Why Use a TPA?
In the large-plan market, many 401(k) investment platforms come bundled with clearly delineated advisory, investment and administrative services. We might illustrate the key roles and responsibilities as follows:
But there are several problems with trying to migrate a so-called “bundled” service model to the small/mid-sized plan market:
- Retirement plans have many operational and regulatory requirements that require experienced support.
- Most small and mid-sized businesses and their advisors, are not staffed to support setting up and managing a retirement plan, and need additional support.
- For plans below a certain asset threshold, bundled 401(k) investment platforms have difficulty providing a combination of high quality support at a low cost.
Fortunately, most 401(k) investment platforms have recognized the value of partnering with a TPA. The unbundled path is now viewed as a win-win for all parties: by separating the administrator from the recordkeeper/investment platform, the client and advisor get access to excellent administrative support and services, allowing the investment provider to focus on providing small plans with excellent investments, employee education and online participant services.