A staffing firm may hire an outside benefits administrator to reduce its administrative workload, access specialized expertise, and transfer certain responsibilities and risks to another party. However, under the Employee Retirement Income Security Act (ERISA), outsourcing certain plan functions does not eliminate the employer’s responsibility for selecting and monitoring the provider.
For agents evaluating fiduciary liability insurance for staffing firms, key questions include who controls the benefits plan, which responsibilities the employer retains, and whether the firm’s insurance addresses potential claims arising from outsourced services.
What Responsibilities Stay With the Staffing Firm?
ERISA assigns fiduciary responsibilities based on the authority someone exercises over a benefit plan, not their job title.
An outside administrator that simply processes paperwork according to established procedures may not be a fiduciary. A provider with discretionary authority to make decisions about plan benefits, management, or assets may have fiduciary responsibilities.
A staffing firm can delegate certain fiduciary functions through an appropriate agreement, allowing the provider to assume responsibility for those decisions. However, the employer may remain responsible for choosing a qualified provider and monitoring its work.
The arrangement matters particularly for staffing firms sponsoring retirement plans or ERISA-covered health plans, including partially self-funded plans. The employer’s responsibilities depend on the plan structure, delegated functions, and authority it retains.
What Should Staffing Firms Know Before Signing a Contract?
A staffing firm hiring a third-party administrator needs to understand exactly what it is paying for and who will make decisions affecting employees’ benefits.
The U.S. Department of Labor advises employers to compare providers’ services, experience, and costs, understand contractual obligations, and obtain commitments for regular performance updates.
Agents can encourage staffing clients to ask several questions:
- Decision-making authority: Who determines benefit eligibility, handles appeals, or makes other discretionary plan decisions?
- Fees and compensation: What services are included, and does the provider receive compensation from other parties?
- Accountability: How will the staffing firm evaluate performance, resolve complaints, and document its oversight?
A signed contract alone does not establish that an employer has fulfilled its fiduciary obligations. The selection process and reasons behind the decision also count.
What Happens When the Benefits Provider Makes a Mistake?
An outside administrator’s error does not automatically make the staffing firm liable. However, ignoring signs of poor performance can create a separate problem for the employer.
Consider a staffing firm that receives repeated employee complaints about denied health plan claims. Management forwards the complaints to its administrator but never checks whether the provider is following the plan’s claims procedures. If the administrator continues to mishandle claims, questions may arise about whether the employer has fulfilled its responsibility to monitor the provider.
The U.S. Department of Labor advises employers to establish a formal process for reviewing their benefits service providers at reasonable intervals. Employers should examine performance reports, verify the fees charged, confirm that the provider maintains accurate plan records, and understand how it processes claims and handles employee complaints. When problems arise, the staffing firm should investigate, follow up with the provider, and determine whether corrective action is necessary. Documenting those steps can help demonstrate that management fulfilled its oversight responsibilities.
Does Fiduciary Liability Insurance Address Outsourced Benefits?
A staffing firm’s decision to outsource benefits administration should also prompt a review of its fiduciary liability coverage.
World Wide Specialty Programs offers fiduciary liability insurance that protects staffing companies and company-appointed fiduciaries against covered claims involving employee benefit plans. Depending on policy terms, coverage may address allegations that the employer failed to prudently select or monitor an outside provider.
Agents should examine who qualifies as an insured, which benefit plans the policy covers, and how exclusions or other provisions apply to delegated responsibilities. Coverage for an outside administrator should not be assumed.
A separate concern involves routine errors in benefits administration, such as missed enrollments or inaccurate employee records. Employee benefits liability insurance may address certain administrative mistakes, while fiduciary liability insurance addresses covered breaches of fiduciary duties.
Before recommending coverage, agents should ask their staffing clients who manages their benefit plans, who makes discretionary decisions, and how the employer monitors outside providers. Contact World Wide Specialty Programs to review fiduciary liability insurance options for staffing firms that outsource employee benefits functions.
About World Wide Specialty Programs
For the last 50 years, World Wide Specialty Programs has dedicated itself to providing the optimal products and solutions for the staffing industry. As the only insurance firm to be an ASA commercial liability partner, we are committed to that partnership and are committed to using our knowledge of the industry to provide staffing firms with the best possible coverage. For more information about Staffing Professional Liability Insurance or any other coverage we have available to protect your staffing business, give us a call at (877) 256-0468 to speak with one of our representatives.