Oftentimes during a 401(k) plan audit, the employer will respond to various questions about their plan with the answer “Our TPA handles all of that for us.” Indeed it is very common for plan sponsors to hire third-party administrators (TPAs) to manage some of the plan’s day-to-day operations. While there is much to be gained from working with outside professionals, it doesn’t eliminate your fiduciary duties to the plan. Simply stated, at the end of the day, the responsibility rests with the plan sponsor, not the TPA. Parts of those duties include properly selecting and monitoring your TPA.
When selecting a TPA, the DOL recommends sponsors look at a number of providers. Consider their fees, communicate all expectations to them, obtain a fidelity bond, and review their SAS No. 70 report.
Monitoring a TPA includes reviewing their performance, all provided reports, and fees charged for services. It also includes inquiring of and understanding their policies and practices, as well as following up on any participant complaints.
The AICPA has published a guide to monitoring your TPA. In that guide, they recommend that employers establish and follow formal reviews at reasonable intervals in order to evaluate TPA performance.
An effective monitoring process with not only allow an employer to continue to keep their fiduciary responsibilities, but it will also give them an opportunity to monitor company expenses and improve participant satisfaction in the plan.
For more information of TPA monitoring, please follow the link above to the guide previously mentioned.
Jessica Puckett, CPA, CFE