FuturePlan Blog

Why Benchmarking Plan Administration is Mission Critical

Financial advisors and plan sponsors routinely benchmark their 401(k) service providers, but rarely apply the same process to plan administration. This is an unfortunate missed opportunity, since the quality and expertise of your plan administration provider (typically a TPA firm) is critically important to the success of the plan.

Retirement Plan Administration: Critical for Compliance  

Administration is arguably one the most critical components for retirement plan compliance. In fact, the top 10 401(k) mistakes as identified by the Internal Revenue Service (IRS) all stem from plan administration.

1. Failure to amend the plan for tax law changes by end of the required period 2. Failure to follow the plan’s definition of compensation
3. Failure to include eligible employees in the plan or failure to exclude ineligible employees from the plan 4. Plan loans that don’t comply with rule 72(p)
5. Impermissible in-service withdrawals 6. Failure to satisfy IRC 401(a)(9) minimum distribution rules
7. Employer eligibility failure 8. Failed ADP/ACP nondiscrimination tests not corrected timely
9. Failure to properly provide the minimum top-heavy benefit to non-key employees 10. Failure to satisfy the limits of IRC 415

These costly and common errors are directly related to the administration of the plan. So, it’s important to review TPAs or bundled providers closely to ensure plan compliance. This due diligence can save employers from costly corrections, fees, and penalties from the DOL and IRS down the road.

In Real Life: A Costly Case Study.

A financial advisor recently contacted us about a client that received notification from the DOL about delinquent Form 5500 filings. This caused more than $50k in penalties assessed. We discovered that the prior TPA’s service model didn’t audit whether the Form 5500 was received in good order by the IRS. Ensuring the receipt of the Form 5500 by the IRS is a best practice for TPA service providers (and one that FuturePlan adheres to). These types of costly penalties can be avoided if a TPA is vetted well by plan sponsors and advisors.

 

Why is Administration So Often Overlooked? It’s Complicated.

So why isn’t more benchmarking done on the administration of the plan? Well, it’s complicated. Bundled recordkeepers attempt to automate the retirement plan experience, so administration gets blended into the recordkeeping service. Third party administrators aren’t subject to strict regulations, so many types of firms with varying degrees of thoroughness exist in the market.

Not sure where to start? We can help make it easier for you.

Retirement Plan Administration Benchmarking: Where to Start

The list below can get you started on what to ask when evaluating potential providers. If you’re already working with a TPA, this list can help you evaluate the level of diligence your TPA is performing.

  • Review the Organization Performing the Administration  
    • Ownership structure (including business continuity plan) 
    • Leadership team 
    • Number of employees 
    • Number of years in business 
    • Total number of plans and assets administered
    • Client retention rate  
  • Review the Personnel  
    • Credentials of the team and main point of contact 
    • Number of plans per administrator  
    • Service model (e.g., proactive or reactive)
    • Is service dedicated or fulfilled by a team? 
  • Review the Data Security Procedures 
    • Data security policy 
    • Liability, crime, and cyber insurance coverage   
    • Training and cultural measures  
  • Review the Firm Capabilities  
    • Number of recordkeepers the firm will work with 
    • Familiarity with recordkeeper selected 
    • Approach to revenue sharing (e.g., offset or retained) 
    • Types of plans serviced
    • Services outsourced 
    • 3(16) capabilities 

Fill out our form below to receive a guide for evaluating TPAs and the best responses to these questions.

Good Plan Administration: Mission Critical

As you can see, it’s important for plan sponsors and their advisors to carefully review plan administration providers during the selection and monitoring process. The firm chosen to perform administration can have an impact on the success and compliance of the plan, so reviewing these items is critical.

We can help. Download our Guide,10 Questions to Ask Your TPA, to help you choose a TPA that will help you win and retain clients.