Signing up with a third-party administrator (TPA) is like getting married, you come in with the best of intentions and you never think that things won’t work out.
In 22 years of being an ERISA attorney, I have never met a plan sponsor who understood what the termination fees were when they signed up their contract. That’s troubling because when things go south, there might be the sticker shock when a plan sponsor realizes what it’s going to take to break free from a TPA that they want to get rid of.
Deconverting a plan takes a lot from the TPA’s side and any termination costs are a proactive way for TPAs to hold on to their clients, especially those who might fire their TPA the way that George Steinbrenner fired managers pre-Joe Torre.
It’s important for a plan sponsor to understand upfront, what it will cost them to break free when things go south. By the way, zero chance that a TPA will negotiate a termination fee the way you can negotiate a pre-nuptial.
