Self Administration vs. Third Party Administration

[Guest LWilson]

I was recently asked by a friend whose company is looking to add a cafeteria plan if the plan can be self-administered. In other words, if the firm has a Corbel document drafted, can they administer their cafeteria plan themselves, or must they seek a third party, such as AFLAC, to administer their plan?

[papogi]

I'm not sure exactly what you're getting at. The Cafeteria Plan (Section 125) is simply a vehicle which allows employee deductions to be taken pre-tax. There's really nothing in and of itself which needs to be "administered." There will be claims processing and reporting to be done for the underlying plans offered within the cafeteria plan. But that would be true for plans offered within or outside of a 125 plan. For the 125 plan, there's not much to do. There will be some non-discrimination testing which will need to be done, but that can be done in-house, as well. Let me know if I'm missing the aim of your question.

[Guest LWilson]

Cafeteria Plans are not my specialty, but this woman asked me if there was a law regarding administration (I guess she was referring to the claims processing piece) where an employer has to outsource . . . quite frankly, I've only ever seen them outsourced, so I didn't know if it was a coincidence, or a law.

[papogi]

I know of many employers who handle the FSA portion of claims processing in house. The regular health/dental/vision coverage claims processing can be handled in house as well, but I can't imagine very many situations where that part would be practical or financially advantageous.

[david rigby]

IRC section 125 has references to "highly compensated employees" and to "key employees". There are non-discrimination issues of concern in the administration of a 125 plan. For this and other reasons, there are TPA firms that assist employers with such administration. Only the plan sponsor can decide whether that expertise is worth the price.

[papogi]

Agreed. I mentioned the non-discrimination issues in my first response to the question. As far as the legality of doing things in house, I stick to my responses, but I agree with pax that there are times when it's best to have things handled by a TPA. Actually, I work for a TPA, and I can vouch for the help they can give to employers.

[Guest LWilson]

Thanks everyone for your input!

[Jbentz]

You also have to be aware that if the employer is going to process their own claims with Protected Health Information (PHI), that might lead to HIPAA complications.