Over time, the role of third-party administrator has been diminished in the eyes of many. This week we asked NAPA-Net readers to share their experiences.
Perhaps not surprisingly, nearly all (98%) of this week’s respondents do, in fact, work with one or more TPAs. Asked why the chose to do so, readers noted (more than one response was permitted):
76% - Assists with technical difficulties
56% - Overall, better for plan sponsor
45% - Makes my life easier
34% - Assists with plan/client retention
29% - Helps me win business
24% - Not really my choice/decision
We received a lot of comments on this aspect—here’s a sampling:
Helps with more complex plan design, more flexible than some recordkeepers, local relationships and plan size.
My preference is bundled recordkeeping/compliance. However, if a plan sponsor needs a more complex plan design to accomplish their goals (targeted employer contributions, cash balance plans, etc.) then I will work with a TPA.
Better if I have 1 person doing it all... the TREND is the opposite now... most TPA platforms moving to TEAMS.. .no accountability and ability by us to have the most important issue the Trustee calls in to us dealt with... I see this TREND as a cost reduction and staff shortage reaction.
We believe in a 3(16) structure and having a TPA that also acts as a plan fiduciary offers us and plan sponsor a lot of coverage.
For more complicated plans, they are helpful in addressing compliance issues.
I work with TPAs when the plan has something complex in the document such as an Employee Stock Ownership Plan. I would prefer to not work with TPAs.
Bundled is better on a spreadsheet but not usually over a three year cycle.
The business has changed in the smaller (sub $5M) market and recordkeepers are trying to create efficiency and keep costs lower, so service has changed. Does a plan sponsor want someone with 5-10+ years of experience answering their question or someone with 1-2 years of experience? That’s the dilemma.
The main reason our firm works with TPAs are for clients that have more complex plan design and or compensation calculations: new comparability with over 10 rate groups, sole proprietorship or partnership income.
I am so thankful for my TPA partners. It provides another “set of eyes” for data management and proper compliance. It tremendously helps with audit, especially in that they can say WHY, match calculation, testing or plan financials are a certain way instead of the recordkeeper saying they will post another report that doesn’t provide any additional information/clarity.
Helps with expanding my firm’s consultant business.
I love that you’re calling them compliance consultants... that is how we work with them on many of our uber-complicated plans. We use these “consultants” not for “administrators” but to assist with controlled group testing and with highly complicated plan forumlae (usually comparability plans).
I believe that the only reason to go with a TPA vs bundled is the expertise of a TPA. You are likely getting someone with decades of experience, “a specialist.” Whereas going bundled you may end up with a recent college graduate as your internal TPA, who is climbing the corporate ladder & getting replaced by another college graduate in a few years.
Generally speaking we prefer a bundled model with recordkeeping & admin together—it typically makes reporting better & routine admin functions more streamlined & automated—and this is particularly important on higher headcount plans. However, for smaller headcount plans, particularly that have specific plan design needs, a TPA can work better. All of that said, most commonly the decision on working with a TPA (or not) is made before we ever show up on the scene, as whatever model is being used when we are engaged by a new client is usually (but certainly not always) the model they stick with whatever model they had in place before they engaged us.
A good TPA makes an advisor’s job easier just like a good advisor makes a TPA’s job easier.
We work with bundled and unbundled plans. Some TPAs are great and enhance the client experience. Some are not so great. The complexity of the plan design and the competency of the client’s staff drives our consult on using a TPA.
I have developed close TPA relationships and tend to rely on their knowledge and their keeping up in regulatory issues related to plan documents and other topics.
I work with them on plans where the plan sponsor would benefit from a more hands-on approach, or where this is complex plan design.
It SHOULD make my life easier and it used to make my life easier, but TPAs have slowly taken away the services they used to offer for free. Now they want you to use the 3(16) service offer to get those previously free perks. Our team has recently discussed only doing business in the future with a 3(21) and 3(16) in place for the client.
There can be some additional hand holding with TPAs, especially for smaller plans, but there tends to be a lot of confusion with roles when using a TPA. Sometimes they just perform the annual testing and 5500 services, but other times they are doing loans and other distributions/vesting and clients nor participants know where to go. As an advisor, I do not perform any of those duties, but I regularly receive calls from participants who were referred to me from their HR Dept to take a loan or hardship when they really need to be calling the RK or sometimes the TPA to process those. It is just too many people involved and causes confusion.
Some relationships require the technical expertise or capabilities of a TPA (such as combo DC/DB plan arrangements, clients that require cross-testing as part of a control group or plans with more archaic design that simply cannot be serviced on newer platforms) while I’d argue most could be adequately serviced in a bundled arrangement with a recordkeeper.
They are a perfect complement to our practice, they handle the details we can speak to at a high level but don’t want to get bogged down with. They are an extension of our advisory team.
Much better to have an expert handle plan design issues. They get it right for what the client is looking to accomplish.
Many bundled providers are an 800 number to being ignored.
A good TPA makes an advisor’s job easier just like a good advisor makes a TPA’s job easier.
Why ‘Knots’?
And while the number of respondents was much lower, we also asked readers if they didn’t work with TPAs, why not:
72% - My clients don’t want another party they have to talk to.
59% - Adds a layer of complexity.
31% - My plans don’t need a TPA.
28% - Too expensive.
7% - Too technical, doesn’t speak English to clients.
We also got some interesting comments on this topic. Here’s a sampling:
When TPA is involved, some transactions such as loans and distributions, seem to take longer to process. Also, plan sponsors send only basic data to the recordkeeper and a complete census to the TPA. Since the TPA doesn’t share that data with the recordkeeper, the calculators on the recordkeeping site are not meaningful to either the plan sponsor, the advisor, or the participant.
For the ones that don’t use a TPA, the clients have worked with one in the past and found the communication to be confusing and “clunky.”
Often either don’t add value (a TPA on a Safe Harbor plan with a basic plan design adds little value), and most in our experience, don’t partner well. They view it as “their” client, and only communicate with us, the advisor that brought them to the relationship, as a last resort or seemingly begrudgingly.
Many of the steps the TPA have put in place haven’t evolved to today’s pace. For example, RKers have streamlined the distribution and approval process to get checks out within 1 business day. When a TPA is involved this can take weeks, resulting in unhappy plan sponsors and participants.
I found that TPAs add frustration and expense to the plan sponsor.
Why 3 contacts versus 2.
Every client can benefit from having a TPA involved, the level of familiarity they provide has not been matched by any bundled provider that I have used.
Process Prudence?
As for whether they had in place a partner selection process:
47% - Yes, but it’s not a formal process.
30% - No.
20% - Yes, a formal process.
3% - Not yet.
We also asked what readers wished TPAs better understood/appreciated about working with advisors, as well as an opportunity to share best/worst case stories of working with TPAs—but that will wait for the April 3 at the NAPA 401(k) Summit where an expert panel of industry leaders will show you the way to get the most from those partnerships!
Oh—and if you haven’t signed up yet, I’d recommend you do so ASAP—https://napasummit.org
Thanks to everyone who participated in this week’s Reader Radar poll!
