Employee Benefit Plans: The 411

Valuable Information on 401ks, Pensions, ESOPs, Form 5500 Preparation + More

Third Party Administrator Does Not Absolve Plan Sponor of Fiduciary Responsibilities

You’ve read all the articles and DOL publications about how to choose a Third Party Administrator (TPA) (see Monitoring your TPA, Selecting a TPA, Duties of Plan Administration, and Fiduciary Responsibilities). You’ve done the research, and you feel like you’ve hired a competent company to administer your plan. And so you just go about your business, keeping an eye on the plan, but not really getting into it. One day you see a letter in your inbox with a return address from the IRS – you are officially being notified that you are 3 years delinquent in filing your 5500 and as such you are also going to be required to submit to an IRS/DOL audit. Think this couldn’t happen – think again. A friend of mine found herself in this very situation. And to make matters worse, upon further investigation she came to the shocking realization that the TPA had been fraudulently charging them for various things. The tipping point was realizing they had charged for an hour long conversation with the company attorney, and they had never seen the charge from the attorney for this alleged conversation.

When I asked her about it, she was just so upset that the TPA hadn’t filed the forms and were giving her all sorts of excuses about why they hadn’t taken care of things. And while I totally agreed and could almost sympathize, she was rather taken aback when I inquired if she realized that she was ultimately responsible for filing the appropriate forms and returns, and ensuring that the plan was compliant. She was mistakenly under the impression that the TPA was going to take care of it, and now, because of her own ignorance about her specific fiduciary responsibilities that extend beyond hiring the right company, she was about to spend thousands of dollars and countless hours trying to make everything right. If you are like my friend and think that you have a good TPA and you can trust them to take care of things, I’m not saying that you can’t trust them to do their job, but you as the plan sponsor are directly responsible for compliance and timely filing. So have those discussions with your TPA about what needs to happen and who will do what. And don’t hesitate to ask them when things will happen and how you will know that such things, like filing your 5500, have been taken care of. They may do most of the work, but they still work for you.

Katie Thomas, CPA