It might not have made it to your calendar, but today happens to be National TPA Day.
The timing is no accident—yesterday would have been for many calendar-year ERISA plans the (extended) deadline for filing the annual ERISA 5500 form.[i] Like April 15 for CPAs, that date—and timing—are of enormous consequence. And with that annual deadline in the rearview, third-party administrators everywhere can, perhaps, heave a huge sigh of relief. Maybe even throw a little “party.”
The relationship between advisors and TPAs is complex, and one in which there seems to be little middle ground. For every advisor that tells you how many times their TPA partner has gotten them out of a real mess—and for every TPA that applauds the leadership demonstrated by their advisor teammate—well, there seems to be one that either dismisses the TPA’s propensity for a mistimed focus on minutiae that is the essence of being a dutiful TPA, or one that frets that an advisor’s focus on the “big picture” obscures significant operational and administrative issues.
There is, in fact, a certain yin and yang to the perspectives of the two roles—and just like the concept that originated in Chinese philosophy (describing opposite but interconnected, mutually perpetuating forces)—successful (and legal) plan design and operation require a balance. Where plans often fail is when one or the other dominates.
Just as advisors are often (and inaccurately) seen as the sole fiduciary in a plan once they’re hired, TPAs are generally assumed to be attending to all of the particular details of accurately running the plan; we’re talking about things like ensuring that the terms of the plan document are adhered to, that non-discrimination tests are properly applied, and that contributions are timely deposited. The lines are often blurred between TPA and recordkeeper—the latter technically being a TPA, though these days the level of services can differ dramatically.
Over time the role of TPA has been diminished in the eyes of many. Sure, they deal with a lot of technical “minutiae”—we’re talking deep in the “weeds” here. The classic reference is you ask what time it is, and they (some, anyway) first want to explain to you how a watch is made. That said, the role of plan administrator—perhaps a better label would be compliance administrator—is essential—critical—to the smooth, effective and efficient running of a plan—and on aspects that,[ii] odds are, your recordkeeper (another critical role, but one often focused on other things) isn’t always. They can even help you find—and keep—clients!
That said, TPAs come in all shapes and sizes—and like advisors—have different service models, areas of specialization and, yes—personalities. If you’ve had a bad experience—you’re not alone. But for my money, if you want to be able to focus on the plan issues that truly require your expertise—rather than your attention—you’ll find that all to be easier with the assistance, support, and guidance of a qualified TPA.[iii]
If you’ve found a good one (or two)—be sure to give them a hug—and maybe a cake. It’s National TPA Day, after all…
Additional TPA Resources:
Bundled Versus Unbundled: 5 Myths
[i][i] Credit the folks at John Hancock for—to my eyes, anyway—making TPA Day a “thing.”
[ii] Things like that:
- All eligible workers are included in the plan—as required by law—and ineligible workers are not unduly credited with benefits?
- Compensation used as the basis for contributions and/or eligibility is accurate, in accordance with ERISA and IRS limits, both with regard to amount (how much) and individuals (who)?
- The plan’s allocation of benefits meets legal requirements and the correct individuals receive the correct amount(s), thus preventing the need for corrective measures and penalties?
- The amount(s) allocated to individual participant accounts match the actual dollars deposited into the plan/trust. Additionally, to ensure that contribution deposits are made to the plan/trust in accordance with legal requirements, forestalling legal fines and penalties?
- The appropriate plan notices are timely delivered to the applicable individuals in accordance with legal requirements, providing them with important plan information and instructions (and preventing the application of penalties for failing to do so)?
- Employees are properly categorized as to their status as highly compensated employees (HCEs), key employees (for top-heavy testing) and spousal/familial relationships so that the allocation of benefits and eligibility is appropriate and consistent with legal requirements?
- The tax filings related to the plan (Form 5500, 8955, 5330, etc.) are filed accurately and on time in order to comply with the legal requirements regarding the plan, and thus avoid fines and penalties?
- The amounts distributed as loans or distributions are consistent with the vesting schedule of the plan, in accordance with plan parameters and legal limits—and that the needed authorizations are obtained?
