Foundational TPA services
As you know, TPAs manage much of the day-to-day operations of employer-sponsored retirement plans, such as 401(k)s and defined benefit plans. Some of the foundational services can include important tasks such as:
- Creating and managing plan documents
- Calculating eligibility, contributions, and vesting
- Reviewing loans and distributions
- Performing compliance testing
- Providing government reporting
These are the services that can really bog down a plan sponsor and offer TPAs the greatest opportunity to add value. That’s why many TPAs offer these services as table stakes. TPAs can create efficiencies with thoughtful processes and automation that plan sponsors may not be able to provide without heavily dedicated resources. These synergies require effort up front, but if done right, they can create a scalable foundation to help build your business.
Business and administrative consulting services
A changing marketplace and new technological developments can create opportunities for you to seize a competitive advantage; however, it may require changing the services you offer and how you sell them. It may also mean hiring people with different skill sets.
Many TPAs are focusing more on consultation services, such as plan design, business organization, plan correction, and tax benefits. By offering these services, they’re going beyond the routine operational tasks and focusing on how they can help plan sponsors—and participants—make the most of the retirement plan. They’re also supporting plan sponsors in making their retirement programs more effective at attracting and retaining key talent by creating incentives for employees to save for their retirement and improve their financial well-being.
Consulting TPAs may also be involved in recommending new partners for plan sponsors to work with, such as financial professionals and recordkeepers. If the current financial professional is retiring or not meeting the client’s needs, you may be tapped to recommend someone who provides the services required of the plan and its participants. TPAs can have a vast network—clients and partners—to call on for help.
More and more plan sponsors are frustrated with their payroll process and want it integrated with their retirement plan. Some TPAs are using new automation technology to accomplish this and support the transfer of data between the payroll provider and the recordkeeper. This service alone can help win new clients that don’t have payroll departments.
To excel in payroll servicing, you need to have the staff necessary to support the frequent payroll transactions. Offering holistic payroll services also comes with a potentially significant investment in technology.
Fiduciary services—3(16) and 402(a) fiduciaries
Choosing to be a retirement plan fiduciary is a decision that shouldn’t be made lightly. Different types of fiduciaries take on different tasks, but they all have one thing in common: liability. But the added liability—and work—creates opportunity because plenty of plan sponsors and financial professionals are looking to offload some of these responsibilities.
Some TPAs choose to act as an ERISA Section 3(16) fiduciary, or plan administrator—the party responsible for running some of the administrative tasks for the plan in compliance with ERISA, unless delegated otherwise. A 3(16) TPA tends to focus on plan operations, such as the services listed above. The plan sponsor can retain or assign other fiduciary tasks, such as investment decision-making, as they deem fit.
Having a TPA act as the 3(16) fiduciary can be a particularly beneficial service for plan sponsors looking to offload some of their day-to-day responsibilities. And for you, it can be a great way to elevate your competitiveness in the industry and broaden your revenue streams.
The 3(16) fiduciary needs to be defined in the service agreement between the two parties. The agreement will also clearly list the administrative services that the plan sponsor is shifting accountability for to the TPA, such as compliance testing or participant transactions.
Some TPAs are going beyond 3(16) fiduciary services and are becoming 402(a) fiduciaries—the party responsible for hiring and reviewing service providers for the plan sponsor. Some small businesses are now required to offer a retirement plan due to state mandates, and they may want to outsource as much responsibility for the plan as possible. TPAs that offer 402(a) services can provide great value to these small business owners by taking on additional responsibilities, but that comes with greater liability, too.
Going beyond the plan administrator
It’s up to you to decide which role you want to play and how you want to grow your business. Your decision to offer administrative services alone, act in a consultant capacity, or even take on 3(16) fiduciary responsibilities, too, can depend on several factors, including:
- Your organization’s growth plans
- Your comfort level with increased liability
- The local marketplace and what financial professionals and plan sponsors need from you to support their retirement plan
- Your desire to expand the services offered to your clients to help generate higher revenue
There’s a market for all types of TPAs, but knowing the trade-offs of the various roles you can play helps focus your efforts to build the business you want.
This is not intended to be an exhaustive review of one’s fiduciary duties under ERISA. The objective is to highlight the key responsibilities of a plan fiduciary and present the challenges that plan fiduciaries may face in discharging their duties. John Hancock is not in a position to provide you with legal advice concerning your plan or your role as plan fiduciary, and the information included herein should not be taken as such. If legal advice or other expert assistance is required, please consult your legal counsel.
Plan administration, compliance and other services provided by a TPA are subject to the terms and conditions of the service agreement with the TPA.
INTENDED FOR INTERMEDIARY USE.
MGTS-P315070-GE 5/22 315070 MGR0505222181503