May a plan’s administrator override the § 3(16) service provider?

With those recordkeepers and third-party administrators that offer a § 3(16) service for the service provider to decide claims for a distribution, including a hardship distribution:

(1)   Does an employer/administrator want a power to override the service provider’s decision?

(2)   Does a § 3(16) service provider want the employer/administrator to have such a power (even if the employer/administrator doesn’t want the power)?

BenefitsLink mavens, what’s your experience about what’s happening?

Our 3(16) platform specifies we approve all distributions, including hardships. None of our employers want to override our decisions; that's why they utilize it. . 

ratherbereading, thank you.

Any different views?

1 hour ago, Peter Gulia said:

ratherbereading, thank you.

Any different views?

Welcome!

There may be something in the agreement allowing it, but if that's the case, i'm not sure they're really offloading any liability.

Bill Presson, thank you for the further thinking.

1.  What's the point of hiring a 3(16) if you are just going to override them?

2.  If I am the 3(16) and the PA has overriden me, I have a co-fiduciary liability that probably puts me in a bind, which then opens a whole other can of worms . . . 

Pam Shoup, thank you for your observation.

There are some employer/administrators that believe (perhaps unwisely) there can be value in having the 3(16) provider handle claims, while preserving an opportunity to override a decision.

Thinking about that situation and a 3(16) provider’s § 405(a)(3) co-fiduciary responsibility about an override is among the reasons I asked my questions.

19 hours ago, Peter Gulia said:

Pam Shoup, thank you for your observation.

 

There are some employer/administrators that believe (perhaps unwisely) there can be value in having the 3(16) provider handle claims, while preserving an opportunity to override a decision.

 

Thinking about that situation and a 3(16) provider’s § 405(a)(3) co-fiduciary responsibility about an override is among the reasons I asked my questions.

It would seem that having the ability to override a decision would mean the employer/admin would be responsible for *all* decisions, not just the ones they override, because they could have overridden a decision and didn't implies they are agreeing with the decision.  That would certainly defeat the purpose of hiring a 3(16) provider.

We customarily provide in the division of responsibilities that the Plan Administrator oversees any benefit claim appeals -- so the TPA determines the initial claim, but the client determines the appeals.  Because a claims denial and appeals denial may lead to litigation, we thought it was more prudent to have the employer in charge of making that decision.  Also, I think that there is something "good faith"-related about having a different entity reviewing an appeal than the entity that denied the claim in the first place.

Keep in mind that the split of responsibility is either in the plan or in the delegation contract.  It is important that this kind of issue - who decides what? - is outlined with specificity so that no one is responsible legally for something that they thought they had no say over.

Ilene, thank you for contributing your good idea.

It puts some partial independence on the review or appeal stage.

And it might help show the responsible plan fiduciary does something to monitor the service provider’s work.  One can use a review of a denied claim to look into the service provider’s methods for evaluating claims of that kind.

Beyond ERISA-governed plans, this is an approach I use with governmental § 457(b) plans.  We provide the review beyond the recordkeeper to assure due process under Federal and State constitutions.  And the reviews give us another window into the recordkeeper’s work methods.