It takes a village to raise a child, and the same principle applies to retirement plans. An excellent retirement plan is the result of a team effort. As a financial advisor, you shouldn’t be expected to know everything and do everything. You need to pull together a team of professionals to help your clients get the most out of their retirement plans.
In addition to an ERISA attorney, it is wise to have a Third-Party Administrator (TPA) on your team. A TPA handles all of the day-to-day details to keep a plan compliant with the Internal Revenue Code and therefore protect the tax-deferred status of contributions.
What Does A TPA Do?
As the name implies, TPAs administer retirement plans on behalf of sponsors. If there is no TPA, then the plan sponsor is the default administrator.
TPAs handle all of the record keeping associated with retirement plans, preparing benefit statements, loan paperwork and annual reports. They also perform compliance testing based on data provided by the plan sponsor. Form 5500, in all of its detail, is prepared by the TPA for electronic filing.
One of the most impactful tasks of a TPA is plan design. The ability to maximize tax deductible contributions is a great separator among TPAs. In addition to crafting plans, many TPAs also help draft plan documents and amend and restate current ones.
Benefits Of A Good TPA
TPAs are as varied as retirement plans. Some are large, some are small. Some specialize in cash balance plans, others in 401(k)s. TPA firms can be designed to work with all kinds of plans, so most any plan sponsor should be able to find one to fit their needs.
Most plan sponsors don’t appreciate the benefits of a good TPA until they have worked with a bad one. Having a TPA that will keep records and administer the plan correctly eliminates potential fiduciary liability and plan sanction or disqualification. A bad TPA is a liability and puts the plan and its qualified status at risk.
Plan design is not as simple as some TPAs will lead you to believe. The design and documents cannot be one-size-fits-all. Different plan sponsors have different employee populations, financial resources, and needs. Plans should be designed to fit specific sponsors’ requirements.
Is a cash balance plan best? Or a safe harbor? Or a defined benefit plan? The only way to know is for the TPA to sit down with the plan sponsor and get to know them and their employees. A great TPA will take the time to get to know the plan sponsor’s needs and craft a unique plan that will most effectively meet them.
How To Choose A TPA
As a financial advisor, finding the right TPA to work with has real, tangible consequences for your business. Recommending a bad TPA can hurt your reputation and you could even lose clients over it. A good recommendation builds trust with your clients and can grow client assets and your business as a whole. Because of this, it is vital that you take the time to find a reliable, capable TPA to partner with.
Being legally obligated to ensure fees are reasonable, that is usually the first thing that plan sponsors look at when assessing a TPA. Fees are important and should be compared against other TPAs providing similar services to similar clients. Fees are not the most important thing, though, and should not trump competency and quality. The right TPA will more than cover the cost of their fee difference by correcting mistakes and preventing new ones.
When searching for a TPA, you should:
- Ask other professionals for referrals
- Validate the TPA’s credentials
- Verify their knowledge of plan design
- Ask for recommendations for the TPA’s current clients
- Get a feel for their current client base
- Review the TPA’s insurance coverage
- Check to see if claims have been filed against them (whether through insurance, litigation, IRS, or DOL)
How I Can Help
If you are looking for a knowledgeable, trustworthy TPA to work with, I would love to meet with you. I am a pension specialist and TPA. I have extensive experience designing and administering plans and would love to discuss my services and expertise with you.
Perhaps you doubt the quality of some of your current clients’ TPAs? Together we can sit down and review what your clients may be missing out on. Email me today at firstname.lastname@example.org to find out how we can partner to bring your clients’ retirement plans to a whole new level of excellence.
About Kenny Phan
Kenny Phan is a Managing Partner at FinancialFocus Retirement Plan Services, a 3(16) fiduciary. He works as a pension specialist who partners with financial professionals to design and implement pension plans. His area of expertise is customized defined benefit, defined contribution, and 401(k) plans. Serving financial advisors and businesses in the greater Phoenix area, he is supported by FinancialFocus Retirement Plan Services. Together, they provide comprehensive plan design consultation, administration, document installation, compliance testing, as well as IRS and DOL reporting for qualified retirement plans.