How to Evaluate Third Party Administrators
posted by Fisher 401(k) August 2, 2019
Third party administrators (TPAs) are organizations or individuals who are hired to be the plan’s compliance expert and handle the administrative tasks associated with managing retirement plans. These tasks include creating plan documents and amendments, processing paperwork, preparing and tracking benefit statements and participant notices, performing nondiscrimination testing, and generating reports for the Department of Labor (DOL) and the Internal Revenue Service (IRS).
Without a TPA to help carry the workload, internal plan administrators could be overwhelmed with all the work of administering the company plan. But TPAs can also provide guidance for more high-level issues such as evaluating a plan to ensure it is compliant with IRS compliance requirements, or even helping with plan design strategies to meet the needs of the business as it grows.
Just as you would when choosing a 401(k) adviser, selecting a third party administrator partner requires careful thought and consideration. No two TPAs are exactly alike; they can vary greatly in size, scale, skill, service offerings, technology, quality, and more. Here are some key factors to keep in mind when evaluating a third party administrator for your 401(k) retirement plan.
Third Party Administrator Qualifications
A strong indicator of a great TPA candidate is someone who has sought out industry credentials by the American Society of Pension Professionals & Actuaries (ASPPA) or the National Institute of Pension Administrators (NIPA). These exams not only test the administrator’s intimate understanding of retirement plan laws and regulations, but also require continuing education. This means they are not only well-versed in the minute details of 401(k) plans, but that they’re committed to keeping up on any relevant changes and providing employers with knowledge and insight into the ongoing management of their retirement plan.
3(16) Fiduciary Services
When you offer a 401(k) plan to your employees, you become what’s known as a “fiduciary.” This means that you have a legal responsibility to your employees to act in their best interests in making decisions about your retirement plan. The DOL defines these responsibilities as acting solely in the interest of employees participating in the plan and their beneficiaries, carrying out duties in a timely and accurate fashion, following the rules set out in your plan document, diversifying plan investments, and keeping fees reasonable. While you will always shoulder this responsibility, hiring a 3(16) fiduciary partner means that they will take on some of your fiduciary responsibilities when it comes to plan administration.
It's important to understand that most TPAs do not take on fiduciary responsibility. Simply by documenting changes they are not legally bound to the plan’s success or best interest.
Third Party Administrator Communication
As with any financial partner, clear communication with a TPA is key to a 401(k) plan’s success. Whether they are chosen by your 401(k) adviser or by you as the fiduciary, there should never be a disconnect when it comes to relaying important information. In our recent 401(k) Small Business Shopping Report, we found that 99% of respondents rated a dedicated point of contact as being either “very or somewhat important.” Ask your TPA about their channels of communication, expected turnaround time for tasks and questions, and who to contact in case something goes wrong.
But communication is about more than responding to your inquiries. The TPA you choose should not only be able to complete the necessary tasks, but also demonstrate an understanding of your business. They should be aware of important aspects of your plan, such as the size of your company, the number of participants involved, engagement statistics, employee demographics, and your overall goal for benefiting the employees.
Find the Administrative Support You Need
Managing a 401(k) is a complex task. It’s worth the time to find the right third party administrator for your retirement plan, and it’s important that the company you partner with is up to the job. Finding reliable retirement plan partners like TPAs is easier when you enlist the services of a dedicated 401(k) adviser that specializes in helping businesses like yours customize a retirement plan that’s right for them. Learn more about the many 401(k) service providers that serve as part of your plan’s team in our resource library, and contact Fisher Investments today to get help with everything from improving your plan to managing your investment lineup.