What Should You Look for in a Great TPA by Emily A. Halbach, APA, QKA
You walk into a store and you see two perfect pair of boots. Both look almost identical to the naked eye. What is the difference? How do you choose? You ask for both pair in your size, try them on, walk in them, and make your decision based on how they feel to you.
Choosing a TPA for a retirement plan is like shopping for the best pair of boots. What makes them great? Do you want support and comfort, or do you want precision and craftsmanship? Possibly you want both. Most clients have a checklist of needs when it comes to choosing a great TPA. But, that leads us to ask: What makes a great TPA?
Here are some things our clients do and should look for:
KNOWLEDGE. In an industry that is constantly evolving, with new laws and government guidance happening continuously, it is critical that your TPA – not just the company owner but the person actually assigned to your plan – is up to date on education. The corollary to that is: Can your TPA then tell you what you need to know? Can they explain the pitfalls in your plan, how to avoid them, and explain those pitfalls well enough that you understand their recommendations? Albert Einstein said it best: “If you can’t explain it simply, you don’t understand it well enough.” Knowledge and the ability to communicate that knowledge are key to your TPA’s value. If your 401(k) Plan failed its nondiscrimination (ADP/ACP) testing, do you know that your TPA knew about and used all of the tools in its tool belt to help you pass? And, if failing has caused refunds, did they know all of the ways to minimize the amounts refunded to the HCEs, or better yet did everything in their power to eliminate them completely?
You can assess your TPA’s knowledge and communication skills when you interview them for the job. How do you assess knowledge? One way is to look for whether it is a standard for the TPA’s employees to have earned designations, such as the Accredited Pension Administrator designation from NIPA. This demonstrates both studious employees and education-driven TPA firms.
RELATIONSHIPS. The TPA’s role is vital and broad to a retirement plan. TPA’s help design plans, produce plan documentation, monitor account values per person per source, ensure plan compliance with the myriad of requirements of the Internal Revenue Code and Department of Labor, determine and review loan payments, prepare all tax forms, educate our clients… and more! However, none of that really matters if you and your other advisors, such as your accountant and your financial advisor do not have a relationship with your TPA.
When you need help for your plan, do you have someone you can call at the TPA’s office with whom you feel comfortable and confident? Can you access that person easily, or do you get their voicemail more often than a live person? Do you talk to the same person, or does the TPA use a “pool” of account representatives to answer all client questions? Is the primary means of communication through email, telephone, or in person? None of these questions have a definitive answer. What is important is that you get the level of communication and service with which you feel comfortable and that provides you with the response timing that you need. Another element of this relationship is how pragmatic your TPA is. Most clients want direct answers, not dissertations on the problem. While there is not always a short and sweet answer to the issues you are addressing, does your TPA respond to your actual needs and in a manner, you can understand?
PRIORITIZATION. Does your TPA prioritize your needs in a manner that gives you answers when you need them? Not every question or issue needs immediate attention, and all TPAs have to balance the needs of all their clients. Nonetheless, if your TPA is always putting out fires for you, and never simply servicing your needs as they arise, something is not working well – either at your end or at the TPA’s.
Email response turnaround time is a common complaint that unhappy clients have against their TPAs. Does your TPA firm have a policy about email or telephone response times? Do you receive acknowledgments assuring you that your email has been received, such as a simple, “I have read your email and will get back with you as soon as possible?” Response time is key to communication and solving the issues that “pop up” timely with your 401(k) Plan. A great TPA will timely handle all of your needs.
FEES. While money is always an issue, and no one wants to overpay for anything, we have found that this is not – and likely should not be – the driver of the decision as to who should be your TPA. It’s much more critical that your TPA is someone who knows what he or she is doing, responds in the time and manner that you require, and cares about doing a good job for you. I have always said, “You cannot walk into Nordstrom and expect Fashion Bug prices.” In the TPA realm as well as other venues in life, you get what you pay for. And while budgeting is a common occurrence for 98% of the population, choosing a cheap TPA is almost always cutting all of the great qualities above and choosing to end up spending even more money trying to get your 401(k) back into compliance with the IRS and DOL after the fact.
I could go on and on about what makes a great TPA. However, the main questions you as the client should be asking when interviewing a TPA are: What is your level of education in ERISA and do you maintain your knowledge with continuing education? Will you maintain a relationship with not only me as the client but also my other advisors on the plan? When I have an issue will you timely respond to these issues? If a TPA can confidently answer “yes” to these questions, then they should be in the running for the job as your TPA.
Emily A. Halbach, APA, QKA
Ms. Halbach is the Director of Defined Contribution Services at Martin, Martin, Randall & Associates, Inc. in Jackson, MS.