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Why So Much Government Regulation? Why Use a TPA?

Answers from SPBA Past President Fred Hunt

Since TPAs play such an integral role in the successful design, function, and government compliance of employee benefit plans, we are sometimes asked whether hiring a TPA is required by law.  No, TPAs are not a legal requirement .  However, just like attorneys, doctors, tax preparers, investment advisors, etc. the processes of modern life are so complex and have so many serious pitfalls for even "innocent" or unknowing oversights, that as judges often advise:  "Only a fool has himself for a client."

Why is there so much government regulation?  Though I often get fed up with government meddling, I think the fair-minded responses would be, "Government feels itis a huge investor in each plan." and "It is for your own protection." 

Uncle Sam and States feel that they are major contributing investors in each employee benefit plan.  Their monetary investment is in the form of tax deductions for employers, plus not counting the value of the benefit given as taxable income to the workers & beneficiaries.  They call that "revenue loss" (the amount of taxes they could have otherwise collected.).

We tend to take the tax-exemption for beneficiaries for granted, but until very recently, there were some situations in which a person or family suffering some expensive medical situation, such as a premature birth, which can approach $1 million....would have the bill paid by the plan, but tax law would then count that $1 million value as taxable personal income to the unfortunate person or family.  SPBA always considered that kicking a person when they were down, and I am proud to say we played the leading role in getting that eased.

How big is Uncle Sam's investment in health employee benefits?  Well, employee health benefits are, by far, the largest "revenue loss" (how much tax they would have collected if something were not tax exempt or tax-deductible)....far larger than home mortgage interest deductions, for example.  The second largest revenue loss is pensions.  So, Uncle Sam (and States) feel they have so much of "their" money involved, that they have the right to be sure that it is spent in a way they feel is wise, and accounted-for properly.

After being involved in this arena on government regulation for over 30 years, I must admit that while rules are sometimes a pain and can seem arbitrary, government regulations DO play an important role in protecting the best interests of the workers and their families.  Unfortunately, the huge amounts of money involved in employee benefits are sometimes too big a temptation for selfishness & corruption.   So, the government rules, especially ERISA, which was designed to be the ultimate consumer-protection law, do provide substantial protection to employers, plans, and beneficiaries.