To perhaps state the obvious, all third-party administrators (TPAs) are not alike. Those differences can make or break a good working relationship—with you, and your plan sponsor clients.
Here are some “check” points:
Where they are.
Let’s face it, if COVID and its associated lockdowns have taught us nothing else, it’s affirmed that most of us can work from… anywhere. COVID didn’t create that capability, of course, but it did “legitimize” remote servicing and support in a way that many firms might not have been willing to accept or embrace otherwise.
That said, proximity (still) matters for some, as a means of establishing and/or nurturing a relationship—whether it be between an advisor and a TPA or a TPA and a plan sponsor client. It’s worth knowing where—and for a growing number of TPAs that isn’t a single location—your partners are.
Who they are.
This winds up being a more subtle insight, one that is arguably (still) best accomplished by means of developing an ongoing, working relationship.
However, there are certain objective touchstones—the founders and their background(s), the tenure of the firm, the quality and caliber of staff (validated by education and professional industry credentials), turnover (or, more significantly, lack thereof) and, yes—client references.
And lest you forget, there’s a sister association (ASPPA, the American Society of Pension Professionals and Actuaries) chock full of great TPAs.
Though, as always, the key is to find partners who are a fit with you, your practice, and your clients.
What they do.
Things have grown significantly more complicated over the years; we’re talking about an extraordinarily extensive list of services, including amending and restating plan documents; preparing employer and employee benefit statements; assisting in processing all types of distributions from the plan; preparing loan paperwork for plan participant; testing the plan each year to gauge its compliance with all IRS non-discrimination requirements as well as plan and participant contribution limits; allocation of employer contributions and forfeitures; calculating participant vested percentages; and, preparing annual returns and reports required by IRS, DOL or other government agencies.
However, there is no standard list of services that all TPAs provide. Indeed, one need only briefly peruse the listings of those firms in the NAPA Black Book to appreciate just how varied those offerings are.
Good partnerships match the services offered to the needs of the client (including the advisor), but frequently the best TPAs provide services of which you—and/or your plan sponsor clients—may not even be aware.
A good starting point is the list here.
How they do it.
Arguably more important than the “what” is the how.
As part of the NAPA 401(k) Summit Insider the past several years, we’ve asked advisors their primary consideration in selecting TPA partner. Consistently, and perhaps unsurprisingly, they have consistently ranked service well above[i]—in fact in last year’s survey it was cited twice as much as all other criteria combined!
However, short of actually working with an organization you may have nothing beyond eloquent elaborations in an RFP or finals presentation upon which to base an assessment. In fact, the only real validation in this criteria is… actual experience. Unfortunately, actual experience can be a painful, if effective, means of learning.
The ‘What If’
Let’s face it—“excrement occurs.” Even the most diligent plan sponsor and well-administered plan can make a mistake. Maybe a payroll coding error means that a employee who should have been eligible to participate gets overlooked—perhaps a compensation element is overlooked in discrimination testing—or a subdivision’s contribution isn’t deposited on a timely basis. When there is a problem—and, sooner or later, there will be a problem—having a knowledgeable—and accountable—compliance partner that can not only help remedy the situation, but minimize the impact and disruption is worth their weight in excise taxes and penalties (avoided).
The reality is, of course, that like advisors, all TPAs are not created equal—they have different strengths and skillsets, and wildly different ideas as to their responsibilities and services. That makes it hard to obtain an apples-to-apples comparison—all the more so if you don’t have a good idea of the kind of partner—and partnership—you’re looking for.
But arguably, your odds of a good experience here are much improved if your potential partner passes muster on the criteria listed above.
[i] The second-most cited criteria here—and one that outpaced #3 cited fees by a significant margin—was the ability to help with plan innovation. That emphasis stood in some contrast with the focus on recordkeeper partners and fees.