Changing Your Recordkeeper Does Not Mean Losing Your Third-Party Administrator by Alison J. Cohen, J.D., CPC, Ferenczy Benefits Law Center
Can’t Get No Satisfaction?
Using a separate recordkeeper from your third-party administrator (TPA) gives a plan sponsor the flexibility to maximize its satisfaction with the plan’s investment performance and operations. Often, in the life of a plan, there comes a time when a plan sponsor decides the plan needs different investment options. Possibly the investment-lineup being offered or what the customer service and/or technology provided by a recordkeeper just is not meeting the plan’s needs. After conducting a diligent search, the plan sponsor decides it is time to move the plan to another recordkeeper that can better meet the plan participant’s needs. What about the third party administrator? Does the TPA also need to be replaced?
Peanut Butter Goes with Lots of Different Jellies
A plan sponsor may think of the recordkeeper and the TPA as the same entity. It is important to remember that each entity performs distinct and separate tasks. The recordkeeper provides the trading platform with the investment choices, keeps track of participant accounting, and often provides the website and telephone interface for plan sponsors and participants. The TPA provides the plan documents, annual testing, government filings, and often the transactional functions (e.g., participant loans, distributions, and QDRO reviews). In fact, an advantage of having separate recordkeeper and TPA providers, as opposed to a fully bundled product, is that a plan sponsor can hire the best fit for each of these two types of services. It’s like having a bank in your grocery store – while one-stop shopping may be attractive, it only works if you like the services at both the market and the bank!
Technology is a great thing and it allows TPAs to interface with multiple recordkeepers to create seamless administration. If a plan sponsor is considering the replacement of the recordkeeper, it is useful to consult with the TPA to learn which recordkeepers would be the best fit for all involved. Who would know better than the TPA (who works with many in the industry) which recordkeepers provide the best services? In the sales process, every recordkeeper is going to tell the plan sponsor what they feel the plan sponsor would prefer to hear. Your TPA is best positioned to inform you of unforeseen pitfalls which might exist in different processing methods, or what unique features of an existing plan may not work with a particular recordkeeping platform. Including your TPA in the recordkeeper search-process can help plan sponsors to avoid making a huge mistake.
Don’t Throw the Baby Out with the Bathwater!
If the TPA currently servicing the plan has been providing good service, and the plan sponsor has been satisfied with the relationship, then there is no reason that the TPA should be replaced with the change of a recordkeeper. One big advantage to keeping the same TPA after the change is history. The TPA has the plan’s historical documents, nondiscrimination testing results, and knowledge of any special quirks or needs the plan may have related to testing or filings. Switching out both the recordkeeper and TPA can result in the loss of this valuable history, which could easily position the plan up for rough seas ahead.
Your TPA can provide stability and perspective as a plan sponsor transition through a recordkeeper change. The existing TPA can keep the plan on the right path moving forward. So, when it is time to make a service provider switch, turn to your TPA for advice along with a helping hand!
