Third-party administrator (TPA)

What a TPA is

A TPA handles the technical side of keeping a plan compliant. Typical services are:

• Drafting and amending the plan document.

• Deciding who is eligible and when.

• Running the ADP, ACP, coverage and top-heavy tests.

• Calculating employer contributions, including profit sharing and new comparability allocations.

• Preparing Form 5500 for the employer to sign.

• Advising on corrections when something goes wrong.

In an “unbundled” setup the TPA is a separate firm from the recordkeeper. In a “bundled” setup one provider does both jobs.

Why it matters to employers

“Third-party administrator” is a business term, not a legal role. Under ERISA the plan administrator is whoever the plan document names, and by default that is the employer. Many TPAs do the work under your direction without accepting fiduciary responsibility for it. If you want a provider that is accountable as the plan administrator, look for one that accepts the 3(16) role in writing and lists the duties it covers.

A TPA earns its place in complex designs: cross-tested profit sharing, controlled groups, or mergers and acquisitions.

Example

A medical practice wants a new comparability profit sharing allocation. Its TPA runs projections in November, tells the owners the minimum contribution staff must receive, then prepares the final allocation and tests after year end.

Common mistakes

• Assuming the TPA is the fiduciary plan administrator. Check the agreement.

• Sending census data late or incomplete, which delays tests past the refund deadline.

• Not telling the TPA about ownership changes or related companies.

• Letting the TPA and recordkeeper each assume the other sends a required notice.