA who pays claims on behalf of and reimbursements to participants from the TPA's own account (on the TPA's own check stock).

The seminar materials said "if the checking account was titled in the name of the TPA, the DOL may not consider the employer to be paying benefits exclusively from its genral assets. A separate checking acccount may give the employees the impression that the plan has an independent source of funds guaranteeing the payment of benefits."

Using a TPA's disbursement account does not strike me as something that should make a self-funded plan funded, but I seem to recall some concern about this a few years ago, and would like to hear if anyone can point me to something to reassure the client. Thanks for the help.

[Guest Paul]

I am not associated with EBIA in any way but I have bought their books. They have an excellant piece on all these issues in the one for Welfare Benefit Plans and ERISA Compliance. They have a website and often are cited on Benefitslink.

[JohnCheek]

TxAtty:

The scenario you describe doesn't seem, to me, to be enough to cause the plan to be funded. Benefits are still coming exclusively from the employers general assets, not from earnings or any other source; the employer has simply outsourced the clerical function of paying claims. Furthermore, any monies held by the TPA in excess of claims are still employer dollars.

[BeckyMiller]

Sounds like a quote from my materials. You will note the extensive use of hedging language in the comment.

The DOL has consistently hedged their position on when a plan is considered funded. In the early days of ERISA they issued an advisory opinion regarding a deferred compensation arrangement that noted that references that the arrangement was backed up by a specific life insurance contract could trigger a funded plan. In the mid-90's they issued an advisory opinion to a TPA firm in Florida that basically said that certain common arrangements of that firm in handling their clients funds could trigger a funded arrangement.

Recently, they have been making oral comments implying a more liberal interpretation of the concept of "funded."

The status of the funds with the TPA is only one indicator. The sponsors treatment of those funds on their own books, for tax purposes, etc. is another. We see an awful lot of sponsors who expense the funds once they are forwarded to the TPA, that makes the situation even more vague.

[Guest TXAtty]

Thank you very much for your reply. All you have said makes sense to me. I will pass this on to our client.