Albany County, New York, officials have launched a fraud investigation into a deferred compensation plan provider after hundreds of county employees found their pre-tax employee benefits cards declined - and law enforcement agencies across the state are now involved.
As reported by 6 News, the target of the probe is Preferred Group Plans, a third-party administrator (TPA) that managed a flexible spending arrangement allowing public workers to set aside pre-tax dollars for eligible medical expenses, including co-pays and prescription drugs. County officials say the company appears to have shut down operations.
Albany County Executive Dan McCoy, based in Albany, New York, said the county has halted all payments to Preferred Group Plans and terminated its contract with the company. A replacement administrator is being sourced. New benefit cards are expected to be mailed to affected employees within approximately one week.
"Unfortunately, I don't think this is going to be a good outcome for a lot of people across this great state of New York," McCoy said.
The investigation is not limited to Albany County. District Attorney Lee Kindlon, Albany County, New York, confirmed his office is coordinating with law enforcement partners statewide, and said the potential victim pool extends to public employees at other municipalities and school districts across New York.
"My office is taking this very seriously," Kindlon said. "We are already working closely with our law enforcement partners throughout the state to investigate the full scope of what may have happened — and who might be responsible."
McCoy said the county intends to pursue legal action to recover any funds withheld from employees.
Public-sector benefit plans in New York operate outside the Employee Retirement Income Security Act (ERISA) — the federal law governing private-sector employee benefit plans — meaning affected government workers have no ERISA-based recourse. Their options depend entirely on state law and whatever contractual protections the county negotiated with Preferred Group Plans.
That gap matters. When a TPA fails or commits fraud against a private employer's plan, ERISA provides a federal enforcement framework and fiduciary liability standards. For public employees, those protections simply do not exist at the federal level, and state-level oversight of supplemental benefit plan vendors varies considerably.
The Internal Revenue Service (IRS) governs flexible spending arrangements under Section 125 of the tax code, but IRS oversight is limited to tax compliance — it does not extend to the financial solvency or conduct of plan administrators.
For brokers with municipal, county, or school district clients, the standard due diligence questions apply with new urgency: Is the administrator bonded? Does it carry errors and omissions coverage? What are the contractual terms governing insolvency or cessation of operations? The US Department of Labor's (DOL) Employee Benefits Security Administration publishes fiduciary oversight guidance for private-sector plans that brokers can adapt as a vetting framework for public-sector clients. Meanwhile, rising cost pressure is already pushing employers toward lower-cost, less familiar vendors — making vendor scrutiny a front-line broker responsibility, not an afterthought.
