The act of hiring a third party administrator (“TPA”) is one of the responsibilities of a Plan Sponsor. One of the first steps in this hiring process is to sit down with your Plan Committee and determine what exactly your needs are in a TPA. Does your Company have specific situations that will need to be addressed with a potential TPA prior to hiring them? Every Company has different situations which will work with some TPAs and not others. The job of the Plan Committee is to address these up front in order to make a smooth transition to the new provider.
Once your Plan Committee believes they have found a list of TPAs that will fill the needs of your specific Company, the Plan Committee must also address some additional items. The following is a list of items the DOL believes is important to consider when selecting a new TPA:
- Information about the firm itself – Financial condition and experience with other retirement plans of similar size and complexity
- Information about the quality of the firm’s services – The identity, experience, and qualifications of professionals who will be handling the plan’s account; any recent litigation or enforcement action that has been taken against the firm; and the firm’s experience or performance record
- A description of business practices – How plan assets will be invested if the firm will manage plan investments or how participants investment directions will be handled; the proposed fee structure; and whether the firm has fiduciary liability insurance
One helpful tool that a Plan Committee can request from the TPA is a copy of their SAS 70 report. This report is an in depth description of the TPA’s control objectives and activities and will give the Plan Committee an idea of how well the Company is implementing those controls.
Selecting a TPA is an important fiduciary duty of the Plan Sponsor. By taking the time to select a TPA that fits the Company’s needs, the Plan Committee can present a Plan to its participants that they feel confident is in line with the goals of the Company.