Third Party Administrators (TPA's) TPA's are often discussed in a generic way in reference to providing recordkeeping and administration to a retirement plan. However, we thought it would be helpful to discuss more specifically the different functions that a TPA (in the generic sense) performs. One way of categorizing their services is: recordkeeping services, plan design and document preparation and maintenance, compliance testing, 5500 filing, and distribution and other participant processes. Recordkeeping Services Recordkeeping is the accounting of how much each participant has in their account and what type of contribution it came from. Today, almost all recordkeepers are internet and phone based for participant's to have a convenient and engaging experience. Two critical components of recordkeeping is the degree by which the participant can interact with what is needed, like deferral changes, beneficiary changes, investment changes, and the tools available for planning for retirement. We suggest this be a critical part of the evaluation process when hiring a service provider. Plan Design and Document Management Many times with small plans (plan assets of less than $25 million), the TPA can act as a consultant and provide a plan document specific to your company and be charged with keeping that plan document compliant and up to date with the latest legislative requirements. This is usually done through either a prototype plan or a volume submitter plan. For additional information on the difference see this www.benefitslink.com post. Although prototype and volume submitter plans can be fine and convenient for many plan sponsors, from time to time, the specialization of an ERISA attorney may be needed. These attorneys are also likely to use a prototype of volume submitter document but you will get legal expertise that you’ll likely not receive with a TPA managing your plan document. It’s also important to understand, that although the names prototype and volume submitter sound generic, how they executed for your organization. The benefits are that service providers and the retirement plan industry use standardized language that helps them work together, getting outside this language can sometimes cause additional expense and complexity, but sometimes there’s good reason to have non-standardized language. Compliance Testing Compliance testing is designed to detect if the retirement plan is designed to more favorably treat one group of individuals versus another with regards to contributions or other benefits of the plan. Every year a retirement plan is tested to determine if such a violation is present. In 1999 the a Safe Harbor was created that allowed plans to fail certain testing requirements if the plan made certain unrestricted contribution to non-highly compensated employees. This allowed certain contribution strategies to come about to help employers make contributions that might otherwise be termed as discriminatory. The most common compliance test are the ADP (average deferral percentage) test, the ACP (average contribution percentage) test, and the Top Heavy Test. Part of the administrator's job is assisting plan sponsors navigate when they might violate these tests, when they are violating these tests, and corrective measures to bring the plan back into compliance. 5500 Filing Every year a retirement plan files a tax return. This tax return is IRS form 5500. Think of it as a similar document to a corporate tax return or a personal tax return, but with the specific retirement plan data. This is a public document and you can find the filing of any plan in the US at www.efast.dol.gov. For plan's that meet certain thresholds of 100 employees or more, a plan audit is required with the 5500 filing. Distributions, Loans and Other Cash Flows The TPA will also facilitate credit deposits to participant accounts, administrating loans, processing rollovers in and out of the plan, and any other activities like hardships and so forth. Although these feel very administrative in nature, we cannot underestimate the importance of these going smoothly so that participant accounts are accurate and their needs are met. Summary TPA's play a critical part in retirement plans working smoothly and efficiently. The right TPA can create a harmonious successful plan and benefits program, the wrong TPA can create compliance and HR problems that spill over into larger governance and cultural issues. At Garde Capital we have worked with most TPA's in the Pacific Northwest and would be delighted to share our experience and assist you in finding the right TPA for your needs.