The German chemical company, BASF, once advertised its value as the ability to improve upon the products created by others.
“At BASF, we don’t make the cooler, we make it cooler. We don’t make the jeans, we make them bluer,” one of the company’s TV commercials famously stated. “At BASF, we don’t make a lot of the products you buy. We make a lot of the products you buy better.”
The retirement plans marketplace has its own BASF that improves upon the work of others: Third Party Administrators or TPAs. Increasingly, financial advisors are partnering with local TPA firms to help sell, design, administer and support defined contribution retirement plans as well as defined benefit plans. Some say it’s a marriage made in heaven.
Together, financial advisors and TPAs typically deliver a more comprehensive package of services to retirement plan sponsors. These services are becoming increasingly essential in an environment where the designs for retirement plans and the regulations that govern them are becoming ever more complex.
Advisors typically hold up their end of the bargain by delivering services as objectively evaluating plan needs, providing information about investment choices, helping educate plan participants, assisting with plan design and helping select the plan provider.
So just how does a TPA make a retirement plan better? TPAs can help guide plan sponsors on regulatory and administrative issues and consult on retirement plan designs, services and features. In evaluating a TPA, ask about their business model and the various services they provide not only to the plan, but to you as advisor.
Common plan administrative duties that any TPA should be able to perform include: designing and amending plan documents, providing plan audit support, monitoring IRS nondiscrimination testing and contribution limits, preparing Form 5500, allocating employer contributions and forfeitures, calculating participant vesting percentages, and preparing loan paperwork.
In addition to administrative duties, ask how the TPA can help assess the needs of the business owner to minimize plan expenses and maximize successful retirement outcomes. TPAs are a valued expert in your corner to help a client through the transition process. TPAs are local experts who can help maximize your time and ensure that all parties are performing according to contractual and client needs.
Once a TPA firm is selected, it pays to build a relationship over time. Like many good marriages, the relationship starts with getting to know each other better and learning more about common interests. In the advisor-TPA marriage, those interests revolve around the clients and the relationship often starts with assistance from a TPA in analyzing the plan sponsor’s needs.