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Third Party Administrator (TPA)

A third party administrator (TPA) is an organization that assists companies in processing health insurance claims and benefits administration of its health, 401(k) and insurance plans. TPAs also handle insurance underwriting and customer service on behalf of their client company. They manage the collection of insurance premiums to process and pay for employee claims. 

Many companies outsource their benefits and insurance administration to save on costs and employee training. Oftentimes, administration of these plans can become complex and convoluted due to increased government regulations and reporting requirements. TPAs are good for companies who offer self-insured, retirement, and FSA plans. They often go out to bid for its client company, negotiating rates and formulating the plan design that best works for the organization. When employers are unhappy with their benefits packages, TPAs will engage different providers and put out a Request for Proposal (RFP). This creates a competitive market where various providers compete for a company’s business. 

When a TPA manages a 401(k) plan for an organization, it will often act as the fiduciary manager for the plan deciding on key elements of the plan’s investment portfolio and offerings. The TPA will manage and reconcile all employee and employer contributions. They also manage requests for distributions and loans from employee 401(k) accounts. TPAs perform non-discrimination testing on behalf of the organization.

TPAs also assist with the annual enrollment process, including printing of communication material, sending electronic communication to employees, and promoting new benefit packages on an employer’s website. They will often manage the online employee self-service sites for the employers and its employees wishing to enroll, change, or view their benefit plans. They will charge the employer fees based on the complexity and range of products and services performed.

When a TPA manages a 401(k) plan for an organization, it will often act as the fiduciary manager for the plan deciding on key elements of the plan’s investment portfolio and offerings. The TPA will manage and reconcile all employee and employer contributions. They also manage requests for distributions and loans from employee 401(k) accounts. TPAs perform non-discrimination testing on behalf of the organization.

Learn about benefit administration services insurance.