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By Nora Bethman, NEBS

A TPA is a Third Party Administrator. TPAs are used for Employee Benefit Plans in order to assist the company offering the benefit plan in running the plan smoothly, legally, and correctly. There are TPAs for health insurance and other employee benefit programs, but this paper discusses retirement plan TPAs specifically.

The Employee Retirement Income Security Act of 1974 (ERISA) governs all qualified retirement plans, and the Internal Revenue Service (IRS) and Dept. of Labor (DOL) share responsibility in carrying out the law and monitoring retirement and pension plans for compliance.   A TPA works “behind the scenes” on a company level, and sometimes at the individual participant level, to perform calculations, prepare IRS tax forms, issue other required legal documents, and do the IRS-required non-discrimination testing.

Often, an investment company, brokerage firm, or other asset management company (the plan custodian) will hold and invest the plan’s money, but typically, investment firms do not offer, or offer only limited administrative functions associated with running the plan.   That is the function of a TPA.

There are many levels of service provided by TPAs, so one must be careful in choosing one who will provide the best value for the fees charged.   “Free” or “bargain” TPA fees are no bargain if the TPA will not only NOT do what is required to keep your plan running smoothly, but actually causes an IRS or DOL audit of your plan by not filing required tax forms, filling out tax forms incorrectly so as to raise red flags, or not keeping current with and informing you of law changes requiring plan amendments. At a very minimum, a TPA’s duties with respect to your plan should be:

– Designing and maintaining a client-appropriate and cost efficient retirement plan.

– Providing and maintaining an up to date plan document, summary plan description, and other necessary and government-required forms and employee communications

– Determining eligibility for plan entry and contributions, applying plan and legal contribution limits

– Calculating contributions

– Correctly performing annual required non-discrimination testing

– Reviewing plan deposits annually for timeliness and correctness

– Calculating, applying correct tax withholding, and reviewing appropriateness of all plan distributions

– Preparing the plan’s annual required Form 5500 government filing

– Advising the client on proper plan procedures for day-to-day plan operation

– Assisting in any government or independent audits of the plan.

TPAs perform a very necessary and valuable function in the administration of qualified retirement plans, so it is worthwhile to evaluate, compare and monitor services to ensure your retirement plan is legally compliant and meeting the needs of its participants.

Nora Bethman, CEBS, QKA, QPA, ERPA
National Employee Benefit Services, Inc.
(847) 808-0940
www.nebspensions.com