Retirement plan financial advisors play a critical role in helping employers establish and maintain retirement plans that meet the needs of their employees while complying with increasingly complex regulations. But navigating the intricate legal and administrative landscape of retirement planning is no small feat. That’s where an alliance between financial advisors and third party administrators (TPAs) becomes indispensable. Together, they can work to help retirement plans comply with legal requirements, meet fiduciary responsibilities and operate more smoothly for both plan sponsors and participants.
Why do financial advisors need TPAs?
Full service financial advisors who specialize in retirement plans can encounter heavy complexities and administrative burdens when the plan doesn’t have a bundled TPA to manage administrative, compliance and recordkeeping functions.
Key administrative tasks simplified by TPAs
Third party administrators for retirement plans cover a wide swath of responsibilities, including:
- Legal and regulatory compliance
- Stringent regulations under ERISA, the Internal Revenue Service (IRS), the SECURE 1.0 Act, the SECURE 2.0 Act, and other laws help people save and invest in retirement
- Staying informed and keeping plans compliant with regulations can be daunting
- Compliance testing
- Nondiscrimination and compliance testing, such as the actual deferral percentage (ADP) and actual contribution percentage (ACP) tests, must be performed annually
- Failure to meet requirements can result in penalties or plan disqualification
- Administrative documentation
- Plan sponsors must gather and organize the required documentation, including participant notices, summary plan descriptions and fiduciary meeting minutes
- Inaccurate or incomplete documentation can expose plan sponsors to audits and potential fines
- Annual filings and deadlines
- Annual plan filing requirements include the submission of Form 5500 to the Department of Labor (DOL)
- Missing deadlines or filing errors can result in significant penalties
Bundled vs. unbundled TPAs for retirement plans
Plans with bundled TPA services have a single provider for the aforementioned responsibilities. This approach simplifies communication, integrates benefits, makes costs more predictable and provides overall efficiency.
Plans that don’t have bundled TPA services may require multiple TPAs. Working with several vendors lends itself to flexibility and customization, but it also requires more oversight and coordination than having a single provider.
In either instance, financial advisors help select TPAs by assessing the client's specific needs and goals. They then evaluate potential providers based on experience, service offerings, compliance expertise, fees and their ability to integrate with the client's existing plan design. TPAs need to be able to effectively manage day-to-day operations while acting as a trusted partner in administering a compliant and efficient retirement plan.
Financial advisors work with plan sponsors to shortlist TPA options and explain the pros and cons of each to help them understand the implications of their choice. The advisor may conduct further due diligence by contacting references, reviewing the TPA's legal and regulatory history, and assessing their financial stability. Once selected, the advisor helps negotiate the TPA(s) service agreement terms and conditions, making sure contracts align with client needs and expectations.
How third party administrators help simplify plan administration
Third-party administrators provide administrative expertise and specialized support. Beyond handling administrative tasks, TPAs play a key role in aligning retirement plans with evolving business goals, offering guidance on plan design to optimize benefits for participants and integrating compliance efforts with broader financial goals. Their expertise and specialized services help financial advisors focus on their primary role of providing strategic investment guidance and retirement readiness planning for their clients. Here are some TPA benefits for financial advisors:
Expertise in legal requirements
TPAs have in-depth knowledge about IRS and DOL laws and regulations affecting retirement plans. They help plans meet the fiduciary standards set forth in ERISA by conducting periodic reviews of fiduciary processes and providing training for plan sponsors. They also work with financial advisors to make sure that investments are appropriately monitored and benchmarked. TPAs maintain and update the plan documentation so it meets stringent legal requirements. They also help plan sponsors implement best practices to reduce the risk of fiduciary breaches and regulatory penalties.
Additionally, TPAs assist with interpreting and implementing provisions, like increases in the starting ages for required minimum distributions (RMD), auto-enrollment features mandated by the SECURE 2.0 Act and adjustments to 401(k) eligibility for long-term, part-time employees. Their expertise and proactive approach help plans stay compliant while optimizing benefits for employers and participants.
Compliance testing and documentation
TPAs handle the critical and technical tasks of compliance testing and documentation, which includes:
- Conducting ADP, ACP and top-heavy tests to help plans remain compliant and equitable
- Reviewing and maintaining required documents, including plan amendments and summary plan descriptions to meet fiduciary and regulatory obligations
Form 5500 filings and participant notices
One of the most challenging aspects of retirement plan administration is the annual filing of Form 5500. This filing requires meticulous data collection, accurate reporting of financial and participant information, and strict adherence to Department of Labor (DOL) deadlines. Many plan sponsors struggle with the complexity of compiling detailed information, including plan assets, contributions and distributions. Errors or omissions can trigger audits and penalties and add significant administrative burdens, underscoring the critical role TPAs play in handling the following tasks:
- Gathering the necessary data from plan sponsors and financial advisors
- Preparing and submitting accurate filings to the DOL on behalf of the plan
Recordkeeping and administration
Detailed recordkeeping and administration by TPAs help businesses save time. They provide oversight of retirement plan duties, including:
- Allocating contributions to participant accounts
- Distributing benefits, including distributions, loans and rollovers in accordance with plan terms
- Preparing participant required notices and disclosures, including summary plan descriptions and fee disclosures
TPAs and retirement plan success
The collaboration between a financial advisor and TPA(s) is the cornerstone of a successful retirement plan. It also strengthens the advisor’s role as a trusted provider. Together, TPA(s) and financial advisors can provide employers and participants with attractive retirement savings solutions.
Supporting the client’s fiduciary responsibilities with TPAs
With hundreds of partners and growing, ADP TPA programs are designed to help financial advisors every step of the way. They get comprehensive support, plus the flexibility to choose plan features, making it easier to fulfill their responsibilities and tailor solutions to unique business needs. Their expertise and our advanced services and technology, when combined, can deliver outstanding retirement plan benefits.
The synergy between financial advisors and TPAs is essential for the effective administration of retirement plans. While financial advisors bring strategic investment expertise and client relationship management, TPAs provide the specialized knowledge and administrative capabilities needed to navigate the regulatory complexities of retirement plans. Together, they create a retirement plan that performs and ultimately contributes to an employees’ financial well-being in retirement.
ADP delivers everything you need to manage retirement plans for your clients and help their employees meet their saving goals.
Learn MoreCompliance Code:
M-649407-2024-11-27
ADP Inc. owns and operates the ADP.com website. Unless otherwise disclosed or agreed to in writing with a client, ADP, Inc. and its affiliates (ADP) do not endorse or recommend specific investment companies or products. Please consult with your own advisors for such advice. Investment options are available through the applicable entity(ies) for each retirement product. Investment options in the “ADP Direct Products” are available through either ADP Broker-Dealer, Inc. (ADP BD), Member FINRA, an affiliate of ADP, Inc., One ADP Blvd, Roseland, NJ 07068 or (in the case of certain investments) ADP, Inc. Only registered representatives of ADP BD may offer and sell ADP retirement products and services or speak to retirement plan features and/or investment options available in any ADP retirement products.
