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What is a third-party administrator?
A third-party administrator (TPA) is an organization that handles certain administrative responsibilities for other organizations. TPAs typically take on claims administration, loss control, risk management, and retirement plan administration.
There is no one-size-fits-all model when it comes to TPAs. One company may hire a TPA to oversee their insurance claims and 401(k)s, while another may use a TPA to help with COBRA or return-to-work programs. There are more than 4,000 possible combinations of products and supplemental services for which a TPA can charge.
Outsourcing the administration of insurance, 401(k)s, retirement plans, or even day-to-day human resources allows companies to focus on what they do best rather than worry about administrative tasks.
How much is outsourced to a TPA depends on the size of the company and how much it can afford to spend. A small company may find it less expensive to handle its own services and benefit packages, but it makes perfect sense for a large company to hand over those duties to a TPA and use their employees’ talents in another way.
Generally, working for a TPA requires a background in banking, finance, accounting, or private insurance. Applicants with degrees have an advantage when it comes to getting a job, and those with experience and business skills have the edge when it comes to getting promoted.
Whether or not your company uses a TPA to manage its 401(k) plan, it’s always a good idea to run the costs through Bankrate’s 401(k) contribution calculator.
Third-party administrator examples
- Health care: TPAs are often contracted by health insurance companies to aid with claims, new customer acquisition, premium collections, and document mailing.
- Insurance: Many employers large and small self-insure, and they frequently hire a TPA to handle day-to-day claims processing and other administrative duties. The company sets aside a certain amount of money in a fund for insurance in the hope that claims do not exceed their fund. When an employee files a claim, it goes to the TPA administrator for processing. The TPA reviews the claim and pays it based upon the terms set forth in writing by the employer.
- Retirement plans: TPAs involved in the administration of retirement plans are generally hired by investment companies. They handle such functions as creating individual accounts and employee distributions.
- Commercial liability: It is common for a commercial general liability insurance company to hire a TPA when a commercial liability claim occurs. The TPA acts as a claims adjuster on behalf of the insurance company, overseeing the process from start to finish.