According to NTSAA’s 2010 403(b) Compliance Resolution Summit report, in a workshop facilitated by Suzanne Baldino Jones, ADMIN Partners, LLC, and Richard Turner, VALIC, it was noted that different types of organizations provide various kinds of TPA services depending on the organization or the function. For example, a provider may be full service, or only provide common remitter services, data aggregation or a list of services. Also, a provider may be an investment provider or independent of/unaffiliated with an investment provider.
The report said this creates confusion among the 403(b) plan sponsors as they are often unclear about what services they are receiving and how much those services cost. In addition, determining how the TPA charges for these services is also confusing, as there is a wide variation in fees and fee methodologies.
In addition, sponsors may not pay the fees directly and are therefore removed from the service and fee process, especially if participants and/or providers are paying the fees, and they may not recognize that they have a vested interest in moving the process to a better conclusion.
NTSAA recommends sponsors evaluate whether the TPA fees are reasonable, taking into consideration the specific services being provided (and not being provided) and the methodology for assessing the fees (whether a flat dollar amount, separate rates for contributing and noncontributing participants, and other methodologies). This presumes that account based fees, if any, exclude zero-balance accounts. The solution should resolve how all fees should be clearly disclosed to the party paying the fee whether it is the sponsor, the product provider or both.
On a related note, the report said since TPAs offer different levels of service and charge different fees, the invoices received can vary considerably and create confusion to the party responsible for paying the fees. This confusion does not allow for true validation of the invoice and creates a time-consuming process for the payer.TPA invoices should include clear descriptions of services, including identifiers, and clarity of fees charged to allow for true validation. This solution is especially important if the fees are withdrawn from a participant’s account or otherwise assessed to participants.
Clarifying Roles of Sponsors, TPAs and Product Providers
The workshop also identified a lack of communication about responsibilities between plan sponsors, TPAs and product providers. According to the Summit report, while legally the plan sponsor remains responsible for the operation and administration of its 403(b) plan, regardless of how responsibilities are allocated and to whom, the perception by most plan sponsors is that the engagement of any third party to perform administrative functions means the sponsor has no remaining responsibilities. However, in the eyes of the Internal Revenue Service, the sponsor retains responsibilities even if it has engaged another party to perform certain compliance functions.
The sponsor must first clearly understand the services being provided and then maintain oversight on an ongoing basis. In addition, the regulations clearly indicate that the sponsor can either retain all compliance responsibilities and self-administer the plan, or assign some or all of the day-to-day compliance responsibilities to the investment providers and/or a TPA.NTSAA recommends sponsors create a multi-party agreement, clearly setting forth the allocated responsibilities for the sponsor, TPA and investment providers. This would outline services to be provided and who will provide them, as well as who will pay. Once the agreement is approved (and signed by all parties, if applicable), there should be an annual review with each party.