A Day for TPAs

It might not have made it to your calendar, but last week (October 17) was National TPA Day. 

The timing is no accident—yesterday would have been for many calendar-year ERISA plans the (extended) deadline for filing the annual ERISA 5500 form.[i] Like April 15 for CPAs, that date—and timing—are of enormous consequence. And with that annual deadline in the rearview, third-party administrators everywhere can, perhaps, heave a huge sigh of relief. Maybe even throw a little “party.”

The relationship between advisors and TPAs is complex, and one in which there seems to be little middle ground. For every advisor that tells you how many times their TPA partner has gotten them out of a real mess—and for every TPA that applauds the leadership demonstrated by their advisor teammate—well, there seems to be one that either dismisses the TPA’s propensity for a mistimed focus on minutiae that is the essence of being a dutiful TPA, or one that frets that an advisor’s focus on the “big picture” obscures significant operational and administrative issues.

There is, in fact, a certain yin and yang to the perspectives of the two roles—and just like the concept that originated in Chinese philosophy (describing opposite but interconnected, mutually perpetuating forces)—successful (and legal) plan design and operation require a balance. Where plans often fail is when one or the other dominates. 

Just as advisors are often (and inaccurately) seen as the sole fiduciary in a plan once they’re hired, TPAs are generally assumed to be attending to all of the particular details of accurately running the plan; we’re talking about things like ensuring that the terms of the plan document are adhered to, that non-discrimination tests are properly applied, and that contributions are timely deposited. The lines are often blurred between TPA and recordkeeper—the latter technically being a TPA, though these days the level of services can differ dramatically. 

Over time the role of TPA has been diminished in the eyes of many. Sure, they deal with a lot of technical “minutiae”—we’re talking deep in the “weeds” here. The classic reference is you ask what time it is, and they (some, anyway) first want to explain to you how a watch is made. That said, the role of plan administrator—perhaps a better label would be compliance administrator—is essential—critical—to the smooth, effective and efficient running of a plan—and on aspects that,[ii] odds are, your recordkeeper (another critical role, but one often focused on other things) isn’t always. They can even help you find—and keep—clients!

That said, TPAs come in all shapes and sizes—and like advisors—have different service models, areas of specialization and, yes—personalities. If you’ve had a bad experience—you’re not alone. But for my money, if you want to be able to focus on the plan issues that truly require your expertise—rather than your attention—you’ll find that all to be easier with the assistance, support, and guidance of a qualified TPA.[iii]

If you’ve found a good one (or two)—be sure to give them a hug—and maybe a cake. It’s National TPA Day, after all… 

- Nevin E. Adams, JD

Additional TPA Resources: 

Finding the Right TPA Partner

Bundled Versus Unbundled: 5 Myths

Resource ‘Full’?

What’s in a Name?   

 

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[i][i] Credit the folks at John Hancock for—to my eyes, anyway—making TPA Day a “thing.”

[ii] Things like that: 

1. All eligible workers are included in the plan—as required by law—and ineligible workers are not unduly credited with benefits?
2. Compensation used as the basis for contributions and/or eligibility is accurate, in accordance with ERISA and IRS limits, both with regard to amount (how much) and individuals (who)?
3. The plan’s allocation of benefits meets legal requirements and the correct individuals receive the correct amount(s), thus preventing the need for corrective measures and penalties? 
4. The amount(s) allocated to individual participant accounts match the actual dollars deposited into the plan/trust. Additionally, to ensure that contribution deposits are made to the plan/trust in accordance with legal requirements, forestalling legal fines and penalties?
5. The appropriate plan notices are timely delivered to the applicable individuals in accordance with legal requirements, providing them with important plan information and instructions (and preventing the application of penalties for failing to do so)?
6. Employees are properly categorized as to their status as highly compensated employees (HCEs), key employees (for top-heavy testing) and spousal/familial relationships so that the allocation of benefits and eligibility is appropriate and consistent with legal requirements?
7. The tax filings related to the plan (Form 5500, 8955, 5330, etc.) are filed accurately and on time in order to comply with the legal requirements regarding the plan, and thus avoid fines and penalties?
8. The amounts distributed as loans or distributions are consistent with the vesting schedule of the plan, in accordance with plan parameters and legal limits—and that the needed authorizations are obtained?

[iii] And here’s a resource that can help you validate/align expectations of service; HERE.

Have You Hugged Your TPA Today?

If you work with TPAs—third party administrators—you might want to avoid bugging them this week. 

As you may well know (certainly if you work with TPAs), this year, Monday (Oct. 17th) is the deadline to file Form 5500s, and for most TPAs, that’s a pretty all-consuming focus. So much so that every year on the day AFTER the Form 5500 filing deadline, John Hancock declares an annual day of recognition for TPAs. 

Now, to its credit, John Hancock goes so far as to note that National TPA Day is also a reminder to financial professionals (especially those still getting established) that partnering with TPAs may be an important pathway to success. Not that everyone feels that way, of course.

I’m talking about the disconnects in focus between retirement plan advisors and TPAs—an issue that is, perhaps, as old as ERISA itself—this “tension” between these two critical roles. Not in every case, of course—there are plenty of advisors that will tell you how many times their TPA partner has gotten them out of a real mess, and TPAs that will commend the leadership demonstrated by their advisor teammate. But that, it seems, isn’t the majority experience, though it proves it can be that. 

As it turns out, I’ve spent some time on both sides of that “divide,” and a fair amount of time able to observe both from a distance. I’ve listened to groups of TPAs gripe about advisors who “won’t stay in their lanes”—and advisors frustrated with TPAs who, when asked what time it is, insist first on explaining how a watch is made. I can remember personal experiences trying to explain complex plan design decisions with real-world implications—only to have the decision-makers decide it was time to step out for the equivalent of “brandy and cigars” with the plan advisor, leaving the decisions—undecided.   

The beauty of these times—and our associations—is that I was able to reach out on an ad hoc basis to folks that I knew could also appreciate both sides of the “debate,” and who cared enough to try and do something about it. This core group—Mary Patch, Chad Johansen, JD Carlson, Shannon Edwards, Justin Bonestroo & Amanda Iverson—have given up a LOT of their time and energy over the past many months to this undertaking. COVID helped in some ways—nobody was travelling as much, and we’re all now well accustomed to meeting virtually to solve problems. 

Our collective sense was that what makes the difference in these relationships is having a shared set of goals and expectations, alongside role clarity and confidence in the perspectives and expertise of the partner(s). We started with posts that have run on NAPA-Net on a monthly basis beginning last year (links below), came to something of a crescendo with a special TPA panel at the 2022 NAPA 401(k) Summit, and ultimately culminated in a checklist of sorts that you can find here. Think of it as a relationship pre-screener.

That checklist alone (and we’re hoping you’ll reconsider Compliance Administrator or Compliance Consultant as replacements for that awful TPA moniker) won’t solve all communication/expectation issues, but we hope it will be a solid foundation to open a dialogue. At its most basic, it should allow you to find out what services potential (or current) TPA partners provide, which are standard to their practice(s), and which are “extra.” But ultimately—and most significantly—it is designed to align expectations. 

There may well be things on this list of which you are unfamiliar—if so, this would be a good time to find out more about them, as I assure you, they are important, and SOMEBODY should be attending to them.  The core team is now working on some background explanations—if some jump out at you for a quicker explanation, please let me know. I—and indeed the entire core team—would love for you to begin using this checklist in your partner discussions—and to let us know what works—and of course, what doesn’t in the days and weeks ahead.

My undying thanks again to the core team for the love, humor, friendship and passion on this effort–– and to about a dozen advisors (you know who you are) who provided some terrific insights and perspective as the checklist neared completion. 

And ultimately to you, gentle reader, for helping us build this bridge…

- Nevin E. Adams, JD

Finding the Right TPA Partner

Bundled Versus Unbundled: 5 Myths

Resource ‘Full’?

What’s in a Name?     

Bundled Versus Unbundled: 5 Myths

 As human beings, we’re often motivated to seek simpler solutions to life’s challenges. But sometimes “simpler”… isn’t. 

While there are some amazing bundled solutions, ERISA’s admonition to act solely in the interests of plan participants (and beneficiaries), alongside the requirement that those be reasonable in terms of cost and value, call for a careful and considered evaluation. 

In that vein, there are some “myths” that seem to be prevalent regarding those choices, perceptions that persist even today. Here are some points to consider:

An unbundled approach is more expensive.

The reality is, it can be—depending on the point of comparison. If all other things are “equal,” then certainly engaging another level of service and compliance oversight can bring with it additional costs. Then again, engaging the services of a third-party administrator[i] (TPA)—at least the right TPA—is hardly an “all other things equal” comparison. Their involvement and engagement may well streamline the time involved in reconciling data and contribution flows, could provide insights on plan design that could save money and enhance benefits, positions them to coordinate communications on plan audits—and, significantly, likely forestalls the need for plan corrections, fees and fines. 

It might appear to cost more on the front-end—but it could more than pay for itself in other ways.

With bundled solutions, there is a single point of contact.

With most bundled solutions, it’s probably more accurate to say that there is a single starting point of contact. No matter how gifted, talented and powerful the designated point of contact for a given plan is, there are inevitably silos of information and resolution. For example, legal questions are routinely passed along to other departments, payroll reconciliations in another—those resources are not only in another department, they may often be in another state—or time zone. 

That doesn’t mean there’s no value in that single designated contact—but it’s rarely a “one-stop” shop. 

Using a third party complicates communications.

Without question, adding a TPA to the plan’s “phone tree” does add another point of contact when it comes to communications regarding plan compliance or administration. On the other hand, the right TPA can actually centralize and even streamline critical communications between the plan sponsor and recordkeeper, or with payroll. It might look like another point of contact—but it could actually simplify and consolidate the number of calls that have to be made—and, more importantly, could reduce the need for calls to correct the misunderstandings inevitable in telephone “tag.”

TPAs are best suited for smaller plans.

Smaller plans—where plan designs frequently take into account specific objectives of the business owner (including complications of things like top-heavy testing)—are certainly a good fit for the expertise of a TPA. That said, issues with payroll, compensation definitions, eligibility evaluation and vesting determination are issues with which plans of every size and shape must deal—not to mention the correction process with the DOL and IRS when things don’t happen as they are supposed to. A good TPA can mitigate the former, and smooth the way with the latter, should the need arise. 

All TPAs are the same.

All of the responses above are conditional—on engaging the “right” TPA, or a good TPA. But TPAs, like bundled providers (and advisors), are comprised of individuals of varying levels of skill, talent, experience and commitment. It’s important to find the one(s) that fit your needs—and those of your plan sponsor clients. 

Things—administration, compliance, and yes, correction—have grown significantly more complicated over the years and today TPAs not only keep up with participant accounts, they can be an invaluable resource to plan sponsors—and advisors—on issues like regulatory compliance and plan design.  

That makes it hard to obtain an apples-to-apples comparison. Indeed, the fact that each record keeper has a different process for… just about everything, makes it easy for things to fall by the wayside if you don’t have a clear assignment of responsibilities with every party involved.

Those looking for a good place to start that assessment can find it in this year’s NAPA-Net Black Book listing of TPAs—or among the membership of our sister association, the American Society of Pension Professionals and Actuaries (ASPPA). 

Because sometimes the best way to keep things “together” is to break them apart…  

See also “What’s in a Name?” and Resource ‘Full’?

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[i] It’s worth noting that your recordkeeper is a TPA.

An Insiders' Perspectve(s)

There’s nothing like the NAPA 401(k) Summit—particularly being at the NAPA 401(k) Summit after the many months and a worldwide pandemic that kept us all apart. 

Each year for the past four years we’ve taken advantage of that gathering (including in 2020 when we gathered “virtually”) to reach out[i] to the nation’s top retirement plan advisors to glean their perspective on a wide range of issues relating to their practice—and practices. 

This year’s Summit Insider was no exception—as we “consulted” with more than 500 retirement plan advisors and home office staff on a range of issues—the criteria in selecting—and rejecting—key business relationships, the things that are over-hyped—and the things that no one is talking about—but that everyone, at least in the eyes of these “Insiders,” should be. We also got some insights on retirement income, important features in choosing target-date funds, rollovers and outcomes. 

We’ve included a number of verbatim comments on what these “Insiders” wish that plan sponsors knew, or knew better. Sometimes those words are harsh, sometimes reassuring—but we asked advisors for their insights, and they were generous in doing so. I only wish we had room to share them all.

Key Findings

Among the key findings:

• Glidepath philosophy topped the criteria on selecting target-date funds, slightly outpacing 5-year performance.
• More than half of the advisors surveyed focus on measuring outcomes at the plan level during every plan review.
• Nearly two-thirds deliver financial wellness as a component of their current service offerings—another 17% do so through an external partner.
• ESG remains the most “overhyped” trend in the industry, outpacing robo-advice and MEPs/PEPs by a significant margin.
• Portability was deemed the most influential/compelling factor to respondents’ plan sponsor clients in considering a retirement income solution. It was also the most cited factor influencing advisor considerations.
• Client support and market intel were tied as the most-valued support from the DC wholesaler partners.
• Service was—still—the dominant criteria in selecting a TPA partner.  
• Rollovers, the SECURE Act’s expansion of a retirement income safe harbor, including lifetime income disclosures on participant statements, managed accounts, and e-delivery were all rated as “positive game changers.” However, a third rated managed accounts as “much ado about not much.”
• Legislation to allow student loan repayment matching was cited as a positive gain changer by 7 in 10, and legislation to expand emergency savings accounts drew “positive game changer” support of 60%. 
• The Labor Department’s fiduciary (re)proposal? A plurality (43%) said it was “too soon to say.” Which, as we’re still waiting for it, seems reasonable (if not obvious). 
• Recordkeeper consolidation was viewed as a negative game changer by nearly half (46%), though a quarter (23%) saw it as a positive.

As for what they wished plan sponsors knew more about, the list included “their roles and responsibilities,” the role(s) of other parties servicing the plan, fees, plan design, plan operations—oh, and “our roles,” of course. The verbatim quotes here are, as you might imagine, “priceless.”

A special thanks to the hundreds of retirement plan advisors who took the time to provide such thoughtful responses—and to the sponsors of this fourth edition of the Summit Insider. Which NAPA members can find in your mail—or online at https://www.napa-net.org/industry-intel/summit-insider.

- Nevin E. Adams, JD

What's In a Name?

What’s the most used and least understood/appreciated acronym in the retirement plan industry?

Well, for my money, it’s “TPA”—short for “third-party administrator.” It’s a term that is widely bandied about, but I think misunderstood by many.

The origins are plain enough—“administrator” in the sense that a TPA deals with plan administration process and issues. The issues and process, it bears noting, that ERISA (not to mention the IRS and DOL) presumes are the responsibility of the plan fiduciary. We’re talking about things like ensuring that the terms of the plan document are adhered to, that non-discrimination tests are properly applied, and that contributions are timely deposited. 

Where things seem to get confused is the “third party” reference. At its simplest, it’s merely an acknowledgement that the entity performing those vital plan administration functions is someone other than the entity responsible under the law. They are, quite simply, a party external to that legal circle. They are legally an extension of the plan sponsor/administrator, and though it’s hard to imagine it these days, it harkens back to a time when the plan sponsor/employer actually did all that work in-house, often on 12-column pads and calculators. 

Over time the role of TPA has been diminished in the eyes of many. Sure, they deal with a lot of technical “minutiae”—we’re talking deep in the “weeds” here. The classic reference is you ask what time it is, and they (some, anyway) first want to explain to you how a watch is made. That said, the role of plan administrator—perhaps a better label would be compliance administrator—is essential—critical—to the smooth, effective and efficient running of a plan—and on aspects that, odds are, your recordkeeper (another critical role, but one often focused on other things) isn’t always.

Here’s a partial list—bearing in mind that every plan has to do these things, ask yourself—and your plan sponsor clients—who is making sure that:

1. All eligible workers are included in the plan—as required by law—and ineligible workers are not unduly credited with benefits?
2. 
   Compensation used as the basis for contributions and/or eligibility is accurate, in accordance with ERISA and IRS limits, both with regard to amount (how much) and individuals (who)?
3. The plan’s allocation of benefits meets legal requirements and the correct individuals receive the correct amount(s), thus preventing the need for corrective measures and penalties? 
4. The amount(s) allocated to individual participant accounts match the actual dollars deposited into the plan/trust. Additionally, to ensure that contribution deposits are made to the plan/trust in accordance with legal requirements, forestalling legal fines and penalties?
5. The appropriate plan notices are timely delivered to the applicable individuals in accordance with legal requirements, providing them with important plan information and instructions (and preventing the application of penalties for failing to do so)?
6. Employees are properly categorized as to their status as highly compensated employees (HCEs), key employees (for top-heavy testing) and spousal/familial relationships so that the allocation of benefits and eligibility is appropriate and consistent with legal requirements?
7. The tax filings related to the plan (Form 5500, 8955, 5330, etc.) are filed accurately and on time in order to comply with the legal requirements regarding the plan, and thus avoid fines and penalties?
8. The amounts distributed as loans or distributions are consistent with the vesting schedule of the plan, in accordance with plan parameters and legal limits—and that the needed authorizations are obtained?

And perhaps most critically, who is there to help ensure that problems with regard to plan operation—perhaps relating to any/all of the items above—are promptly and accurately corrected in accordance with government platforms and processes to minimize the pain, time—and financial penalties—involved?

These are questions to which prudent fiduciaries—and those who support them—should know the answer(s).

Trust me—the IRS and DOL expect that you do—and ERISA expects nothing less.

- Nevin E. Adams, JD

Resource Full?

A great resource to help you grow and expand your business could be right under your nose…

Are you spending time you don’t have trying to work out problems you didn’t create? Let’s face it—good service, or the lack thereof, is widely cited as the most common reason that plan sponsors change providers—and that can affect your relationship as well. Sometimes you chose those providers, other times you inherit them. 

Regardless, every plan has someone in charge of administration and compliance—a third party, if you will, so called because they perform functions that plan sponsors are expected to ensure are performed (and once upon a simpler time many did so themselves). Whether you engaged those services, or find yourself tasked with overseeing them, you know they can be the difference between a smooth-running plan and one that constantly teeters on the brink of blowing up. Wouldn’t it be nice if you could partner with this “third party” administrator to take some of the burden off your shoulders and give you the time you need to spend elsewhere?

Not that the solution is unknown—roughly a year ago, we surveyed NAPA advisors, and found that nearly all (96%) partner with specific third-party administrators; just over half (55%) focus on one to three firms, while a quarter limit it to just one. Not surprisingly, service was cited as the primary consideration in choosing a TPA partner (56%), while fewer than half as many (26%) cited an ability to help with plan innovation. However, nearly half (45%) of the survey respondents said that less than a quarter of their new business is sold with a TPA.  

The reality is, of course, that like advisors, all TPAs are not created equal—they have different strengths and skillsets, and wildly different ideas as to their responsibilities and services. That makes it hard to obtain an apples-to-apples comparison. Indeed, the fact that each recordkeeper has a different process for just about everything makes it easy for things to fall by the wayside if you don’t have a clear assignment of responsibilities with every party.

Do you prefer the simplicity of a bundled solution? Well, they’re also a TPA, though again many define their process and services differently. Ultimately, the value a good TPA can (and arguably should) add to your practice are things like:

• Free up time. With price compression, find ways to leverage partners to provide services so you don’t have to. They’re a—if not the—point of contact for administrative questions, solving the day-to-day problems, things like that. 
• Help you win business. By partnering with you to craft customized solutions, where appropriate, for your customers—and prospects. They can/should be your right hand technical expert both in attracting and retaining good clients.
• Ensure that your client’s plan remains in compliance. At times it seems as though 1,000 different things can go wrong on any given day—and there’s clearly value both in administering the plan competently so that problems are avoided, and knowing how best to remedy the situation when those problems inevitably do arise. They not only bring specialized knowledge, but also the opportunity of providing a single point of contact for technical issues involving plan administration and testing. 

Bundled or unbundled, a good TPA can be a plan advisor’s best friend. Ultimately, the choice to use a TPA—or which TPA is chosen—may depend on the size of a plan or the plan sponsor’s particular needs. As with everything in life, the relationship and cultural fit is paramount. 

In (too) many situations recordkeeper/TPAs seem to be viewed not merely as a third party, but as a third wheel—someone who at best is a necessary evil —and at worst, destructive to its smooth operation. 

That said, a deliberate, thoughtful—dare I say “prudent”—partnership with these “third” parties, one that specifies assignments, roles and responsibilities—in that review meeting, and on an on-going basis can not only free up your time, but provide better service, higher client retention, more sales opportunities, and improved legal and operating compliance for the plan sponsors you serve.

Let’s face it—if they’re not an active, engaged member of your team, they should be.  

- Nevin E. Adams, JD

A Change in Providers

We really hadn’t been focused on making a change, though the subject had come up from time to time. 

In fact, considering how long we had been thinking about making a change without actually doing anything about it, the change itself felt almost accidental in its suddenness. So sudden, in fact, that, in hindsight, I found myself wondering if we were “hasty” – perhaps too hasty.

Make no mistake – we had been happy enough with our current provider, certainly at first. In fact, we had been with them for a number of years and had, over time, expanded that relationship to include a fully bundled package of services. That made certain aspects simpler, of course – though we discovered pretty quickly that the “bundle” was presented as being more seamless than it actually was. Still, net/net, we were ahead of the game financially, and certainly no worse on the delivery side; we were just a bit disappointed in the disconnect between the sale and the service levels.

And all was fine for a while – or so it seemed. Looking back, there were signs of trouble that we could have seen – if we had been looking. There were unexpected charges on the invoices, and services that we were sure had been described as being part of the bundle that turned out not to be. There was the monitoring service that was supposed to be in place that we found out wasn’t – quite by accident, and months later. Over time we cut back on the services included, but the prices just kept going up. We were, quite simply, getting less and paying more, and getting less than we thought we were paying for. And it grated on us.

In hindsight, perhaps we should have been more vocal about our discontent. I’ve wondered what might have happened if we had called up and questioned those invoice charges, or made a bigger fuss about the sporadic outages. But, in the overall scheme of things, the charges weren’t large, just not what we expected. We figured that perhaps we had been the ones to misunderstand – and didn’t want to look “stupid” by calling to complain about a charge that some fine print in some document somewhere said was perfectly legitimate. Meaning always to go check that out sometime, the time to do so never materialized. Instead, we grumbled among ourselves about how aggravating it was – and how we should do something about it… sometime.

Unfortunately, change is painful and time-consuming. The emotional and fiscal toll these changes took, while annoying, simply wasn’t enough to put change at the top of the to-do list. So, we talked about a change – and every so often asked friends and acquaintances about their experience(s). Of course, it was hard to find someone else who was in exactly the same situation – and a surprising number simply empathized with our plight, being stuck in much the same situation themselves. All of which conveyed – to us, anyway – a sense that, uncomfortable as we might be with the current service package, we were probably about as well-positioned as we could be.

Then, one day, out of the blue, an opportunity presented itself. We weren’t looking for it, as I said earlier, but the months of frustration left us open to a casual message from an enterprising salesman – one who not only knew his product, he clearly knew the problems that others like us had with our current provider.

He did more than empathize with our situation. He did not pump me for information about what I was looking for, or what I didn’t like about my current situation. Rather, he was able to speak about the features/benefits that his firm offered… and, to my ears anyway, essentially ran through the list of concerns I had – but had not articulated – with our current situation. In fact, before our conversation was done, he had pointed out to me things that his firm offered as a matter of course that the current provider hadn’t even mentioned in all the years we had been associated – things I had assumed we couldn’t get, or couldn’t get without paying a lot more.

We made the change two weeks ago – and while it’s early yet, I’m thrilled with the results.

Ultimately, our former provider set themselves up by taking our business for granted, for (apparently) caring more about attracting new customers than in attending to our concerns, and for (apparently) assuming that “quiet” meant satisfied.

Provider changes can be fraught with uncertainty, if not peril. Little wonder that it often takes a pretty serious misstep (or a consistent history of smaller missteps) on the part of an incumbent to warrant such a response. So, are your clients happy, content, and “quiet”?

Or have they just quit complaining?

- Nevin E. Adams, JD
 
Note: For the record, the provider change recounted above involves my cable company.

‘Talking’ Points

In the course of my day, I talk to (and email with) people, read a lot, and every so often jot down a random thought or insight that gives me pause and makes me think. See what you think.

1. Disclosure isn’t the same thing as clarity. Sometimes it’s the opposite.
2. It’s not what you’re doing wrong; it’s what you’re not doing that’s wrong.
3. Sometimes just saying you’re thinking about doing an RFP can get results.
4. The best way to stay out of court is to avoid situations where participants lose money.
5. The key to successful retirement savings is not how you invest, but how much you save.
6. It’s the match, not the tax preferences, that drives plan participation.
7. Does anybody still expect taxes to be lower in retirement?
8. If you don’t know how much you’re paying, you can’t know if it’s reasonable.
9. You want your provider to be profitable, not go out of business.
10. Retirement income is a challenge to solve, not a product to build.
11. When selecting plan investments, keep in mind the 80-10-10 rule: 80% of participants are not investment savvy, 10% are, and the other 10% think they are. But aren’t.
12. Participants who are automatically enrolled are almost certainly even more inert than those who took the time to fill out an enrollment form.
13. 92% of participants defaulted in at a 6% deferral do nothing. 4% actually increase that deferral. rate.
14. Plan sponsors may not be responsible for the outcomes of their retirement plan designs, but someone should be.
15. Even if a plan has a plan adviser that is a fiduciary, the plan sponsor is still a fiduciary.
16. Most plans don’t comply with ERISA 404(c) – and never have. And, based on litigation trends, apparently don’t need to.
17. Hiring a co-fiduciary doesn’t make you an ex-fiduciary.
18. “Because it’s the one my recordkeeper offers” is not a good reason to select a target-date fund.
19. Given a chance to save via a workplace retirement plan, most people do. Without access to a workplace retirement plan, most people don’t.
20. Nobody knows how much “reasonable” is.
21. Innovative doesn’t mean nobody’s ever thought about it, or that nobody’s ever done it.
22. You want to have an investment policy in place before you need to have an investment policy in place.
23. The same provider can charge different fees to plans that aren’t all that different.
24. You can be in favor of fee disclosure and transparency and still think that legislation telling you how to do it is misguided.
25. The biggest mistake a plan fiduciary can make is not seeking the help of experts.

Thanks to all you “inspirations” out there – past, present and future.

- Nevin E. Adams, JD

Why Your Recordkeeper Might Not Be an Automatic Enrollment Fan

I recently wrote about what’s wrong with automatic enrollment. Turns out there’s more – and it has to do with when things actually go “wrong” with automatic enrollment.

See, it’s one thing to say that eligible employees should be automatically enrolled – and yet another to actually get them enrolled automatically. Even the Internal Revenue Service (IRS) goes so far as to acknowledge that two common errors found in 401(k) plans are: (1) not giving an eligible employee the opportunity to make elective contributions; and (2) failing to execute an employee’s salary deferral election.

Now, as it turns out, both are “fixable” – through the Employee Plans Compliance Resolution System (EPCRS). But that’s only the start of things. See, in both of those situations you’re looking at a corrective contribution of 50% of the missed deferral (adjusted for earnings) for the affected employee. And then fully vesting the employee in those contributions – contributions that are subject to the same restrictions on withdrawal that apply to elective deferrals.

The only difference in the correction for the two situations outlined is the calculation of the amount of the missed deferral. In the case of an erroneously excluded employee, the missed deferral is based on the average of the deferral percentages (ADPs) for other employees in the employee’s category (for example, non-highly compensated employees), whereas if the error involves failing to implement an employee’s election, the missed deferral is based on the employee’s elected deferral percentage, or in the case of missed automatic contributions, the automatic contribution percentage. For plans with automatic contributions, however, the corrective contribution for the missed deferrals is reduced to 0% or 25% of the missed deferrals, depending upon how soon the error is corrected.

Your head starting to hurt?

Hold on – those corrective contributions also need to be adjusted for earnings – from the date that the elective deferrals should have been made through the date of the corrective contribution.1 In all cases the employer must contribute any missed matching contributions, adjusted for earnings.

‘Tell’ Tales

Now, in addition to the regular array of plan notices that will now be required for those new participants, automatic enrollment has its own special set of notices. While most larger plans rely on what is called an eligible automatic contribution arrangement (EACA), smaller programs may have in place what is called a qualified automatic contribution arrangement (QACA), a type of automatic enrollment 401(k) plan that automatically passes certain kinds of annual required testing (generally referred to as a safe harbor plan). A QACA must include certain features, such as a fixed schedule of automatic employee contributions, employer contributions, a special vesting schedule and specific notice requirements.

The automatic enrollment notice details the plan’s automatic enrollment process and participant rights. The notice must specify the deferral percentage, the participant’s right to change that percentage or not to make automatic contributions, and the default investment. The participant generally must receive the initial notice at least 30 days, but not more than 90 days, before eligibility to participate in the plan or the first investment. Subject to certain conditions, the notice may be provided, and an employee may be enrolled in the plan, on the first day of work. An annual notice must be provided to participants and all eligible employees at least 30 days, but not more than 90 days, prior to the beginning of each subsequent plan year. And guess what happens if those notices don’t go out when they are supposed to?

So, it’s not as though you just have to flip a switch on payroll and you’re done.

Even When It Works

There are, of course, issues, even if there are no processing missteps. Cost, particularly as it relates to the match – which may have been designed to encourage workers to sign up, and which, with automatic enrollment, may no longer need to – and which may have been budgeted for a 70% participation rate that, thanks to automatic enrollment, may be more like 95%. Turnover can leave behind smaller 401(k) balances, which incur additional recordkeeping costs, and which can prove to be a real administrative burden with ongoing notice and communication requirements. Which again, if those notices aren’t going out when they should…

The bottom line is that automatic enrollment is an important component of helping more Americans save, and save effectively. But as is often the case, it’s not as easy as it sounds, and plan sponsors looking to embrace this design – and advisors who tout it – should do so with a full awareness and appreciation of all the implications.

For some other issues, see “Why Doesn’t Every Plan Have Automatic Enrollment?”

Nevin E. Adams, JD

1. Not that that’s not an improvement from how it used to be. Under Rev. Proc. 2015-28, if the error is detected within 9½ months after the year of the failure, no corrective qualified non-elective contribution (QNEC) is required to an affected participant’s account for the missed deferral opportunity, as long as the person is enrolled within the 9½ month period (or earlier if the affected employee notifies the employer of the mistake).

6 Tips on Shopping for a Provider

My single memory of venturing out on Black Friday to shop came at the instigation of my “little” sister, who has long undertaken such forays. Nor was this to be a random shopping expedition — armed with circulars and coupons, she directed me and my two brothers with the fervor and furor of General Patton as to which stores we were to invade, the objective(s) of these intrusions, and in some cases, the line(s) in which we would take up residence while she pursued items she (apparently) did not trust to the pursuit of mere amateurs.

Shopping for a new provider is not something one would normally compare with a Black Friday foray, but if you have a plan sponsor — or plan sponsor prospect — who’s thinking about shopping for a new provider, here’s a list they may find useful.

Make a list — and yes, check it twice.

In an area fraught with as much potential complexity as searching for a retirement plan provider, it’s easy to think you’ll learn what you need to look for by simply going through the process. Though learn you will, shopping for a retirement plan provider without a sense of your core needs is a bit like going grocery shopping on an empty stomach; everything will sound good, and you’ll likely overload on “sweets.” Santa Claus makes a list — so should you: of plan design features (real and anticipated) that you want supported.

Know your pain points — and be ready to share them.

If you’ve had a plan in place before, you have almost certainly experienced at least one bump in the road, and perhaps several (and perhaps more than a mere “bump”). At the core of those experiences is something someone either did or didn’t do that contributed to the problem(s). Or maybe you simply have certain areas of sensitivity. Regardless, make sure you’ve detailed those, and be certain to share them with potential providers, preferably with a preface of “what procedures/protocols do you have in place to prevent something like….”

Have — and know — your budget.

These services aren’t free, though they may well be packaged in such a way that the plan sponsor doesn’t have to write a check. At a minimum. know how much you are able — and willing — to pay. And while you’re at it, you’d be well advised to be attentive to the cost(s) of the plan, who’s going to be pay them, and how those who provide services to the plan will be paid, and by whom.

Remember that provider rankings are only a starting point.

Think about it — an unknown number of plan sponsors about which you know nothing in terms of complexity of plan design, capabilities of staff or breadth of perspective/experience or tenure with the provider rate those provider capabilities, and from that a satisfaction score is gleaned.

It’s not a bad place to start — but like those rankings on Amazon, they have a limited value in predicting your satisfaction with that platform. They’ll likely affirm your preexisting preferences or fuel your imbedded concerns, but they aren’t much benefit in creating new ones.

Trust — but verify — references.

Proffered references are, almost by definition, going to be positive. (If they aren’t, and aren’t positioned as negative, that will tell you something valuable about the provider who provided them.) But having taken the time to request them, you shouldn’t assume that no value can be gleaned. Press for references that are like you in terms of plan size, design and complexity. Try to get someone who has converted to their platform in the past year — better still, someone who has left that platform in the past year (though it will likely be due to M&A activity, not service or fees). And ask them what questions they wished they had asked when they went through their process. If you ask them if they are satisfied, they’ll likely say they are. The question is, should they be? And will you be?

Get help.

Unless you are a serial provider shopper, odds are you aren’t an expert at the business of shopping for a provider. It is a complicated and time-consuming process, with an abundance of opportunities for disconnect in expectations simply because you don’t ask the right question(s). As an ERISA fiduciary, you are expected to review (and subsequently monitor) those that provide services to the plan with the skill and expertise of a prudent expert. If you lack that, you are expected to engage the services of someone who does.

Or else run the risk of winding up with a lump of coal.

- Nevin E. Adams, JD

3 Things Plan Sponsors Should Know About Changing Providers

By most industry estimates, approximately 10% of plans change providers every year.  Of course, far more consider making a change (without actually acting on it), and many changes are thrust upon plan sponsors, a consequence of poor service, or provider consolidation.

Regardless of the motivation for undertaking the change, here are three things that in my experience every advisor (and provider) wishes plan sponsors understood about recordkeeping conversions — before setting them in motion.

Your provider search will take longer than you think.

Human beings are, generally speaking, poor judges of time requirements, particularly with things with which they don’t have a lot experience (like provider searches) and that require the involvement/input of committees (like provider searches).

We tend to assume that we’ll have more time available for such things than actually winds up being the case, and we tend to assume that such things will take less time than they actually do. We also tend to make those types of assumptions about the participation of other members of the team. It’s not just that those assumptions tend to be optimistic, it’s that, all too frequently, they are wildly optimistic.

Your provider and/or advisor will likely make a good faith effort to provide a timetable of events, and will likely take pains to emphasize to you the amount of time it will take to actually conduct this process. Doubtless they will remind you — and remind you more than once — just how important it is that you make the time commitment, and deadlines, noted in that timetable.

My advice: Take whatever timetable they give you — and double it.

A big part of the reason your provider search will take longer than you think…is you.

A change of providers inevitably brings with it additional work, greater time commitments, and what sometimes feels like an incessant series of questions about things to which you never previously gave much thought. Moreover, you’ll have to think about how to communicate this change to your participants — and deal with the inevitable flurry of questions from them about how to do things to which they never previously gave much thought.

However, these realities are generally not top of mind when we enter into discussions about making a provider change. So, while the search is generally set forth on a wave of optimism and hope, it can, before long, find itself bogged down in the inevitable administrative minutia that consumes so much of a plan sponsor’s time. And the longer it takes, the worse it can become.

The bottom line is, at the outset you probably didn’t have 25% of your day just sitting there waiting for some big project to fill it. Even the most committed will, at some point (and likely at several some points) be tempted to push off that update call, to set aside responding to some integral data definition, to dither on making a determination that will hold up the entire project.  A good project plan will account for some of these. But not an indefinite number.

(Almost) Everybody wants to change providers on January 1. Everybody can’t.

If your plan year-end is Dec. 31 (and it is, for the vast majority of plans), there are some real benefits to making a provider change at that point in time. Plan reporting — both participant and regulatory (Form 5500) — is quite simply neater when you finish the reporting year at the same time you conclude your arrangements with a provider. Anything else is going to require someone somewhere to “splice” together reports at some point. Doing so doesn’t have to be a big deal — but it can be “awkward.”

There are some reasons not to make those kinds of changes at year-end, of course. First off, there’s generally quite a queue wanting to do so. You may well be able to get in that queue, but your new provider will likely have their hands full with a lot of plans just like yours. More significantly, your soon-to-be-ex provider likely will as well — and guess who is likely to get the most/best attention?

Bear in mind also that a 1/1 change means that a lot of the preparation, review, and/or testing— not to mention participant communications — will happen during a time of the year when people are generally more inclined to be worrying about other things.

What’s Next?

So, considering those issues, what should a plan sponsor thinking about making a provider change do?

Well, I would suggest you start early, allow plenty of time for slippage in schedule, and be open to the possibility of making a mid-year change instead.

- Nevin E. Adams, JD

Change Parse

Three things every adviser (and provider) wishes plan sponsors understood about recordkeeping conversions:

Everybody wants to change providers on January 1. Everybody can’t.

If your plan year end is December 31 (and it is, for the vast majority of plans), there are some real benefits to making a provider change at that point in time. Plan reporting—both participant and regulatory (Form 5500)—is quite simply neater when you finish the reporting year at the same time you conclude your arrangements with a provider. Anything else is going to require someone somewhere to “splice” together reports at some point. Doing so doesn’t have to be a big deal—but it can be “awkward.”

There are some reasons not to make those kinds of changes at year-end, of course. First off, there’s generally quite a queue wanting to do so. You may well be able to get in that queue, but your new provider will likely have their hands full with a lot of plans just like yours. More significantly, your soon-to-be-ex provider likely will as well—and guess who is likely to get the most/best attention?

Bear in mind also that a 1/1 change means that a lot of the preparation, review, and/or testing—not to mention participant communications—will happen during a time of the year when people are generally more inclined to be worrying about other things.


Your provider search will take longer than you think.

Human beings are, generally speaking, poor judges of time requirements, particularly on things they don’t have a lot experience with (like provider searches) and that require the involvement/input of committees (like provider searches). We tend to assume that we’ll have more time available for such things than actually winds up being the case, and we tend to assume that such things will take less time than they actually do. We also tend to make those types of assumptions about the participation of other members of the team. It’s not just that those assumptions tend to be optimistic, it’s that, all too frequently, they are wildly optimistic.

Your provider and/or adviser will likely make a good faith effort to provide a timetable of events, and will likely take pains to emphasize to you the amount of time it will take to actually conduct this process. Doubtless they will remind you—and remind you more than once—just how important it is that you make the time commitment—and deadlines—noted in that timetable.

My advice: Take whatever timetable they give you—and double it.

A big part of the reason your provider search will take longer than you think…is you.

Conversions generally involve providers—both new and soon-to-be-ex—and frequently involve an adviser in addition to the members of the employer team. Every one of these parties is, generally speaking, highly motivated to see the conversion take place. Now, one could argue that you, the plan sponsor, who set all this in motion, has as much motivation as anyone. However, the reality is that, unless you have some SERIOUS servicing issues, your motivation for change is probably somewhat less than the others.

Change, after all, is generally disruptive. A change of providers inevitably brings with it additional work, greater time commitments, and what sometimes feels like an incessant series of questions about things to which you never previously gave much thought. Moreover, you’ll have to think about how to communicate this change to your participants—and deal with the inevitable flurry of questions from THEM about how to do things to which THEY never previously gave much thought.

However, these realities are generally not top of mind when we enter into discussions about making a provider change. So, while the search is generally set forth on a wave of optimism and hope, it can, before long, find itself bogged down in the inevitable administrative minutia that consumes so much of a plan sponsor’s time. And the longer it takes, the worse it can become.


So, considering those issues, what should a plan sponsor thinking about making a provider change do? Well, I would suggest you start early, allow plenty of time for slippage in schedule, and be open to the possibility of making a mid-year change instead.

—Nevin E. Adams, JD

“Left” Field

I participate in a number of LinkedIn groups (and “sponsor” a couple). In one of those groups last week, a member said they were interviewing potential new 401(k) recordkeepers/advisers—and asked a provocative question: What is the one question that you will be sure to ask the next time that you interview potential 401(k) providers?

Of course, we all know that the search for a new provider entails a lot more than a single question. And, as I skimmed my way through the suggestions that had already been proffered, there were a number of important and familiar inquiries; things having to do with the fees charged, fee disclosure, the quality of support staff, willingness to stand in as a plan fiduciary…. These are all important—so important, in fact, it was hard to imagine that they wouldn’t be routinely included in even the most casually composed RFP.

Having read the question—and skimmed the answers—I was about ready to move on. Ironically, the way this question was phrased (or at least how I read how that question was phrased) intrigued me; what WAS that one question I would ask the next time?

Now, having spent a fair amount of my career on the other side of that question (including a period of time when the group that prepared RFPs for a large financial services organization reported to me), I can tell you there are a nearly infinite number of ways to respond “yes” (with a clear conscience) without really meaning "yes, all the time"; ways to gloss over things like high turnover, to offer broad organizational-level expositions designed to assuage nagging concerns about profitability or “commitment to the business”; even ways to assure, without committing, on the subject of whether the provider will "stand in" in the event of a lawsuit, audit, or investigation. None of which should discourage or dissuade one from asking those questions, of course.(1)

That said, when it comes down to that one question, I kept coming back to one that gets asked all the time. One that you probably asked on your last RFP. One to which you may have gotten a response, but, I suspect, not an answer.

The question I would ask is, Can I get the contact information for three clients that have left you in the last 18 months?

Not that you'll get it, though you might—or that the selections won't be "tailored"—but the response (or lack thereof) can, IMHO, be "enlightening."

—Nevin E. Adams, JD


(1) If you want to frustrate a potential provider, just make them respond to an RFP where the questions are worded such that the only acceptable answers are “yes” or “no” (or make them put their “explanations” in a separate document). What many (still) don’t seem to appreciate is that most advisers/consultants take all that fancy verbiage and filter it down to a checkbox on a spreadsheet anyway.

"Right" Minded

One of the most common—and consistent—inquiries I receive (via e-mail, anyway) is from readers looking for help in choosing a plan provider. I am always flattered by the request, and always try to do my best to point them to the resources we have on our site (our annual Defined Contribution Survey and the annual Recordkeeping Survey are quite popular).

Still, there is only so much help one can offer without a fuller understanding of the current needs of the program, as well as the goals and objectives set for the future. Furthermore, providers, like plan sponsors, have "personalities" and, in my experience, sometimes the chemistry that a good relationship needs to thrive just is not there, even when the plan's needs are reasonable and the provider's capabilities are top-notch.

Yes, picking the best provider for a retirement plan is one of the most important decisions a plan sponsor can make—both in terms of fulfilling their fiduciary obligation and in what might affectionately be called job sanity. That said, many plan sponsors really don’t have the time—or the expertise—to pick the best provider (much less monitor that performance), and so, the smart ones do what ERISA requires—they hire the expertise to pick (and monitor) the best provider. And that’s where the retirement plan adviser comes in.

The “Right” Adviser

However, in my experience, it’s no less challenging to find the “right” adviser/consultant than to find the right provider. In fact, IMHO, it’s harder to find that adviser. Why? Well, most of us have some idea as to the features/pricing we want/are willing to pay for from a provider, but how much is good counsel worth? And how do you know it's good counsel?

Here are seven things that I’ve told plan sponsors that they should know, and in some cases know before they start looking, before they engage an adviser’s services:

(1) Know what you want to accomplish with the adviser/why you want an adviser. Is this for a one-time consultation, or are you looking for an ongoing relationship?

(2) Know where the adviser will be. Do you care if they are geographically proximate, or is a phone call away close enough? How often will they visit? How often will they visit without charging?

(3) Know what the adviser has done for others. Get references—in fact, if you can get references first, and then call the advisers, so much the better.

(4) Know how the adviser is going to go about doing what they say they will do. Get that in writing—and hold them accountable.

(5) Know where the adviser stands on the issue of being a fiduciary to your plan. Know the size and strength of the organization that stands behind that commitment. Know that hiring an adviser who will be a fiduciary to your plan doesn’t diminish your responsibility as a fiduciary.

(6) Know what kind of background/expertise the adviser has. What kind of education, honors, and/or designation(s) do they have? How do they stay current on market and regulatory developments—and how will they keep YOU current?

(7) Know how much—and how—you will be asked to pay for the adviser. More importantly, know how much—and how—the adviser is paid for the services provided to your plan. Be sure that they aren’t compensated in a way that unduly influences (or could be seen to influence) their objectivity. If they won’t answer this question, no matter how good they seem to be, walk—no, run—away.

Of course, ultimately, the choice of the “right” adviser will be a combination of personal chemistry, professional acumen, relevant experience, and—perhaps the most element—trust.

—Nevin E. Adams, JD

P.S. I’m sure that, in the interests of focus and brevity, I have overlooked things. If so—or if you just want to tell me you agree—drop me a note at nevin.adams@assetinternational.com

Caveat Emptor

A couple of weeks ago my better half told me that she thought it was time that we traded in two of our aging vehicles – one a car that is too small for our family, the other a van that now seems too big for all but cross-country trips – for something in the middle. I was amenable to the idea – until she mentioned that she didn’t think we needed to buy a new vehicle as a replacement.

If you have ever in your life purchased a “pre-owned” anything, you’ll appreciate the dangers inherent in the principle of caveat emptor, literally “let the buyer beware.” That’s why, to this day, the notion of purchasing a used car practically causes me to break out in cold sweats. Not that lemons don’t roll off the new car lots every day – but there, at least, it seems that your odds are better – if not in terms of product, at least of obtaining satisfaction if something doesn’t work out.

Buying a used car is, of course, as much art as science – particularly if you aren’t mechanically inclined. That’s why it has become fairly common to enlist the support of a trusted mechanic to assess the reliability of a potential vehicle purchase. Of course that works only if you actually HAVE a trusted mechanic to rely on. In my experience, the only way – outside of a personal relationship - for a mechanic to have earned that trust is for you to have spent a lot of time at the garage (which, of course, may be why you are looking for a different vehicle in the first place).

Plan sponsors are increasingly looking for guidance on what constitutes reasonable, and – spurred by the flurry of recent 401(k) plan lawsuits, and the increasing level of scrutiny applied by regulators and lawmakers – have, logically, tended to be dominated by a focus on fees.

It’s hard to argue with the “clarity” of that focus, but what do you think would be the result if my used car purchase used cost as the only criteria? All things being equal, cost may be a perfectly adequate point of differentiation, but all things are seldom “equal”. When it comes to used cars, common sense dictates that a vehicle in better condition could well be worth more than an identical make and model that has been handled roughly. And we all know of “cheap” car purchases that have more than made up for that initial price differential in terms of subsequent trips to the repair shop.

Things are even more complicated with retirement plans, where plan design flaws are often obscured, and where subtle restrictions and operational limitations don’t appear until well after that finals presentation. Fortunately, ERISA doesn’t require “cheapest.” However, it does call for plan fiduciaries to make decisions that are solely in the best interests of plan participants and beneficiaries, to ensure that those decisions culminate in the selection of services (and fees for those services) that are “reasonable” – and to do so with the insights and perspective of an expert in such matters, or to enlist the support of those who are.

Failing that – “caveat emptor’.

Nevin E. Adams, JD

Deal or No Deal?

Deals like the one announced on Friday by The 401(k) Company, Nationwide, and Schwab are the kind of thing that gives advisers—and plan sponsors—heartburn. Not that one in particular, I should hasten to add—one could have the same queasiness about the recent Great-West/US Bank deal (see Great-West Sweeps Up More 401(k) Business), the sale of Southeastern Employee Benefit Services (see First Charter Lets Go of Recordkeeping Unit), or just about any structural change at a 401(k) recordkeeper.

The reasons for that angst are obvious, I would suspect. Change—even change for the better—is frequently disruptive to the human psyche. Most of us tend to drift into comfortable “ruts” of pattern, or perhaps habit—places where we know what to expect and, roughly anyway, when to expect it. And, at least in my experience, the more frazzled your existence, the more one pines for these oases of quiet and relative clarity.

There are few things more disruptive to the peace or clarity of a 401(k) plan than a switch in recordkeepers, even when the change is instigated by a regular, thoughtful, focused evaluation of the alternatives; or even when that change is the product of a desperate quest driven by a truly awful service relationship. But it is perhaps especially disruptive when the change is thrust on the plan by forces outside of its control or instigation. Particularly because, IMHO, that kind of change calls for at least a passing review of what the change means to the plan.

Some changes are less impactful than others on the plan’s daily administration, of course. Changes that trigger a mass departure of key staff can be upsetting, and those that necessitate moving to a new processing platform even more so. Change that requires communication to participants is anathema to most plan sponsors (and trust me, when a local provider engages in a big financial transaction, the media will cover it, and participants WILL ask).

On the other hand, changes that are merely structural in nature can be a big yawn—and changes that result in additional resources, better capabilities, a clearer focus, and a stronger commitment to “the business” are not as rare as you might think (though not as common as the post-announcement press releases would have you believe, either).

Regardless of whether the change appears to be good, bad, or inconsequential on its face, you need to ask—and get an answer to—the question “What does this mean to us?”

And the question only you can answer—“What are you going to do about it?”

- Nevin E. Adams