WHAT IS A THIRD PARTY ADMINISTRATOR (TPA)?

A TPA is an organization that manages many day-to-day aspects of your employee retirement plan.

A TPA performs responsibilities such as:
  • Designing retirement plan documents
  • Preparing employer and employee benefit statements
  • Ensuring the plan is in compliance with the IRS non-discrimination requirements
  • Preparing annual returns and reports required by IRS, DOL or other government agencies
  • … and much more.
Knowledge, time and cost are among the biggest factors a business owner faces when making a decision to use a TPA.

WHY TPA FOR A PLAN SPONSOR?

HOW YOU BENEFIT FROM A THIRD PARTY ADMINISTRATOR

The mission of a Third Party Administrator (TPA) is simple: to act as an “independent set of eyes,” protecting the client’s best interest and ensuring compliance for the retirement plan.

The TPA’s job is to ensure accuracy and compliance for the retirement plan. They verify and review:

  • Eligibility
  • Participant deferrals
  • Employer calculations
  • Errors associated with participant accounts
  • Oversight of contributions, reports and fees assessed by an investment company
This level of reconciliation is not performed by any other entity including the investment companies (full service or unbundled) or the Plan auditors. When not performed, it creates the possibility that errors may exist in participants’ accounts. (Under funding of participant accounts can result in penalties and interest; over funding can force the employer to make similar contributions to other participants if not rectified.)

TPAs use several sources of information to verify the accuracy of an individual’s account. The TPA doesn’t simply import data into a software program; they rely on the expertise of a highly trained staff member with real knowledge of the plan.

In addition to reconciliation, a creditable TPA also performs the compliance tests of the Plan. These tests are mandatory and complicated. If an issue comes up during testing a full service provider might not make recommendations or provide solutions that address the issue beyond standard remedies. A TPA offers the optimal solution because of their collective expertise and intimate knowledge of the plan. They are able to look at the plan on a more personal level than a large institutional organization. They give each plan a thorough review of various testing options for the most favorable results.

Once testing of the plan is completed, the TPA begins the accounting work. This includes:

  • Reconciling of each participant account
  • Reconciliation from payroll to deposits at the investment company
  • Calculation of vested benefits
  • Creating a participant benefit statement with reconciled/invested balances
  • Creation of the Summary Annual Report
  • Completing an audit package for the CPA firm for large plans
  • Completing the Form 5500 package

Since many TPAs have accounting and auditing plan experience, it helps provide effectiveness when auditors perform their work on the plan in an expedient manner. This saves the client money and a fair amount of hassle.

What’s more, the TPA will assist with all loans and distributions to ensure their accuracy. They will always be ready, willing and able to answer questions on any topic—from eligibility to rehired employees, participant death or divorce to any other complicated matter facing the plan sponsor.

The TPA will create and maintain the Plan document to ensure the client remains in compliance with any changes in the law or regulations. Also, they will continuously review the Plan to see if it is operating in accordance with the Plan document. If not, they make appropriate recommendations to correct the issue. They will also make recommendations on plan changes when appropriate. This contrasts with providers who usually operate on a reactionary versus proactive basis.

Such a high level of service for the Plan means the client and their participants stay protected from any potential problems or issues.

All of which is why many clients, once enamored by the full service model, turned to a locally bundled solution. These smart businesses recognize the value of additional oversight, regular compliance review and the assurance that participants receive accurate accounting of their funds and the company gets the necessary protection for everyone involved.

The TPA will work with your financial advisor in conjunction with any investment platform you choose.

  • Determine proper plan type
  • Maximize tax deductions
  • Minimize costly mistakes of poor plan design

  • Frequently a TPA can be the continuity on the plan
  • TPAs are specialists in an area that is very complex
  • Available for Client Meetings

  • Merger & Acquisition Activity
  • Controlled Group Issues & Compliance
  • Assistance with DOL and/or IRS audits
  • Legislative changes

  • Independent review of client census data
  • Independent analysis of client vs. vendor data
  • TPA verifies the accuracy of all plan data

  • Full disclosure of fees
  • Gross to Net pricing using TPA Revenue as offsets to billable costs
  • Competitive fees for level of services provided

YOU REALLY SHOULD WORK WITH A THIRD PARTY ADMINISTRATOR

The TPA works with the plan sponsor to ensure the ongoing accuracy of the plan, minimize the time the plan sponsor has to spend on plan oversight, meet service and compliance deadlines, and coordinate with all parties. TPAs assure the accuracy and compliance of plan and participant records including:

  • Eligibility
  • Employer Calculations
  • Loans, QDROs and distributions including Required Minimum Distribution
  • Participant deferrals
  • Vested benefits
  • Reconciling each participant account and resolution of any other errors associated with participant accounts
  • Independent review and reconciliation of client census
  • Independent analysis of client vs. vendor data
  • Oversight and monitoring of contributions, reports and fees assessed by the investment company.
  • Plans operations review to ensure they are following the legal Plan Document.
  • Audit support

OUR RETIREMENT PLAN DESIGNS ADMINISTERED

A defined contribution pension plan consists of contributions made by the employer, employee or both to the employee’s individual account. The contributions are generally invested on behalf of the employee. At retirement, the employee will receive the balance in his or her account, which is based on contributions and investment gains or losses.

  • Traditional 401(k) plan: A 401(k) allows employees to contribute a portion of their compensation, before income taxes, to a company-sponsored retirement plan. There are several types of 401(k) plans, including SIMPLE 401(k), Safe Harbor 401(k), Solo 401(k), Roth 401(k), and traditional 401(k).

  • Safe Harbor 401(k): A Safe Harbor plan is ideal for employers that wish to eliminate the burden of the discrimination testing associated with the traditional 401(k) plans.

  • SIMPLE 401(k): A SIMPLE 401(k) is a retirement plan for companies with 100 or fewer employees. SIMPLE 401(k) plans are similar to traditional 401(k) plans but require less administration and fewer fees for the employer.

  • Solo 401(k): A Solo 401(k) is a retirement savings plan specifically designed for self-employed business owners and their spouses, with no other eligible employees.

  • Cross-Tested Plan: A cross-tested plan is a retirement plan (usually a profit-sharing plan) that has different contribution percentages for different groups of employees.

  • Money Purchase Plan: A money purchase plan is similar to a profit-sharing plan, except that it requires fixed annual contributions. The employer must contribute the required amount on time or pay penalties.

  • Profit Sharing Plan: A Profit Sharing plan is a plan that gives employees a percentage of company profits based on each year’s company earnings.

  • 457(b) Plan: A 457(b) plan is offered to state and local government employees, including police officers, firefighters, city or county workers, water authority employees or other civil servants.

  • 403(b) Plan : A 403(b) plan is for tax-exempt organizations, most employees of public schools and self-employed religious ministers.

  • Mega Backdoor Roth: A mega backdoor Roth refers to a strategy that can potentially allow some people who would be ineligible to contribute to a Roth account, based on their income or contribution limits, to transfer certain types of 401(k) contributions into a Roth—including a Roth IRA and/or Roth 401(k).
    To determine if a mega backdoor Roth IRA is possible for you: You earn more than $161,000 if your filing status is single or head of household in 2024 (or $153,000 in 2023). For married couples filing jointly, the limit is $240,000 in 2024 (or $228,000 in 2023)..

A defined benefit pension plan promises a specific monthly benefit at retirement — either an exact dollar amount or an amount calculated from a formula based on certain factors, like salary and years of service.

  • Cash Balance: A Cash Balance Retirement plan defines the promised retirement benefit as a stated account balance and does not hinge on the value of the plan’s investments. The employer solely assumes the investment risks and rewards on plan assets.

  • Solo Defined Benefit: A solo defined benefit plan is sometimes ideal for sole proprietors with high earned income. The employer makes 100 percent of the contributions, which are generally 100 percent tax-deductible.

401(k) Business Financing

– Also known as Rollover as Business Start-Up 401(k) (ROBS) plan - individuals seeking alternative financing using their qualifying retirement account. A ROBS Plan is a self-directed 401(k) plan which allows an individual access to their qualifying retirement funds TAX and PENALTY FREE to be used as equity for a business start-up, acquisition, or as capital for an existing business.

Contact Us

ABOUT US

DRDA is a proactive CPA firm offering guidance and support so you can achieve your business and financial goals.

CONTACT US

281-488-2022

Houston Office
1120 Bay Area Blvd.
Houston, TX 77058

office@kallyaslawyer.com

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