What is a Third-Party Administrator?
The third-party plan administrator (TPA) performs the most important functions in terms of maximizing tax and retirement benefits for the plan’s business owner(s). The plan administrator is the person, or entity, responsible for the day-to-day plan operations and administration.
The TPA is responsible for performing most of the daily aspects of a 401(k) retirement plan. The TPA is so important for the business owner because they make sure that the plan remains qualified and in full compliance under IRS and ERISA rules. The TPA also performs all required administrative functions, and also can help customize plan benefits on an ongoing basis to help maximize retirement goals for the business owner and plan participants.
Key Functions of the TPA
- Plan Customization & Design
- Plan Installation
- Drafting of Plan Documents
- Day-to-Day Plan Administration
- Employee Communications
- Plan Compliance Testing
- Governmental Reporting
- Plan Distributions
- Actuarial Services, if applicable
Choosing the Best TPA
Working with a TPA company that is solely focused on plan administration type services is important because of the very complex rules involved in the establishment, operation, and administration of employer retirement plans. Couple this with the almost constant plan amendments and employee notification requirements, working with a TPA company that focuses solely on plan administration matters often makes the most sense.
Using a TPA service from a company that focuses on other primary business services, such as payroll of financial advisory services, comes with its disadvantages. In addition, since the employer remains liable for all plan administration responsibilities, choosing a TPA company that focuses solely on TPA and plan related services is often the smart choice.
