Drastic TPA Fee Increases Trigger ERISA Suit

September 2, 2017

A District Court recently ruled that a group of current and former employees’ ERISA suit against their employer and third-party administrator ("TPA") was permitted to proceed. The employees alleged that the TPA's fee structure was set up to “extract unreasonable fees from participants.” Previously, the employer was paying premiums directly to medical and other insurers and the TPA received a flat per participant fee. The employer then changed the fee structure and began making contributions through the plan and the TPA's compensation changed to a percentage amount of the total amount of contributions paid. This change caused the TPA's compensation to increase twenty-fold and triggered the litigation. Although the case is not resolved, a crucial factor is that the court already ruled that the plaintiffs adequately alleged that the employer and TPA were ERISA fiduciaries. Although fee increases are normal and to be expected, any dramatic changes in fee structure or amount, such as in this case, should be carefully monitored and vetted.

 

Abraha v. Colonial Parking, Inc., 2017 WL 1052558 (D.D.C. 2017)

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