Plan's right upon termination of TPA

[chuTzPA]

Reviewing prior TPA contract, there is a 45-day notification requirement to terminate. What rights does TPA firm have to provide billable services in that time period when Plan does not want it?

[Mike Preston]

When I last researched this issue the lawyers kept harping on the requirement that any agreement must be 'reasonable'. Whether 45 days or 30 days or some other time period is reasonable is a facts and circumstances determination.  I should point out that some ERISA lawyers have opined that while a service provider may reasonably be held by a plan to a specific notice period (and 45 days is more than reasonable in that event) they have been known to say that a plan or plan sponsor must have the ability to notice a service provider on very, very short notice.  Some even take the position that immediate is required. Peter probably has reams on this very issue.

[shERPA]

What's reasonable likely depends in part on what the "TPA" does.  If it is typical small plan TPA annual compliance work, immediate is probably reasonable.  If OTOH if it is a 401(k) plan and the TPA is involved in deferral remittance, recordkeeping, loans and/or distributions, then 45 days is probably reasonable, allowing time for things to transfer to the new provider while also avoiding unintended (and un-noticed) blackouts.

[Peter Gulia]

As shERPA observes, what is or isn’t reasonable turns on the circumstances.

 

The “reasonably short notice” idea Mike Preston describes comes from a 1970s rule:

 

Termination of contract or arrangement.  No contract or arrangement is reasonable within the meaning of section 408(b)(2) of [ERISA] and [29 C.F.R. § 2550.408b-2(a)(2)] if it does not permit termination by the plan without penalty to the plan on reasonably short notice under the circumstances to prevent the plan from becoming locked into an arrangement that has become disadvantageous.   . . . .

 

29 C.F.R. § 2550.408b-2(c)(3)

https://www.ecfr.gov/cgi-bin/text-idx?SID=87cb1ac41956dcefa2e2c6c25cde1486&mc=true&node=se29.9.2550_1408b_62&rgn=div8

 

[RatherBeGolfing]

14 hours ago, chuTzPA said:

What rights does TPA firm have to provide billable services in that time period when Plan does not want it?

Other than what is necessary? Id say none.   What type of unwanted services are you referring to?

[Pam Shoup]

I agree with shERPA.  If the TPA is just doing compliance testing and the employer does not want them to test for 2019 (as an example), then the employer should just make it clear to them that they do not want them to test 2019.  Keep in mind though, you may be referring to a billing issue and not a work issue.  If the TPA has been providing some services during the year (like sending out distribution paperwork, calculating vesting, etc.), then they should be compensated for the year if the TPA did perform the work as expected when the work arose.  You may want to check to see if the TPA bills in advance or arrears.

On the other hand, if the TPA is involved in recordkeeping services, and perhaps doing daily valuation, then a longer time frame is expected for the transfer of those services.