Third Party Administrators | How to change your party?

Third Party Administrators (TPAs) are defined as organizations that perform administrative services in accordance with a service contract, typically in the employee benefits field.  TPAs are utilized by different types of employee benefit plans including: 401K, 403b, pension, employee stock ownership, etc.  Whether you are thinking about using a TPA for the first time or are considering switching TPA’s, certain responsibilities and requirements in administering the plan and managing its assets need to be thought through.  TPA changes often occur due to fee changes, unhappiness with current service providers, corporate rotation requirements or a change in plan demographics and participant needs.  Plan sponsors may want to use a TPA to lessen risk within their organization.

Typical services provided by TPAs include:

  • Production and distribution of annual benefit account statements
  • Maintaining records of participant accounts
  • Contributions
  • Withdrawals
  • Investment election percentages
  • Investment gains and losses
  • Tax reporting
  • Tiered web access for the plan sponsor and authorized individuals with separate access for participants
  • Preparation of financial statement components including summary of plan assets and income statement.

Is it more beneficial to perform these functions in-house or to outsource?

TPAs can be flexible and provide personalized service based on the needs of the plan sponsor.  A TPA’s role is advising and implementing the decisions made by the plan sponsor.  When a TPA is used, the plan sponsor remains responsible for decision making, as if a TPA was not contracted.

There are many TPAs to choose from and it is important to weigh the advantages and disadvantages of outsourcing instead of performing the functions in-house.

Advantages

  • Access to experienced specialized staff
  • Latest technology availability
  • Savings on in-house staffing
  • Less room for error

Disadvantages

  • TPA fees
  • Opportunity for a conflict of interest
  • Not taking responsibility and relying too heavily on the TPA

Employing a TPA is a decision that should be given careful consideration and will depend on the plan sponsors needs.  The use of TPAs is a popular trend and more plan sponsors are joining the party.

Elise Graf
Elise Graf | Senior Manager