What is a TPA?
A 401(k) administrator, or a third party administrator (TPA), is a type of retirement plan TPA.
Most retirement plan TPAs deal with all types of employee retirement plans, 401(k)s included, but in this post, we’ll specifically focus on the role of a 401(k) plan TPA.
Keep reading to find out what this type of expert can do for you, and whether it’s in your best interest to hire one.
What Does a 401(k) Third Party Administrator Do?
A 401(k) TPA takes on certain administrative roles on behalf of an employer who is the sponsor of a 401(k) plan. To understand what a 401(k) TPA is, you need to understand the professional services that 401(k) companies provide for such employers.
Here are the main roles this type of tax expert performs:
- Helps design your employee 401(k) plan so that it’s in compliance with the legal requirements set forth by the Department of Labor (DOL) and Internal Revenue Service (IRS)
- Helps design your 401(k) plan so that it meets your company goals — for example, to minimize employer contributions while still making employees happy
- Acts as a go-between for the company sponsoring the 401(k) plan and the record keeper who holds the plan’s assets
- Helps prepare the annual tax return and report materials related to your company retirement plan
Roles of 401(k) Providers
Now that you have a general idea of what a third party administrator does, you can gain further understanding by learning the specific duties this person might perform when you hire them to administer your employee retirement plan:
- Restating and amending plan documents
- Preparing benefit statements
- Annual plan testing to gauge compliance with IRS and DOL requirements (e.g., participant contribution limits, non-discrimination requirements)
- Calculating vested percentages for plan participants
- Completing the Form 5500 to satisfy ERISA reporting requirements for employee benefit plans
This is not a complete list of retirement plan services or TPA duties, but should give you a fuller picture of the day-to-day activities a TPA will perform in the administration of your plan.
Questions to Ask a 401(k) TPA
Selecting a TPA to handle your retirement plan services is a major step. As such, you want to be as informed as possible and sure that you’re selecting the right TPA for the needs of your company.
When selecting a TPA, be sure to ask the following questions:
- What type of plans do you administer? Not all TPAs offer the same services, so you want to ensure that they’re a good match for you.
- What sort of fees are involved? Every TPA has a different pricing strategy, but each TPA you consider should be able to provide you with a summary of their fees.
- What is your level of experience administering 401(k) plans? Be sure that the TPA’s experience is relevant to your needs.
- Do you have references? Just like when you hire an employee, when hiring a TPA you should seek out references.
Should I Hire a Third Party Administrator to Manage My 401(k) Retirement Plan?
In most cases, it’s a good idea for employers (plan sponsors) to hire a third-party administrator to manage their small business 401(k) plan. In cases where the plan’s record keeper who holds the plan’s assets also implements the plan’s design, you will not need the services of a TPA — assuming you trust your record keeper is doing a good job of managing the plan.
This 401(k) plan checklist from the IRS is a good resource to help you figure out if your plan is in compliance with all government regulations. If you answer “no” to any of the questions on this checklist, or the person who currently manages your employee retirement plan cannot answer these questions to your satisfaction, please contact a qualified 401(k) TPA to help ensure your plan is in compliance with IRS requirements.
If you'd like to schedule a free consultation to see if a third party administrator can help you with your retirement planning, contact us today!