Why it might be time to partner with a third-party administrator

Recently home from ASPPA's annual conference, I'm reminded about the amazing role of third-party administrators (TPAs) and why it might be time to consider partnering with one (or more) if your employer clients haven't already done so. 

I spent most of my career on the TPA side of the industry, carefully examining the details of IRS and DOL regulations playing out real-time in plan administration, and I think it takes a special kind of person to really enjoy unraveling the mysteries that can get thrown their way. 

When I was in the TPA arena, I worked closely with advisers who loved helping their clients oversee the plan holistically. They went beyond providing investment lineups to educating clients' employees, making sure their service providers were working for them and checking in on shifting priorities over time. The plan advisers knew they could call me for certain critical areas of plan support.  

TPAs are critical for small businesses that often need hands-on support and custom retirement plan designs to support their growth. With the rise of modern technology, TPA services are becoming more available and affordable for advisers servicing their small-business clients. Since there are several TPA options, it's important to explore which ones are best for your clients. 

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Here are some common ways I helped my clients when I was with a TPA and key tips you should consider when evaluating a TPA partner.

Custom plan design
If you have clients that want or need plan designs not typically offered in bundled recordkeeping arrangements, a TPA firm can often walk you through proposals and illustrations that get to the heart of their goals. 

If the client wants to exclude bonuses, commissions and overtime, a TPA can help assess whether that definition will work for the demographics and compensation structure of the company. They also can perform the required testing needed year-over-year. Keep in mind that some bundled providers may allow these forms of compensation to be excluded, but include provisions in their service agreements that leave the required compensation testing to the client, which could leave them exposed. 

TPAs also may support more creative plan designs and testing options to the greater benefit of the client. The annual 401(k) and match testing can exclude certain employees, take varying definitions of compensation into account and be written to use prior-year ratios for better planning. These testing options may be limited by bundled providers, but may require an educated review with the client to be optimized. 

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Similarly, a TPA may help design the plan to provide varying levels of benefits to groups of employees and perform the tests to ensure compliance with nondiscrimination rules. This would involve coverage tests including and excluding recently eligible employees to get the best results from the required general testing. TPAs can offer out-of-the-box solutions to help your client make the most of their plan.

Owner-focused benefits
For clients that are focused on going beyond standard 401(k) and match designs, TPAs can additionally provide more customized profit sharing and even cash balance combination designs when appropriate to maximize benefits for the owners of the business. Not only can this greatly accelerate their retirement savings and investing goals, but provide a significant tax benefit to them as well. 

The key will be to keep the TPA informed of any significant demographic shifts in the company, or potential changes in ownership or family member employment. These changes can have a profound impact on these customized plan designs. When a TPA is used to set up plans to meet retirement and tax goals, though, and kept in the loop, the cost of service is often just a fraction of the short- and long-term benefits to your client.

Expertise and continued education
The best TPAs I know love to geek out on the puzzles that retirement plans bring, maintain credentials that push them to continually learn, keep up with the latest regulatory changes and guidance, and stay engaged with their adviser networks. These are folks who can spout regs but also consult in client-friendly terms. They aim to get to the heart of the issue, help the client understand what is needed of them to meet their goals and guide them to get the most out of their recordkeepers. 

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The overarching mission is to work with service providers that care about your clients and their qualified plans. This may look like a mix of a recordkeeper(s) that offer both bundled and unbundled services to cover the variety of service levels, pricing and complexity, as well as take your consulting and services to the next level. 

Just like any industry, there are providers that are top-notch and others that leave something to be desired. Take your time to interview TPAs, whether local, a nationally recognized provider, or digitally focused, and find one that speaks to your service style and types of clients you serve. Having a TPA in your corner can elevate your knowledge and services if you find the ones that work well with you and your recordkeeper.