A third-party administrator (TPA) significantly supports employee benefit plans. They offer various services that aid in managing and administering many processes of the plan and takes the burden of these tasks off of the employer, however they don’t alleviate liability. TPA’s handle enrollment and eligibility for employees, processing of transactions such as contributions, distributions, and managing investment options, as well as compliance and related reporting. Selecting a TPA for your employee benefit plan can be a daunting task, but there are some things to look for when considering engaging someone for these services.
Compliance and Regulatory Knowledge
It is crucial that employee benefit plans remain in compliance with various laws, regulations, and governing bodies. Frequently, TPA’s assist with this area of plan administration, therefore it’s important to understand what services they will be performing, as well as their processes for correcting errors in the event of non-compliance.
The Employee Retirement Income Security Act (ERISA) outlines requirements that employee benefit plans must adhere to, including having a written and current plan document, having a Summary Plan Description (SPD) that is digestible to plan participants, avoiding conflicts of interest, remitting contributions to the plan in a timely manner, providing required notices to participants, timely filing of annual reports to the proper governing bodies, performing annual nondiscrimination testing, and ensuring the plan is protected by an ERISA bond.
The Department of Labor (DOL) requires annual filings of Form 5500 for certain employee benefit plans. These filings have deadlines that must be met to avoid penalties. Additionally, having over a certain number of participants at the beginning of each plan year can generate the requirement for an independent audit. TPA’s may prepare and file this Form 5500 with the DOL on behalf of the plan.
The Internal Revenue Service (IRS) requires annual nondiscrimination testing to ensure that benefits provided by the plan are not disproportionately benefiting certain employees, particularly highly compensated employees. These tests may be prepared by the TPA and can include review of employee salary deferrals and employer contributions of non-highly compensated employees in relation to that of highly compensated employees. These tests may also identify plans where plan assets of key employees are excessive, requiring minimum contributions from non-highly compensated employees. Additionally, these tests identify when contributions have exceeded IRS annual contribution limits at the individual participant level. Lastly, the TPA may provide services that ensure compliance with IRS rules that govern distributions and require Form 1099-R filings for participants that received distributions in a given tax year.
Technology and Quality Control
The goal of a retirement plan is to get employees to save for their retirement so that they can live comfortably in that stage of their life. In order for them to achieve this, they may look to participate in the plan that you offer, therefore you want to make the process of enrollment and maintaining an account as simple as possible. Most people seek simplicity and easy access – this is obtained through online access and mobile apps. Will employees be overwhelmed or frustrated using the TPA’s website or mobile app or is it user-friendly? Are their retirement plan options at the tip of their fingers or do they have to complete paper forms for every change or requested transaction? It’s effortless to log onto an online account or open a mobile app to make changes to elective deferral rates or investment options. Employees may be less inclined to participate in a plan where they need to complete a ton of paperwork or jump through hoops to request a simple change to their account.
Can the TPA integrate with the providers you already use (i.e. recordkeeper or payroll service provider)? This integration makes things like employee elective deferrals, employer contributions, and loan repayments a simpler process and helps to avoid errors and conflicting information between service providers.
What kind of data security does the TPA have in place? They handle sensitive information and data, therefore it’s imperative that they have superior quality control processes in place to ensure data remains private and participant information remains protected.
Customer Service, Pricing Transparency, and Reputation
It is ideal to select a TPA with exceptional customer service. TPA’s need to resolve inquiries and issues in a timely manner, therefore, responsiveness is key. Do they process claims efficiently and accurately? Has it been clearly communicated to you what services they will be engaged to provide, as well as what processes you are responsible for carrying out? Review the pricing structure in detail to ensure it is clear, fair, and there are no hidden fees. Consider reading reviews on the TPA and obtain references if you can.
Plan Customization and Flexibility
Every organization has unique needs and things can change from time to time, warranting changes to plan documents and provisions of the plan. Does the TPA offer customization of the pension plan and, are they flexible and able to make changes to those plan documents with ease?
Education
Does the TPA offer assistance to your employees to help them understand their investment options and assist them in making educated decisions? Is this assistance only provided upon enrollment or does the TPA provide this education to ongoing employees on a regular basis?
Additionally, is the TPA educating you, the Plan Sponsor, and keeping you informed on upcoming changes to compliance or legislative requirements that could directly impact your plan? Do they clearly explain the various plan provisions that your plan offers so that you can make the most informed decisions that you can for your employees?
There are so many things to consider when seeking a TPA for your employee benefit plan. What works for a similar organization might not work for yours, so it’s important to do your research and ask questions. Taking the areas above into consideration should help you create a well-rounded and thoughtful decision.
Crystal Harvey
Supervisor
Crystal is a member of Cerini & Associates’ audit staff where she focuses on serving organizations across a wide spectrum of industries, including nonprofit, technology, and contractor clients. She has experience performing assurance work and outsourced accounting work, as well as preparing tax returns. Crystal has extensive knowledge surrounding the operations, controls, and environment of the sectors she focuses on. She brings her expertise, diversified background, and helpful approach to all of her engagements.