Joseph A. Wiggins, Jr., AIF® Founder/Chairman
Let’s ask Siri. Or Alexa. Or maybe we’ll Google “TPA.”
Okay, so Google says “TPA” means Tissue Plasminogen Activator! And if you’re an M.D. (I suppose I should clarify that means Medical Doctor), Tissue Plasminogen Activator is the only thing TPA stands for!
Oh, but if you’re an attorney, it means Tri Party Agreement … or is it Trade Practices Act? But what if you’re a dentist? Every dentist knows that TPA means Transpalatal Arch! And if you’re a pilot, it means Tampa International Airport!
Saving the best for last, if you’re the President of the United States, it means Trade Promotion Authority: a power reserved specifically for the President of the United States!
Will the Real TPA Please Stand Up?
You know what’s interesting? All the “TPAs” mentioned above hold positions of great importance narrowly associated with the professionals indicated. But with all due respect, there is yet another TPA whose activities impact nearly every working citizen in America! Retirement Plan TPAs (Third Party Administrators) are the glue that holds together all the 401(k) plans, pension plans, profit sharing plans, ESOPs and every other qualified retirement plan on which American workers depend for a secure and dignified retirement.
If you are a business owner reading this, and your company sponsors a retirement plan, your best friend is a dedicated retirement plan Third Party Administrator.
So what exactly does your TPA do for you?
Looking down from 30,000 feet, let’s conclude that your TPA’s job is to help keep your retirement plan in compliance with all law and regulation to which it is subject. That means ERISA and other federal law and regulation, IRS rules and regulations, Department of Labor rules and regulations and all other rules.
More specifically, your TPA’s tasks include, but are not limited to, tracking all deposits and contributions, investment trades, earnings and losses, reconciliation of all plan assets, confirming vested status of participants, completing all required compliance and nondiscrimination tests, determining who is eligible for a retirement distribution or a hardship, processing loans to participants, preparation of benefit statements, completing and filing the plan’s tax return (5500 series), assisting with qualified domestic relations orders … and the list goes on and on.
Oh, wow! What a specialty! If you’re a business owner, how would you like to be responsible for all that? Can you imagine all the headaches you’d have without a good TPA? Oh, and when Congress decides to change the law (and they seem to love to do so almost every year), your trusted TPA steps in and advises you on what you have to do next to remain in compliance with the new rules.
Oh, lest we forget perhaps the most important TPA contribution of all: they are the frontline soldiers who are there to assist you in designing and installing your plan at the outset. Just think, to know how to do that, they not only must be expertly versed in all the business types and objectives for even having a retirement plan, but also be informed in the entire spectrum of retirement plan design options and provisions so as to deliver to you precisely that unique plan designed tailored to meet the specific objectives you established for your company.
Oh well, there are only an estimated 78,000 pages of law and regulations governing retirement plans in the U.S. Staying up late at night and staying up to date with all this is just a piece of cake.. Just ask your favorite CPA or attorney friend if they want to step into this role. (Oh, and doesn’t it seem odd that the largest payroll companies in America want to be your TPA so that they can capture and manage all the investments of your retirement plan?) What is it they are specializing in? Payroll? Investment management of your plan’s funds – so that they can say their TPA fees are dirt cheap? Probably not TPA expertise!
So how do TPAs get paid for all this expertise, anyway?
Could it be they just love the hard work to stay abreast of all the law and regulations – and do it for free?
Since most business retirement plans are “sold” by investment brokers, insurance agents, mutual funds and others interested only in capturing the investment revenue from plan assets, in recent years there has been a movement to claim that retirement plans are a commodity and that fees for TPA expertise should be nominal at most. That works until the IRS or Department of Labor knocks on the door for a plan audit and discovers the countless oversights and defalcations that have occurred because someone other than a qualified TPA has been “watching the store.” How valuable is the TPA then? Ask around; most professional TPAs provide services for reasonable fees disclosed in advance of any engagement. Under Department of Labor rules, any fees that are paid by the plan (and not the plan sponsor) are required to be reported on a regular basis, and if fee changes occur, disclosed in advance as well.
A plan sponsor should not retain a TPA because he or she is the cheapest, or because the TPA services are an add-on to some other more primary service, like payroll. Most business owners don’t drive a Yugo to work, nor do they skimp on professional services. That’s what makes them successful in the first place.
A good TPA is a professional, just as is a good CPA or good attorney. And the difference between a good one and a bad one is a superior knowledge and years of experience in all things ERISA and related law and regulation. A measure of their success is how error-free they can perform, thus eliminating the headaches associated with plan management.
So if you’re a business owner whose company sponsors a retirement plan, you can decide now whether your TPA should be a Tissue Plasminogen Activator, a Transpalatal Arch, or the cheapest guy on the block. Odds are, you’ll opt for one of those dedicated ERISA experts whose well-rounded knowledge of ERISA and retirement law is most likely to keep the wolves away from your company’s retirement plan.