View Points July 28, 2014

Five Reasons to Consider Teaming with Local TPAs

Successful financial advisers who work primarily with employer-sponsored retirement plans, also known as specialist advisers, guide plan sponsors through the sometimes-complicated landscape of managing their company retirement plan.
Reported by

Specialist advisers work with retirement plan providers that they like and trust to handle their clients with care. Advisers can choose to work with “bundled” providers that provide recordkeeping, investment platforms and administration, or opt for an “unbundled” solution by adding a local third party administrator (TPA) into the servicing mix.

Third party administrators (TPAs) add value for plan sponsors, participants, and especially for financial advisers—both during the sales process and over the life of a plan. I spoke with some extremely successful specialist advisers to learn how working with TPAs adds efficiency to their business models and provides customers with a higher level of expertise.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

Here are five reasons you may want to seriously consider working with a TPA:

TPAs have specific expertise that will benefit your clients.  

TPAs are, by definition, administration and retirement plan design experts. Plan advisers typically have different areas of expertise, with many concentrating on investments, direct client servicing, and participant education. So there’s sometimes the temptation to minimize the importance of good plan design, as if that’s a commodity. Many savvy advisers feel the investments are the same wherever you go, but really good, insightful plan design is a rare find.

“Every provider has good funds and every provider has terrible funds. Plan design makes a plan work or not,” says Robert Sweat, CFP of Principal Financial Group, a veteran financial adviser with more than a decade of experience in the defined contribution market. “In my experience, funds just don’t help to differentiate one plan from another. Because every client is different, making a plan work comes down to plan design.”

There’s also a benefit to showing prospective clients you have the wherewithal to assemble a team of experts, all on their behalf. “I don’t want to be perceived as a jack of all trades,” says Sweat. “I want the client to know the TPA and I have different roles—my job is to recognize the set of facts for a given plan, so I know which expert I want to bring in.”

In a sales-driven environment, the value of administration is often overlooked, according to Charles Williams, a financial adviser with Sheridan Road Financial, LLC, a leading investment consulting and retirement advisory firm. “Most clients focus on investments, and don’t really value the administration component,” says Williams. “But let’s face it, administration is not the exciting part of a plan…until you find a TPA who does an excellent job, then you see how clients react when their plans outperform their initial expectations.”

TPAs can improve outcomes for both sponsors and participants.  

Part of the reason I love working in the retirement plan business is because you can see a tangible result of your efforts in the form of participant outcomes. Sure, there are times when we can also help save plan sponsors money for their companies—but it’s helping participants that provides me with a tremendous amount of satisfaction.

Many financial advisers feel the same way. “Personally, I’ve made a conscious decision to work with smaller companies and provide more value. That way, your impact can be seen and felt,” says Aaron Taylor, a registered representative with Lang Financial Group, Inc. in Cincinnati, Ohio. 

“Our TPA partners are of the utmost importance,” continues Taylor. “We do a lot of work with plan design, profit sharing allocation methods, cash balance plans—whatever a client needs to maximize the retirement benefit for themselves and their employees. To that end, a proficient TPA is absolutely invaluable.”

Taylor shares a specific example to drive the point home. “One of our recent clients, a large manufacturing company, was struggling with how to reduce spending. We helped save them over $80,000 in just six months. Plus, they didn’t cut any services to their employees, nor did their employees have to pay more. This wouldn’t have been possible without the work of our TPA partner.”

Local, personalized service makes clients very happy and also benefits your business.  

The more advisers I talk to, the more I see that those who have tried working with TPAs tend to stick with it. “I try to work with a TPA in almost every situation,” says Todd Colburn, CFP, a wealth management adviser from Nashville, Tennessee. “There are two reasons why. First, I prefer a component-based approach, where any underperforming role—including mine—can easily be replaced without disrupting the roles that are working well, and second, TPAs are just more capable of conforming to the needs and requests of my clients.”

In some cases, winning a new plan comes down to hands-on service. And there’s nothing that plan sponsor clients like more than an administrator who’s accessible and lives in their own backyard. “Bundled providers may do a fine job, but our clients like to work with someone on a local level,” says Sweat. 

Local TPAs who are readily available for client meetings can be a distinct advantage. “The bundled plan administration might be just as good as a local TPA, but if they’re not here on the ground then it isn’t helping me that much. They can’t be in the meetings, but a local person can. Something I thought couldn’t be done, it turns out it could be, and that’s all because the TPA was local and able to be in the room with me,” says Sweat.

Local service is nice, but the crux of the matter is about building relationships—and that’s just easier when you can meet face-to-face once in a while or quickly if a need arises, according to John Spach, AIF with 401k Advisors & 403b Advisors out of Los Angeles. “TPAs need to have real relationships with clients; they’re not just there for compliance testing.” Quite the contrary, says Spach, “TPAs are the frontline staff, and as such need to develop relationships.”

TPAs can help you close sales.    

When I was in a sales role, I would always bring a local TPA to a finals meeting. Not only could they answer very technical questions and make specific recommendations about plan design right on the spot, but they made me look good. And frankly, they could zero in on issues and concerns that I couldn’t have done by myself.

Seasoned TPAs know the right questions to ask on a sales call, says Taylor. “TPAs really understand client needs—and once we start talking about plan design, a good TPA is asking questions about the questions.” Those insightful questions can really give a prospect the impression of how thoughtful a partner this TPA can be. “Sometimes that can make all the difference to winning a plan,” he says.

A successful TPA partnership can help your business grow and thrive.    

John Spach has a wonderful relationship with a long-time TPA partner and they’ve struck a nice balance as true professional partners. “When we first started working together in the old days, [my TPA] would spew out pension terminology and I would generate the IPS, but it’s as if we were speaking two different languages,” Spach explains. Over time, however, that relationship grew into a successful symbiosis. “Through the years, we moved from being reactive to client needs to being on the same page about how to approach a case. Now, we both enjoy leading with automatic enrollment and automatic escalation recommendations to win business and design plans that produce results.”

 

Deb Rubin serves as senior vice president of TPA and specialist adviser distribution for Transamerica Retirement Solutions. She specializes in helping professionals and organizations build their brands, fine-tune their messaging, identify and execute on business development strategies, and improve efficiencies. She is also a champion for overall retirement readiness in America. 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. 

Any opinions of the author(s) do not necessarily reflect the stance of Asset International or its affiliates.
Products July 28, 2014

Assisting the Search for the Right TPA

Plan advisers have an important role to plan in helping sponsors consider their options while choosing a third-party administrator (TPA).
Reported by

One issue in particular that plan sponsors need to examine is whether or not they should use their payroll provider as their TPA.

There are some definite advantages to using a payroll provider as a TPA. “The major advantage of using a payroll provider for your 401(k) plan is the integration of payroll for deferral uploads and data sharing,” James F. Sampson, managing principal for Cornerstone Retirement Advisors, tells PLANADVISER. “It can be a great convenience for the plan sponsor to not have the need for uploading deferrals and census data each week, and can also allow for the plan sponsor or plan adviser to have access to live census data, testing results and participation metrics.”

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

Chris Augelli, vice president of product marketing and business development for ADP Retirement Services in Florham Park, New Jersey, adds, “Integrating payroll and recordkeeping data allows us to automatically manage the remittance of employee salary deferrals into the plan, on time, every time. It allows for automated and accurate loan administration, and continuously supplies the comprehensive employee census information needed for compliance testing.”

Augelli tells PLANADVISER that ADP’s integration capabilities offer the advantage of synchronizing updates made to either platform, whether it’s an update to ADP payroll records made by the client or an increase in a salary deferral made by an employee via the ADP plan participant portal. The system also analyzes the data streams shared during each payroll cycle, proactively looking for input errors. Overall, he says, such integration enables targeted participant communications to help maximize their savings opportunities.

However, there can also be disadvantages to using a payroll provider as a third-party administrator, especially when the integration of payroll and plan administration capabilities is not as seamless as is needed.

“Sometimes, payroll operations and the 401(k) operations are separate, and one doesn’t know what the other is doing,” says the Warwick, Rhode Island-based Sampson. “Efforts are sometimes duplicated when the sponsor needs to upload data to both payroll and 401(k) systems, when the expectation is that they should feed off each other.” Sampson recalls a scenario with a client where an employee was re-hired and making employee contributions to the plan, yet the 401(k) system labeled the employee as terminated and not eligible for nondiscrimination and top heavy testing purposes. This meant that test results were incorrect, testing had to be redone, and the sponsor had to change the employee’s employment status on both systems to make it work, all because one system did not update the other.

Ary Rosenbaum, an attorney with The Rosenbaum Law Firm in Garden City, New York, which specializes in retirement plan issues, recommends plan sponsors and advisers work together on a thorough search for a TPA, choosing the candidate that best meets their needs and not just going for the easiest choice.

Rosenbaum, who recently wrote a paper about the pros and cons of using a payroll provider as a TPA, tells PLANADVISER, “Plan sponsors may think that it’s less work for them to have their payroll provider also act as their third-party administrator, but in truth, payroll services have little to do with retirement plan administration.” His experiences with clients have shown him that not all payroll providers acting as TPAs have the necessary expertise in areas such as top heavy and nondiscrimination testing.

Rosenbaum also cautions that some such TPAS may assume that the plan sponsor knows more about the nuances of the plan than they actually do. He recalls one scenario with a client where the TPA did not properly define the term “key employee,” in terms of the aforementioned testing, for plan sponsors. As a result, the plan failed testing it should have passed.

Third-party administrators need to have an understanding of the finer details of plan administration, Rosenbaum says. This includes being knowledgeable about safe harbor issues, plan design, deferrals and combination plans such as hybrids or cash balance plans. They also need to make sure they are maximizing tax deductions for employer contributions, he says.

Sampson concurs that TPAs need to be on their game about a variety of relevant topics. While some payroll providers have adapted to be able to offer plan design features, such as safe harbor and cross-tested plans, they are simply processing information. “A classic case of garbage-in, garbage-out can be common,” he explains.

A big drawback to some payroll providers, as well as bundled recordkeepers, is that they often do not provide any proactive consulting services after the point of sale, Sampson says. The advantage to using a TPA that is not a payroll provider is the consultative approach they provide. “Many local TPAs will visit with clients annually to review company demographics and objectives to see if the current plan design still meets the objectives of the employer. One other issue with payroll providers is that there is rarely a single point of contact for ongoing service. Many times they call a service desk and never get the same person twice.”

As for best practices that plans should follow when seeking out a TPA, Rosenbaum recommends looking for one that has experience working with plans of similar size, as well as making sure the fees and expertise are appropriate for their plans. TPAs should also have a good knowledge of plan design, he says, with the appropriate levels of experience and training to back up their claims.

Sampson suggests plan sponsors and advisers ask TPA candidates to make recommendations for the different plan designs they could use to align with their goals. They should also ask what could go wrong if testing fails and what the remedies might be. Plan sponsors should also ask how often the TPA will review the current design, as rules and company objectives change.

Augelli recommends plan sponsors require their TPA be able to provide ease of administration, alignment with the plan’s interests, and possess the experience necessary to carry out those interests.

And finally, word of mouth is a tried and true method of finding good service providers, says Rosenbaum. “Don’t be afraid to ask for recommendations,” he says. “Talk to ERISA attorneys or accountants.”

«