Differences Between Plan Administrators, Third-Party Plan Administrators, and Recordkeepers

by | Mar 15, 2022 | 401(a), Governmental Benefits, Plan Administration, Record-keeping

Sponsors of governmental retirement plans seem to be hiring, firing, or transitioning to new third-party administrators (TPAs) or recordkeepers all the time. The differing roles, duties and legal responsibilities of plan administrators, TPAs, and recordkeepers need to be understood, because TPAs and recordkeepers generally do not want to be the ‘plan administrator” and bear all of the fiduciary responsibilities and potential legal liability that go with that role.

Basic Differences Between Plan Administrators, TPAs, and Recordkeepers.  

  • The “plan administrator” is the person or persons responsible for the overall management and operation of a retirement plan on behalf of its participants and beneficiaries. Think of this person (or persons) as having a “the buck stops here” on their office door and their desk. As explained on our other posts, someone can be explicitly designated as the plan administrator of a plan, but it is also possible to become a plan administrator simply by acting like one – that is, exercising discretionary management over various aspects of a plan’s operations. It is critically important to identify who is, or may be, the plan administrator with respect to your agency’s plans.
  • The “recordkeeper” is the entity that keeps track of the daily activities of the plan, and is typically selected by the plan administrator or the plan sponsor. In the case of a defined contribution plan, such as a 457(b) or 401(a), the recordkeeper tracks participant elections, such as deferral elections and investment directions. The recordkeeper also tracks employer contributions and investment gains and losses. In most cases, the recordkeeper also serves as an investment platform, which provides plan participants with access to various investment options – from a “menu” selected by the plan administrator or the plan’s investment adviser. Because most recordkeeping, like bookkeeping, simply keeps track of what has happened, the recordkeeping portions of any administrative service agreement (ASA) will always describe the provider’s recordkeeping activities as “ministerial,” or “as directed by the plan administrator.” Assuming that you have selected a reputable, competent, and well-trained recordkeeping firm, you should not let them get away with ASA language that states that they can blindly follow whatever instructions or directions they receive, regardless of whether such instructions or directions are incomplete, unclear, inadequate, or improper.
  • The “TPA” usually consults with and provides compliance assistance to the plan administrator. Often times the ASA for TPA services will consist of an exhibit or menu of compliance services that the plan administrator would like the TPA to provide. These services might include: preparation of plan documents and plan amendments; preparation of plan notices and disclosures to participants; and monitoring plan deferral and contribution limits. In addition, most TPAs will assist plan administrators with the processing of newly eligible participants, participant loans, hardship distributions, retirement distributions, withholding issues, review of domestic relations orders. These services, which usually involve greater expertise and judgement, can sometimes raise issues as to whether the TPA is exercising discretion and becoming a de facto plan administrator. Often, this “temporary” transfer of decision-making authority is transferred back to the plan administrator by having it “sign off” and approve whatever determination the TPA has previously made. If your ASA calls for the TPA to make ultimate decisions or determinations without the plan administrator’s review and approval, it may be appropriate for the parties to clarify or confirm their respective roles. Is the TPA taking on certain fiduciary duties under the plan?

ASA “Mash-ups”. In today’s governmental retirement plan market, one seldom sees “unbundled” recordkeeping-only or TPA-only service agreements. That is because most governmental plan sponsors and fiduciaries prefer the ease and simplicity of dealing with a single provider for both recordkeeping and TPA services. Of course, whenever you, or your legal counsel, are reviewing a combined recordkeeping and TPA services ASA, which necessary “mashes-up” two different roles, the resulting ASA can sometimes appear a bit schizophrenic.

Final Thoughts. There are extremely few instances where a plan administrator can successfully transfer or delegate all of its plan administration responsibilities to an outside entity. If you think this is what you are already doing, or would like to do, you should have a serious discussion with your legal advisors about how and whether this will work. If, like most other plan administrators, you have selected the bundled TPA-recordkeeping service model, you must keep in mind, and monitor, the fact that while most recordkeeping firms can adequately keep track of most daily plan transactions, not all recordkeeping firms do an equally good job of providing TPA services. It is the provision or (or failure to provide) adequate TPA services that usually results in plan compliance problems.

Jeff Chang is a partner at Best Best & Krieger LLP. He has four decades of experience skillfully evaluating benefit and retirement plan compliance to achieve maximum outcomes for public agency clients throughout California. He can be reached at jeff.chang@bbklaw.com or (916) 329-3685.

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