The Pension Protection Act and recently passed pension legislation amounted to hundreds of pages of regulations affecting 401(k)s and other retirement plans. The size and heft of these laws speak volumes about the complexity and difficulty of administering retirement plans.
In addition, the Department of Labor has increased the number of retirement plans that it audits. DOL statistics show an estimated 70 percent of retirement plans audited in 2009 and 2010 were fined, received penalties or had to make reimbursements for errors. During this time period, the DOL collected $1.08 billion in corrections, reinstatements and fines.
“Fortunately, business owners who provide retirement plans for their employees don’t have to digest the Act or become experts in pension administration if they simply consult a local third-party administrator,” says Brian M. Smith, Director of Sales and Consulting with Tegrit Group.
Smart Business spoke with Smith about how to utilize third-party administrators (TPAs) when trying to decide how to structure your company’s retirement plan.
How can a TPA help with retirement plans?
TPAs provide a wide range of retirement plan services for business owners, from consulting on regulatory changes and maximizing retirement plan designs to administering defined contribution and defined benefit plans. Many small and medium-sized employers lack a dedicated, in-house specialist to administer retirement plans. Working with a local TPA fills the need to have a benefits expert close at hand.
TPAs work closely with dozens of business types in a variety of industries. They understand the challenges business owners face such as rising taxes and business expenses, health care reform, retaining talented employees and more. That means your local TPA is well equipped to help you design a retirement program that meets the unique needs of your company, squeezes the most out of your benefit dollars, provides incentives for your employees and helps you accomplish your own retirement goals.
Why is this kind of assistance so important to business owners?
Running a successful business of any kind is more difficult than ever in today’s challenging economic climate. For many business owners, offering a qualified retirement plan is an ideal way to attract and retain key employees, as well as help the owners plan for their own retirement. For example, given the competitive work landscape, employer match programs are becoming more popular as tides are turning.
The issue facing many business owners is determining the type of plan that is best for their employees and themselves. Is it a defined contribution plan like a 401(k) or a defined benefit plan?
Selecting the right plan for your business is a crucial step and a third-party administrator, with expertise in plan design and administration, can help assist you in meeting your fiduciary responsibility to the plan while providing a path for your participants to achieve their retirement goals.
Has it become common for business owners to utilize TPAs to administer their retirement plans?
When you bring together years of experience implementing and serving plans, the retirement plans can be more specialized. Businesses can think more outside the box with the expertise of TPAs, as there’s no longer a check-the-box, cookie-cutter solution.
What should an employer look for when deciding on a TPA?
Before you team up with a local TPA firm, make sure you do your due diligence, as not every TPA has the same level of expertise. Ask the right questions to make sure you have a good fit, such as:
- How extensive are the TPA’s services? Does the TPA specialize in a specific niche such as 401(k) plans, or does the firm consult on a broader range of retirement benefits?
- What is the TPA’s reputation in the marketplace? Check references to determine if the TPA is easy to work with, whether or not it delivers quality service and if it designs effective retirement plans. Ask for specific case studies.
- How long has the firm been in business? How many plans and participants does it service?
- Is it willing to propose a retirement plan design for your company, at no cost, that takes into account your employee and business needs?
- How many employees does it have? Do employees have credentials or receive training from professional organizations such as the American Society of Pension Professionals and Actuaries?
If you are unaware of the TPA firms that are available locally, contact the provider of your retirement or other benefits programs for referrals. Most providers work with a nationwide network of TPAs that most likely includes some in your area.
Is a team approach or one administrator better when using a TPA for your retirement plan?
There is no right or wrong answer as it depends on the needs of the business. However, a larger TPA firm has the ability to fill more needs than one CPA. The large firm can focus on a host of services from actuarial consulting to plan design to document services. A one-person CPA firm that provides TPA work will be limited in what it can do, so these firms often focus on one piece of the business.
Brian M. Smith is the Director of Sales and Consulting for Tegrit Group’s Columbus, Ohio, office. Tegrit Group is a national leader in actuarial consulting, plan administration and technology solutions for public and private retirement plan sponsors. Reach him at (614) 458-2060 or [email protected].
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