Third Party Administrators (TPA) for 401(k)


By The Human Interest Team

If you’re considering establishing a 401(k) retirement plan for your employees, you’ll need to hire a Third Party Administrator (TPA). The TPA works to ensure that your company’s retirement plan complies with all legal requirements and operates the plan on a daily basis. As a result, the success of your 401(k) plan in reaching its goals can depend significantly on how well your TPA works.

Get started with an affordable, full-service 401(k) plan.

What Is a Third Party Administrator for a 401(k)?

A TPA 401(k) is a company that specializes in plan administration. Sometimes, financial services or payroll businesses may also offer TPA services. In general terms, a TPA makes sure that a 401(k) follows the regulations contained in the Employee Retirement Income Security Act, 1973.

What Are Some Common 401(k) Third Party Administrator Duties?

The best 401(k) third party administrators perform a number of administrative tasks related to the daily running of your 401(k), including:

  • Amending plan documents.

  • Preparing statements for employers and employees.

  • Assisting with all plan distributions.

  • Making sure the plan complies with contribution limits.

  • Producing loan documents for members of the 401(k).

  • Writing annual reports for the IRS and other agencies.

Many of the areas TPAs are responsible for involve complex regulations, so it’s important for you to have one that you can trust. The TPA should be in contact with you regularly to provide you with updates on how the plan is running.

How to Hire the Right TPA for Your Business

The requirements of your business should be the main thing you have in mind when you’re looking for a TPA. Questions to consider include:

  • How many employees will be in the 401(k) plan?

  • What financial resources does the company have?

  • How old are your most important employees?

  • Who are you trying to assist most with the new retirement plan?

The answers to these questions will help you determine the type of TPA that would be best suited to you. For instance, if you’re self-employed or run an operation with only a few employees, you could consider hiring a payroll company to provide TPA services. This is because the plan should be relatively easy to administer. However, you would probably benefit from a specialist in plan administration if you have a relatively large number of employees.

Another important factor you should consider is the need for your TPA to be reliable and commit few errors. They will be working in a complex area of rules and regulations that you can’t constantly monitor. You’ll, therefore, want to find a TPA where you get a consistently high standard of service and have a few regular contact people.

Setting up Your 401(k)

A good TPA can play an important role in establishing your 401(k). Many of the legal steps that might seem complicated at first can be made a lot easier, thanks to their expertise. During the set-up process, the TPA will arrange the installation of the plan and support you in customizing it to meet your needs. They should also take responsibility for drafting plan documents, such as the legal paperwork required by the IRS. Your TPA will also communicate with your employees to ensure that they’re successfully enrolled in your 401(k).

Low-cost 401(k) with transparent pricing

Sign up for an affordable and easy-to-manage 401(k).

Deciding Whether You Have an Effective TPA

In addition to good communication, you should take note of several other factors to determine if your TPA is doing a good job. First, review whether your TPA is charging appropriate fees for the services they provide. You can do this by comparing them to market competitors. This is one of your most important legal obligations, since your company is ultimately responsible for ensuring that the retirement plan’s funds are spent reasonably.

If you feel you’re being overcharged by your TPA, you may have to try to negotiate more favorable terms with them. Ultimately, if they’re not willing to reduce their rates, you may have no choice but to switch TPAs. Although this may seem like a drastic step, you can be left open to much larger costs further down the line if you fail to act. For example, the government or a dissatisfied plan member could launch a legal case.

You should also expect your TPA to be experienced enough to respond proactively to potential problems. For example, your TPA should regularly carry out compliance checks to assess whether your plan will pass the IRS’ non-discrimination requirements so they can make any necessary changes prior to an assessment, not after your plan fails.

TPAs vs. Advisors

Even if your 401(k) has a TPA in place, you could also benefit from engaging an advisor. Some uncertainty exists about where the responsibilities of an advisor end and those of a TPA> start, especially since more comprehensive advisors can take on some of the administrative tasks performed by a TPA. However, they remain distinct from each other.

Advisors can:

  • Serve as a plan or fiduciary administrator 3(16).

  • Serve as a fiduciary investment manager 3(38).

  • Act as a fiduciary investment advisor 3(21).

Advisors can perform important support services that TPAs cannot. For instance, they can hold advisory sessions with individual 401(k) members to help them manage their accounts. They can also send out informational bulletins about the 401(k) and investments.

Advisors can also provide useful information about alternative saving strategies, such as profit sharing or stock options. Finally, they can review the investment products your 401(k) offers, make recommendations, and check the eligibility of plan participants.

TPAs vs. Recordkeepers

Whereas TPAs are responsible for the regulatory and administrative aspects of your 401(k), the recordkeeper manages the investments and assets. The recordkeeper will:

  • Allocate assets to participant accounts.

  • Buy and sell investments.

  • Update account balances and share prices.

  • Manage all trades associated with the 401(k), including contributions and distributions.

  • Issue quarterly benefit statements.

Low-cost 401(k) with transparent pricing

Sign up for an affordable and easy-to-manage 401(k).

We believe that everyone deserves access to a secure financial future, which is why we make it easy to provide a 401(k) to your employees. Human Interest offers a low-cost 401(k) with automated administration, built-in investment education, and integration with leading payroll providers.

Subscribe to our Retirement Roadmap newsletter

Retirement isn’t just a destination. It’s a journey, and we’re here to help you. Our newsletter delivers succinct and timely tips, reviewed by Financial Advisors, to help you navigate the path to financial independence.

By providing your email above or subscribing to our newsletter, you agree to our Privacy Policy. You also elect to receive communications from Human Interest.