Health Plan TPA could Still Be a Fiduciary

October 16, 2009 (PLANSPONSOR.com) - A federal judge in Massachusetts has ruled that a third-party administrator (TPA) for two health plans cannot be blamed as a "functional fiduciary" for problems in processing claims that allegedly cost the plans millions of dollars.

However, U.S. District Judge F. Dennis Saylor IV of the U.S. District Court for the District of Massachusetts indicated that a trial would have to be held to decide whether the TPA, BeneFirst LLC, was instead a "named fiduciary."

Saylor asserted BeneFirst's discretion over the health plans, sponsored by a chain of New England and New York hardware stores, as well as its ability to control plan bank accounts did not rise to the level of making the TPA liable as a "functional fiduciary" under the Employee Retirement Income Security Act (ERISA).

The court cited the fact that many other federal courts have concluded that cases in which the sponsor retains final authority weighs heavily against a finding of functional fiduciary status in situations like the one presented in the BeneFirst case. Giving BeneFirst the ability to issue checks under the plan did also not effectively make the TPA a fiduciary, Saylor asserted.

Because the plans' summary plan description was not clear about whether anyone granted authority by the sponsor was a "named fiduciary," further proceedings would have to be held to clarify whether BeneFirst was still a fiduciary under that definition.

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The plans at the heart of the case are sponsored by W.E. Aubuchon Co. and Aubuchon Distribution Inc, which hired BeneFirst to act as the plans' TPA.

The Aubuchon companies filed their lawsuit against BeneFirst in 2005, alleging that BeneFirst made several claim processing errors that cost the plans millions of dollars during the period when BeneFirst served as the plans' TPA.

The case is W.E. Aubuchon Co. v. Benefirst LLC, D. Mass., No. 05-40159-FDS.

Fred Schneyer
editors@plansponsor.com