Recordkeeper & TPA…Just Like Peas & Carrots

By Joné E. Liuzza, ERPA, QPA, QKA

Joné E. Liuzza, ERPA, QPA, QKA

Joné E. Liuzza, ERPA, QPA, QKA Director of TPA Services

ADP.  ACP.  402(g).  Safe harbor.  Cross-tested.  404(a)(5).  Top-heavy.  TPA.  410(b).  CPA.  415.  ERISA.  404.  IRS.  DOL.  Blackout notice.   Revenue sharing.  5500.  QDIA.

It’s no wonder why a prospective client leaves his first meeting with a retirement plan consultant confused and overwhelmed.  A business owner just wants to offer a 401(k) plan to his employees.  Why does everything have to be so complicated? 

There are so many technical definitions and IRS regulations it often leaves a prospective client frustrated and ready to call it quits before he even gets started.  Any seasoned retirement plan consultant is well aware of this battle and approaches it with patience and care.  A consultant will discuss plan design at a high level and explain both the costs and tax benefits that come with offering a plan.

401(k) Recordkeeper vs. TPA: What's the Difference?

It doesn’t take long before a consultant has to explain the difference between a recordkeeper and a Third Party Administrator (TPA).  Yes, they are different, but they go together like peas and carrots.  This is why most of the industry is structured in a “bundled” manner, where the recordkeeper and TPA are one and the same.

What does a recordkeeper do?

A recordkeeper offers the investment platform and is typically the custodian of plan assets.  Primary functions of the recordkeeper are to track how much money you have and what money source it belongs to, invest contributions, process distributions and provide participants with quarterly statements. 

All major recordkeepers have a website where participants can check their balances, request loans, update their addresses and change their investments.  A recordkeeper may charge an annual administration fee and charge participants a small quarterly account fee.  The recordkeeper provides much-needed information to the TPA.

What does a third party administrator do?

A Third Party Administration firm is composed of retirement plan experts who keep the plan up and running.  Primary functions of the TPA include plan design, legal documents and annual government compliance.  TPAs work very closely with the plan sponsor on daily functions such as distribution and hardship requests.  Prior to completing the annual valuation the TPA will review census data, verify eligibility, calculate any contributions receivable owed to the plan, complete all required IRS compliance testing and prepare the Form 5500.  TPAs also work with the plan sponsor to ensure all notices are distributed to participants timely.

In a nutshell, the recordkeeper provides technology and data.  The TPA, in turn, analyzes and uses the data to help clients not only keep the plan compliant, but also to suggest improvements in design and operation.

Should you choose a bundled arrangement or a hands-on TPA?

Whether or not to have a bundled arrangement or have a local, hands-on TPA will depend on your goals.  The cheaper, bundled approach tends to be cookie-cutter and reactive.  More involvement from the plan sponsor is required.  A standalone TPA, on the other hand, provides customized, results-oriented consulting services with minimal involvement by the plan sponsor.

ACG has been in the TPA business for 35 years, consulting clients and their CPAs on the ins and outs of retirement plans to come up with the best results.  We partner with the nation’s leading recordkeepers to leverage their technology while providing you with the service you deserve.

Learn how we can help you with TPA services by contacting us. If you liked this article, you may want to check out our free checklist for plan fiduciaries below.

Are you aware of your options and responsibilities as a plan sponsor?

— Topics: 401(k), Retirement