Third Party Administrators / TPAs Fiduciary Coverage
Do Third Party Administrators (TPA's) have fiduciary liability under ERISA?
The answer is, it depends?
A TPA that has a clearly defined written service agreement that spells out their specific services and responsibilities might believe that they are not fiduciaries under ERISA.
In fact, the courts often examine the details, issues and facts of a fiduciary claim of negligence to determine if the TPA is consider a fiduciary under ERISA. The courts recently have become more liberal in determining who is a fiduciary and who is not.
- If the TPA exercises any discretion or control over the plans assets, then they most likely are fiduciaries.
- If the TPA receives their fees directly from plan assets without oversight or approval then they also could be considered fiduciaries under ERISA.
A TPA buys professional liability insurance to protect themselves from claims from their clients. Making sure there is no fiduciary exclusion is important feature of that policy.
However many policies are either silent or have limited coverage for negligence based on the fiduciary claims. The best policy is to have "affirmative fiduciary" coverage and avoid gaps or grey area of coverage intent.
One prominent ERISA attorney when asked, "who is a fiduciary?" responds with, everyone. Her answer was based on court decisions and the belief that vendors need to understand their fiduciary roles and protect themselves from fiduciary liabilities.
As an insurance professional, that regularly consults with third party administrators, our position is that your errors & omissions policy should always contain ERISA fiduciary coverage. In addition, whenever possible, that coverage should be provided on an affirmative basis that leaves no question to the fiduciary coverage intent. The last thing a TPA wants in the event of negligence claim is to worry if their policy will provide a defense and pay damages on a fiduciary related claim.