What Clients May Ask About Service Agreements

By ASPPA Net Staff • November 11, 2016 • 0 Comments
Caveat Emptor — buyer beware. That principle applies to all manner of purchases, and is part of the spirit behind a piece that appeared in a recent legal newsletter that offers tips on what plans could consider asking service providers before entering into agreements with them. And in a time of heightened scrutiny of fiduciary services and regulations that will (or may, in light of the results of the Nov. 8 elections) be implemented, such questions take on added importance.

In “10 Questions to Ask Before Signing That New Service Agreement,” Deborah Fabricant in Boutwell Fay LLP’s October 2016 newsletter offers pointers for employers, plans and plan sponsors to help them better scrutinize such agreements. But service providers need to be aware of questions they may be asked by prospective clients as well. Throw in the fiduciary rule, and it’s even more important.

Following are the questions Fabricant suggests be asked.

Who is signing the agreement? Employers should review the plan document and other relevant documents to determine who has the authority to sign service agreements as well as other associated obligations.

Who is a fiduciary regarding the services the agreement covers? Fabricant says that often service agreements had required the employer to agree that the vendor is not a fiduciary, even if some of the vendor’s duties as stipulated in the agreement are fiduciary in nature. She suggests that if the vendor does perform fiduciary functions, the parties to the agreement discuss that as well as indemnity.

How — and what — is the vendor being paid? Fabricant suggests that details concerning the compensation a vendor receives will make it possible to make sure that the agreement is in compliance with ERISA, as well as the Fiduciary Rule.

What services does the vendor agree to provide the plan? Fabricant suggests that a service agreement clearly stipulate the services a vendor is to provide.

What does the agreement require the employer to do? A service agreement should set forth what not only the vendor, but also the employer, is obliged to do under the agreement.

Who are responsible for the vendor’s mistakes? The agreement should address the liability, indemnity and “hold harmless” provisions, Fabricant suggests, adding that thoughtful negotiations and review by counsel may serve the parties well.

How is the vendor protecting the plan and its participants’ data? Fabricant posits that employers should review provisions in the agreement that concern disasters, both natural and man-made, such as data and security breaches and internet failure.

Can the vendor amend the agreement? Fabricant argues that many service agreements allow vendors to amend the contract at any time but do not give employers similar rights. She suggests that employers may find it useful to require that amendments be by agreement and in writing, that advance notice of changes be provided, and that the employer may reject a proposed amendment.

How is the service agreement terminated? Fabricant suggests that negotiations about the agreement’s provisions include discussion of provisions that would provide bilateral notice of termination and a detailed transition plan to facilitate work with a new vendor.

What happens to plan records?
A service agreement should specifically address:

  • how records will be maintained;

  • who owns records; and

  • what happens to records after the retention period.




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