401(k) Third Party Administrator vs. Advisors: What Are The Key Differences?
The acronym TPA gets thrown around regularly in the 401(k) industry. If you are a plan sponsor, you may have been directed to your TPA when you tried to find your plan documents or testing results for your plan. As a plan participant, you may have been directed to your plan’s TPA for help or transaction requests. To make matters more confusing, TPAs also exist for benefits other than retirement, such as healthcare and insurance. So, what is a TPA and what exactly do they do in the context of your company’s retirement plan?
First things first: TPA stands for third party administrator. If your 401(k) setup has a separate TPA, it’s because your recordkeeper doesn’t perform any administrative work for your plan. In this case, your recordkeeping solution is “unbundled”, meaning that you have both a recordkeeper and a TPA. The third party administrator would be responsible for common administrative tasks including plan document maintenance, form 5500 preparation, creating match and profit sharing calculations, and performing non-discrimination testing. The TPA may even work directly with plan participants, communicating plan updates. These days, it’s common for the recordkeeping institution to also act as an administrator (i.e. a “bundled” solution), eliminating the need for a separate, third party administrator.
The question that remains is how is a TPA different from an advisor? Advisors can work with plans in a variety of ways. (Here’s a blog post outlining all that advisors do.) Many simply select the fund lineup that is used. Others do benchmarking for the investments and the fees. More comprehensive advisors will also take on tasks that normally fall within the realm of the TPA, hence the confusion about where to draw the line. For example, advisors have started performing document maintenance, running preliminary non-discrimination testing for your plan, and providing detailed instructions to participants for their transaction requests. Outside of TPA/administrative work, an advisor may take on other responsibilities for your plan, such as:
- Assuming fiduciary liability
- There are different levels of fiduciary protection, but your advisor may act as a 3(16) fiduciary or plan administrator, a 3(38) fiduciary or investment manager, or a 3(21) fiduciary or investment advisor
- Providing participant education
- Monitoring eligibility for participants
- Making plan design recommendations
- Conducting investment reviews
- Updating the investment lineup
- Signing your form 5500
- Performing compliance checks
- Advising on alternative savings methods
- Many advisors will also work with plans on profit sharing, employee stock options, and cash balance plans
Ultimately advisors and TPAs are totally separate entities and your plan may benefit from having both. However, a full-service advisor will proactively perform many of the administrative tasks that normally would be handled by a TPA. This is especially true of bundled solutions where the recordkeeper acts as a buffer between you and the TPA. When plan sponsors need help administering their plan, they typically evaluate advisors rather than TPAs. This makes a lot of sense so long as you’re able to find an advisor with expertise (not just a private wealth advisor who is offering to manage your plan!) who will act as a fiduciary.
If you’re wondering if an advisor is right for your plan, here are four potential reasons to help you evaluate the potential benefit. At ForUsAll, we leverage technology and our founder’s retirement plan expertise (having managed $50b for Fortune 500 employees) to automate many of the day-to-day responsibilities that a TPA might take on, as well to provide strategic advice to improve your plan. Talk to us today about lowering your fees, reducing your liability, and boosting employee satisfaction.
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