A benefit plan administrator is a person or company that is responsible for the day-to-day management and operations of health benefits and pension plans on behalf of their participants and beneficiaries. Before you set up one of these plans and consider appointing or hiring a plan administrator, learn what these important managers do.
Benefit plan administrators perform duties related to the operation of a company’s employee benefits plan or retirement plan. The business or organization that offers the benefits or retirement plan to its employees or members is the plan sponsor. Plan administrators essentially operate the same for the two types of plans:
The plan administrator can be:
Employee benefit plans (both retirement plans and welfare benefit plans) are regulated by the U.S. Department of Labor under the Employee Retirement Income Security Act (ERISA). Under this law, plan administrators must meet specific standards of conduct in their plan duties.
In addition, employers may choose these plans to be qualified by the IRS in order to receive tax benefits. The qualification process, though, is complicated and has many specific requirements.
When a business forms a benefits or pension plan, it must designate a plan administrator, naming that person or TPA in the plan documents.
Every retirement or benefits plan under ERISA must name at least one fiduciary in the written plan document. A fiduciary is someone who acts with the responsibility of care for the money, property, or interests of someone else. A plan may have several fiduciaries, including a trustee, an investment manager, as well as the plan administrator.
The plan sponsor also has duties to comply with IRS requirements, administer the plan to follow its terms in operation, and review the plan to make sure it’s operating according to its terms and the law.
Under federal law, the employee plan administrator must perform these duties:
There are even more specific responsibilities that plan administrators have, such as:
Some plan administrators manage investments for plans and their participants; in other cases, the investment function is administered separately. Giving “investment advice” is a specific fiduciary function under ERISA.
The Society of Professional Benefit Administrators (SPBA) warns that fiduciary duty under ERISA is very different and much stricter than fiduciary duty in insurance and normal business law. The fiduciary must always make sure that the plan and participants get the best possible deal.
Plan administrators, whether they are company insiders or TPAs, potentially have liability (legal responsibility) for their actions. If a fiduciary doesn’t follow the basic standards of conduct, they can be personally liable for any losses to the plan, or to restore any profits made from improper use of plan assets.
If the plan sponsor hires a TPA to handle the fiduciary duties, the employer is liable for the selection of the TPA but not for the TPA’s decisions. However, hiring and managing a TPA is also a fiduciary function, so make sure you thoroughly vet applicants and document your process.
Anyone who handles “funds or other property” of an employee benefit plan (like investments, for example) must be bonded under an ERISA fidelity bond. This bonding protects the plan from losses due to fraud or dishonesty (theft) and other breaches of fiduciary responsibility.
The bonding requirements, though, do not apply to completely unfunded plans (those that are paid directly out of an employer’s or union’s general assets), or plans not subject to Title I of ERISA like those provided by churches and governments.
Those that generally must be bonded include:
Bonding requirements must apply to a “natural person or persons” (individuals, not companies), and they must be named specifically in the document.
To get an ERISA fidelity bond for your plan administrator, you must use one of the Treasury Department’s approved companies.
There are certain reasons why you may want to hire a TPA for plan administration duties instead of handling the matter internally. With a TPA, you can:
However, If you decide to self-administer your employee benefit plan, take a look at this guide to self-administration first to see what it takes.
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
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