The Right Pick

Illustration by Dadu Shin

When retirement plan advisers work with third-party administrators (TPAs), they need to delineate each party’s—including the recordkeeper’s—respective roles. Asked how she has seen plan advisers make mistakes working with TPAs such as her own company, Trina Gross says they sometimes neglect to act as a partner. “If [advisers] let us provide our strength, and they provide their strength, it works beautifully,” says Gross, CEO of Acuff & Associates, in Brentwood, Tennessee. “If they try to do our role, they don’t have the same level of expertise on plan design and compliance issues as we do, just as we don’t have that expertise on investments. By leveraging us, they can bring more to their book of business.”

Russell Hooker, executive vice president at TPA firm Nova 401(k) Associates Inc. in Houston, thinks of a good plan adviser as acting like a general contractor, playing an overall leadership role but delegating work as needed to skilled experts on the team. “A good leader is not afraid to lean on other team members, based on their expertise,” he says. “I don’t think plan sponsors believe that one person is supposed to know everything about everything. And I am not an adviser, so I’m not a threat to take that business from the adviser. Whoever you are partnering with, your interests have to be aligned. All the partners have to be able to dance together.”

Third-party administrators have expertise in compliance and operations issues, and perhaps offer the most value for sponsors with complex retirement plans. “What really drives the TPA service is plan design,” says Steven Fraidstern, vice president at Associated Financial Consultants Inc. in Fort Lauderdale, Florida; his firm does both advisory and TPA work. “You are designing a benefit that can [aid] both the employees of a company and its owners,” he says. “We work on lots of new-comparability plans, and some cash balance plans and defined benefit [DB] plans.” The firm’s plan clients typically have $5 million or less in assets.

“Our ‘sweet spot’ is clients looking for a customized plan design,” says Norman Levinrad, president and chief actuary at Summit Benefit & Actuarial Services Inc., a TPA in Eugene, Oregon. “Rather than just having an ‘off-the-shelf’ plan, we design the plan for sponsors.”

Some large recordkeepers accommodate mostly standard types of plan designs, says adviser Andrew Denny, a partner and retirement plan division leader at Shepherd Financial in Carmel, Indiana. However, some sponsor clients want a more complex design and need the nuts-and-bolts setup to accommodate it. “Definitely, TPAs, from a plan document perspective, have more flexibility,” he says. “Certain recordkeepers have a very specific way of doing things.” For example, he says, some recordkeeping platforms have inflexible rules on how to define hours of service included in match calculations, or what automatic enrollment provisions and designs can be supported.

TPAs have several different kinds of business models, and advisers should understand what kind of relationship they want when looking for a partner. “Some TPAs also serve as an adviser, and some serve as both an adviser and a recordkeeper,” Levinrad says. “There are TPAs that provide their own open-architecture platform. We wrap our TPA service around recordkeeping platforms, for clients that are looking to do an unbundled approach. We focus on doing plan design, compliance testing, and distribution and loan processing.”

When a plan has both a TPA and an adviser, a separate recordkeeper has a limited role as more of a pure vendor. “[It serves as] the custodian of assets: That’s where the money goes, and the recordkeeper actually invests the money, as directed,” TPA Hooker says. “The recordkeeper also handles all the pretty things that participants see: the 1-800 number, the website, the participant statements. Some recordkeepers also [manage] loan distribution and processing, and others push it to TPAs.” In these scenarios, a recordkeeper may have little direct contact with plan sponsors.

Who serves as the primary contact for clients varies, depending on the adviser and TPA involved. It works best for a TPA to serve as a sponsor’s main contact on operational and compliance issues, in Hooker’s experience. “We are focused on day-to-day operations of plans, and so 90% of what comes up with sponsors is TPA-oriented,” he says. “For an adviser to be the point person on operational issues only slows down the process.”

Acuff & Associates prefers to be the main contact for sponsors overall, TPA Gross says. “Sponsors see us as the liaison with the recordkeeper and with the adviser,” she says. Some advisers want to take that lead role with a sponsor, she says, “but eight out of 10 advisers are very happy for us to be the main contact for the sponsor. Advisers focus on the investment piece and on engaging participants at a level that will make them retirement ready.”

Advisory firm Associated Benefit Consultants, in Rye Brook, New York, on the other hand, likes to take that lead role, says Anthony Domino Jr., managing principal. If a sponsor client has a TPA focusing on plan design and compliance, his firm focuses on areas such as providing 3(21) fiduciary investment advice and plan-enrollment services, as well as integrating the work of the plan’s providers to simplify the process for the sponsor.

“We are the front-facing manager of the sponsor relationship,” Domino says. “I am taking the information that the TPA is providing in the background, and taking the details the recordkeeper is providing, then tying the two of them together and communicating that to the plan sponsor in one fell swoop.” Not all advisory firms do it that way, depending on their service model, Domino says. “Other advisers may rely on the recordkeeper and the TPA to be front-facing with the sponsor,” he says. “We have a very high-touch process. We don’t have a huge number of clients: We go deep and narrow with them.”

Making it Work

Sources offer these tips for working well with a TPA:

• Know where you need the TPA’s expertise. Shepherd Financial has the in-house expertise to answer many technical questions sponsors have about plan design and compliance, Denny says. “Many advisers have to lean really hard on the TPA, to cross the t’s and dot the i’s, where we are really the quarterback of the client’s work with a TPA,” he says. “But most advisers don’t have the expertise to understand the ramifications of certain plan designs, or the ins and outs of compliance.”

For instance, a sponsor may want to change the type of safe harbor plan and profit-sharing design to one that maximizes the benefit for key employees. Shepherd Financial takes the lead role in working with the sponsor, while a TPA may do calculations behind the scenes to support that work. “In many situations, an adviser can’t get that far,” Denny says. “It depends on the depth of expertise of the adviser, and its capabilities.”

• Clearly define the adviser and TPA roles with a sponsor. “The adviser is the sponsor’s point of contact for the investments and issues with the recordkeeper,” Levinrad says. The TPA should serve as the sponsor’s main contact for administration, compliance, testing, and reporting issues, he says. Clients typically see no problem with having two main contacts for different concerns, he says.

Advisers and TPAs need to be willing to defer to each other if a sponsor has questions that fall into the other’s main areas of expertise, Levinrad says. “Sometimes that means an adviser saying, ‘This is a question for the TPA,’ or for us to say, ‘This is a question for the adviser.

How much contact TPA Pinnacle Plan Design LLC has with sponsor clients depends somewhat on the adviser, says Lynn Young, a Phoenix, Arizona-based consulting actuary. Regarding technical, day-to-day plan administration matters that arise, she says, “We like to have the contact with the plan sponsor, and keep the adviser in the loop.” If Pinnacle has to talk with an adviser who then has to relay the information discussed to the sponsor, rules and regulations could be misunderstood, she points out.

• Keep the TPA informed. “As in every partnership, it’s a matter of good communication,” Levinrad says.

For instance, Nova 401(k) Associates typically takes the lead on plan-design changes with a sponsor, but sometimes an adviser assumes that role, Hooker says. “More times than we would like, [the desire for changes] comes up in a committee meeting with an adviser, and the adviser doesn’t incorporate the TPA into the discussion,” he says. Then, when the adviser informs Nova of the design-change talks, the TPA will have to go back and fix errors made in the planning because of inadequate technical knowledge of rules and regulations. “You can never loop the TPA in early enough,” he says.

TPA Services Available to Financial Advisers and/or Retirement Plan Sponsors

Producing TPA or Nonproducing TPA

Producing TPAs serve as both the third-party administrator for the plan and the plan’s investment adviser. Nonproducing TPAs sell no investment products, focus only on compliance issues and perform none of the functions that a financial adviser would usually perform.