What Is A TPA?
Parker Elmore, ASA, MAAA, EA, FCA
About a third of all 401(k) assets are handled by retirement plan consultants or third party administrators (“TPA’s”). This stat might have you wondering if you’re missing out on something for your retirement plan. In this paper we are going to examine what they do and how they can benefit you.
What Is A TPA?
Third party administrators, or TPAs, are organizations that handle the administration of 401(k) and other retirement plans. An easy way to think of it is companies and municipalities “outsource” their plan administration to a TPA. The TPA is able to design a plan that will meet the needs of you and your employees and ensure that your benefit plan is operating within the limits of the law. They begin by determining your objectives for your retirement plan and work to achieve that. This leaves you free to focus on more important things.
How Can A TPA Add Value To Your Company?
- Address specific needs to design plans for employers and employees
- Monitor regulatory changes and keeping your plan in compliance
- Annual non-discrimination testing, as well as advising on any required corrective actions, completing annual plan filing to IRS
- Calculating vesting and hardship accounts
- Preparing loan amortization schedules, tax notifications, and participant distributions
- Keeping plans running smoothly and efficiently
Why Should You Use A TPA?
In addition to everything listed above, there are a few extra reasons you can benefit from working with a third party administrator. By not needing to worry about all the plan administration yourself, you and your company can focus on revenue driven processes and work on the day-to-day stuff. The use of a TPA also eliminates dependency on the employee(s) handling the paperwork, forcing you to scramble in case they leave their position. By finding a TPA with low turnover you can guarantee that you will have someone familiar with your plan and won’t worry about having to train someone on plan administration. Lastly, we often find that 401(k) plans administered through a TPA see a higher income due to more knowledge and experience in the industry.
What Is The Process For Choosing A TPA?
- You should consult with different TPAs about your needs for tax-deferral plans, employee retirement, and savings benefits
- After consultation ask for a proposal of all types of plans, including all provisions such as penalties and vesting schedules
- Once you’ve chosen a TPA, your administrator will obtain IRS approval for your plan, provide all necessary employee paperwork and work with you to enroll all of your employees