Coming Together
Creating a retirement plan can be like shuffling puzzle pieces around the table. Some advisers find they enjoy working with other professionals in helping plan sponsor clients maximize their retirement plan offerings. One that such professional advisers often form relationships with is the third-party administrator (TPA).
When advisers go into the market looking for a TPA with which to work, they need to weigh costs against services provided. How to compare costs and platforms? Two TPAs may seem identical but charge quite differently. An adviser should also consider the TPA’s back-office support. What follows are four considerations for advisers in creating a strategic partnership with TPAs.
1) Not all TPAs are equal. When you are considering a TPA, make sure its access to retirement platform providers is extensive, and do not forget about the intangible, personal side of things, says Kevin Adams, sole proprietor of TPA Connection, a Michigan company that helps connect the different players needed to set up and administer a retirement plan.
“Not all TPAs are equal,” cautions David Witz, managing director of Fiduciary Risk Assessment and PlanTools in North Carolina.
The U.S. has many widely respected retirement plan platform providers. “A TPA should have access to all of them,” Adams says.
Because of the amount of interaction between the TPA and the plan provider, advisers will naturally want to know something about a TPA’s back-office operations. “Most TPAs will have all the bells and whistles that make [the retirement plan relationships] work, from a digital standpoint,” Adams says.
“If you’re an adviser, reputation is everything,” Adams adds. “The TPA has more interaction with the plan sponsor than the adviser does, so you want to make sure the TPA is supportive and approachable.” Thus, Witz suggests finding a local TPA and checking its references.
2) Understand Everyone’s Role. No successful retirement plan stands alone. Behind every plan adviser and sponsor stand a myriad of TPAs that help fill the gaps between the two.
Since advisers cannot provide all the pieces that go into plan design and management, TPAs are crucial to providing other services, Witz says. The key here is to decide whether to bundle or unbundle TPA services.
“From an efficiency perspective, all my plans are unbundled, so it’s important that other parties understand the roles they’re providing,” says Gregg Andonian, an accredited investment fiduciary with Baystate Fiduciary Advisors in Massachusetts. “Sit down and go through their engagement letter and your engagement letter and look for inconsistencies, as well as the things you’re both providing.”
While most TPAs list the documents they provide to a plan, it never hurts to ask them to specify this information in writing, adds Ross Brown, senior vice president of sales and relationship management at ExpertPlan Inc. in New Jersey. “What the [TPA] is currently charging could go outside the scope of the standard service agreement with the recordkeeper,” he says. Added services can send a TPA’s costs rising. But the absolute cost should be considered in context, Brown points out. “If the TPA has ERISA [Employee Retirement Income Security Act] attorneys on staff, having that bundled can be a more efficient and valuable way to present services to the adviser’s client, who gets better pricing on economies of scale.”
3) Keep compliance in mind. Keeping a plan compliant should be on every adviser’s short list of tasks.
Advisers might want to note, for instance, which TPAs do compliance testing, Adams says. A platform provider will not do this testing, and neither will the adviser. “The top-heavy test gets done every year. What the federal government is trying to do is see that the plan serves all employees—not just very highly compensated ones.”
Voluntary compliance corrections, for things such as late deposits or improper treatment of participant loans, are another example, Brown says. “Each TPA is unique—they do not all provide this service, and advisers cannot assume they’re going to provide A, B, C, D. So hammer out the actual nuts and bolts of what is being provided.”
The new fee regulations are another big driver behind services from TPAs, so it pays to stay alert of any changes in offerings from the service provider.
“One TPA we work with is rolling out a new service on fiduciary compliance,” Andonian says, “and one of the reasons is the new fiduciary compliance services centered around 408(b)(2) and 404(a)(5).”
Brown notes that if a plan falls out of compliance under voluntary compliance program regulations, advisers may need to contract with an ERISA attorney, who will bring it back into conformance again (see sidebar).
4) Get the most for your money. One challenge for advisers is to coordinate the efforts needed to support their plan sponsors cost-effectively and efficiently. TPAs can charge for a range of services and supports, which need to be explained in detail. When it comes time to compare services and providers, it is imperative for advisers to review service documents side by side, so they can see the delineations between what each provider offers, Brown notes. The ancillary services a recordkeeper offers, such as ERISA support, are not typically included in the standard service agreement, Brown says. An adviser could make incorrect assumptions about the services that are not specifically broken out and assume they are included. Therefore, it is critical for an adviser to have a checklist of all the services he expects a TPA to supply—and negotiate the inclusion of any the TPA has not offered.
“If someone is looking for an opinion letter for a plan document, he may assume that the TPA is going to draft that letter,” Brown says. In fact, the TPA may only provide a draft of the parameters of the plan document, Brown says, leaving it up to an attorney to write the actual letter. In instances such as this, the adviser has to negotiate with the TPA how the service will be handled.
ERISA Attorneys: Key Partners
One crucial partnership for a 401(k) plan adviser is with the ERISA [Employee Retirement Income Security Act] attorney, yet most advisers do not know how to maximize a collaborative relationship with an attorney, says David Witz, managing director of Fiduciary Risk Assessment and PlanTools in North Carolina.
Working with an attorney can provide a cost benefit to the adviser’s clients, points out Gregg Andonian, an investment fiduciary with Baystate Fiduciary Advisors in Massachusetts. For example, ERISA counsel created his firm’s investment policy statement, which he can use for other clients. “This way, they don’t have to recreate the wheel,” he says. “We are giving them templates based on our service model. Documentation is supported by the actual process we deliver—having an ERISA attorney look at that and draft documents to our model ties it in better for the client.”
Even if the adviser is equipped to take on some aspect of ERISA, support or fiduciary status, whether his compliance department will permit him to offer such a service must be addressed. “Many do not,” Witz points out. Another thing he cautions advisers to stay on top of is keeping their skills up to the task. “Advisers with minimal skills will find it difficult to secure an attorney’s engagement to prepare a report on any topic the attorney [believes the adviser is unqualified] to provide, because the attorney has liability for the engagement,” he says.
If a plan falls out of compliance with ERISA, advisers may need to work with an ERISA attorney to bring it into conformance again, Brown says.
Conversely, if the attorney hires the adviser as an agent of the law firm to provide consulting, this subjects the adviser’s report to the attorney-client privilege. However, Witz says, such an arrangement assumes the adviser is competent in a given domain of ERISA—for example, 408(b)(2) compliance analysis—and is able to sell the plan sponsor on the idea of preparing an evaluation of their compliance efforts. The adviser can offer that service directly or as an agent of a law firm. If structured properly, the adviser wins the engagement, picks up a client and protects the plan sponsor.