Straw, Stick and Brick House TPAs.
As a service provider and expert in retirement plan compliance and consultation, we’ve seen our fair share of poor plan designs and compliance work on plans we take over. While there are dozens of reasons a plan may go awry, we find that many times the fault does not lie with the plan sponsor directly, but with the service provider the plan sponsor engages to assist him with his administrative duties. In times of trouble, these mismanaged plans are blown away by avoidable fees and penalties due to lack of diligence and experience on the service provider’s part.
Unfortunately, most small business owners don’t know enough about retirement plans to know what they don’t know and what they are not receiving.
The Straw House TPA
This service provider usually comes with brand recognition and low, low fees. Sometimes they may bundle all of the plans services together such as custodian, record-keeper and compliance consultant. They may even tell the plan sponsor that their services are free. Beware! While their popularity and low prices may seem appealing, the expertise and specialization needed to properly administer a qualified retirement plan is often lacking. The level of experience and education of their staff is often lower than a smaller firm as they need more employees to service the business they bring in with their bargain basement fees. Did you know that if you ask most TPA firm owners how long it takes to adequately train a staff member to service their clients, they will tell you two years or more?
Typically, the large discount and/or bundled firms do not specialize in plan design services. Generally, you will receive a “one-size-fits-all” plan design that may not take into account the nuances of the company or the goals of the plan sponsor. They may not even ask whether or not the plan sponsor owns other companies that should be covered. There is also a lack of resolute customer service and expert advice. You and your participants may be stuck with long wait times and unclear direction when calling their toll free number for assistance or advice, and you will rarely talk to the same person twice. When the time comes for annual testing or audits on your plan, you may find yourself in a straw house with no proper shelter from errors or fines due to poor plan management. You may have a plan that is not built on a solid foundation of quality customer service, expertise, and knowledge.
The Stick House TPA
At times, employers will entrust a financial services professional to assist them in the administration of their retirement plan, one who is not necessarily as qualified as a firm that specializes only in compliance consulting and administration of retirement plans. These service providers are typically very good at what they do and are already trusted advisors of the plan sponsor. They are generally very qualified to be advising the client about investment portfolios, tax strategies, or other areas within their expertise. Therefore, the client assumes that they would also be qualified to assist them with their retirement plan. However, they lack the expertise, constant education and keeping up to date with retirement plan rules and regulations, and they simply may not realize what they don’t know. This can lead to required compliance tests being overlooked and uncorrected for years, which allows for errors in plan design or contribution allocations. The service provider may unknowingly miss retirement plan specific issues simply because they are not trained in compliance for retirement plans.
This service provider will almost always provide better customer support than the Straw House TPA. They are typically smaller firms with experts in fields other than retirement plans such as investment advising or tax consulting. Therefore, the foundation that their clients’ plans are built on will be stronger than the plans using the straw house TPA firm, but it won’t be as strong as it can be, and the plan may still be at risk for plan design and compliance errors.
The Brick House TPA
We recommend searching out a well-established, local, non-producing compliance consulting and third party administration firm to administer your plan. A non-producing TPA will not push investment choices or compete with investment professionals, and will have no limits on whom they can work with. They will not attempt to be experts in both investment advising and compliance consulting, which would be almost impossible due to the complexity of both areas of retirement plan administration. They will work as a team with the investment advisor and the plan sponsor to ensure a solid foundation of service, plan design and compliance is established up front and maintained. They will include the plan sponsor’s CPA and payroll provider in the planning stages and ongoing administration of the plan as members of the client’s full team of advisors. They can help with the payroll set up for contributions as well.
By choosing a local TPA, you guarantee the opportunity for more personalized service, face-to-face plan design or evaluation meetings, and a better knowledge of the staff supporting your retirement plan. You will have the opportunity to know your team of experts and develop a relationship with them. In turn, they will be able to know and understand the plan sponsor’s business and goals. Well-established firms have more time to develop their team of experts, who focus on the compliance and management of your plan. Often they require that their staff become certified in retirement plan administration through national associations and then maintain their credentials through continued education each year.
A Brick House TPA helps plan sponsors to establish a firm and lasting foundation to support their plans. Through education and credentialing of their staff to focusing on expertise in retirement plan compliance and plan design as well as individualized customer service, they help to ensure that the client’s plan will not be blown away by errors and penalties when the big bad wolf comes knocking.
If you’re interested in starting a plan, seek out a firm specializing in plan design and consultation. If you’re looking for a new TPA to take over the administration of your plan, search for an expert in plan restoration and compliance consultation.
Ask your investment advisor or CPA for referrals and schedule a meeting to discuss your retirement plan today!