Communicating Plan Administration

All 403(b) plans require some level of administrative support. Prior to the issuance of the final 403(b) regulations, most ERISA-exempt 403(b) plan sponsors performed some tasks required to establish and support their 403(b) programs and the product providers acted under their respective annuity contracts and custodial accounts to establish individual accounts, keep records, make distributions, withhold and report taxes for their 403(b) annuitants/custodial account holders. However, the final 403(b) regulations clearly indicated that plan sponsors had obligations and responsibilities not previously associated with sponsoring 403(b) plans. One consequence is that employers have had to recognize additional responsibility and (potential liability) for administrative functions of their 403(b) plans. This fact is a key factor in compliance as the information necessary to properly administer the plans often does not reside solely with the employer, but may be spread among several parties.

Therefore, compliance may only be accomplished if the involved parties know how the plan is being administered and which parties have the information necessary to properly evaluate a transaction. To further complicate this issue, providers of administrative services are not all providing the same services to the 403(b) plans that they administer.

In general, an administrator or TPA is a person or organization that acts as a conduit for information between the plan sponsor and any vendors that may provide investment products under the 403(b) plan. The TPA then uses this information to perform the day-to-day administrative functions required under the plan document, such as monitoring contributions and investment allocations. Services may be provided based on optional plan features, such as certifying hardships or coordinating loans from different product providers. However, not all organizations identifying themselves as a TPA provide every administrative service required under the plan.

Consequently, product providers often do not know, from plan to plan, which services are being provided by an administrator, by the employer or are expected to be provided by the product provider. As a consequence, there is little consistency in the marketplace and product providers often duplicate services being provided by administrators, sometimes with conflicting results. This lack of communication can cause delays, errors, and inconsistent results for participants.

Finally, organizations providing TPA services must be paid for their services. However, the fees for such services will vary based on the level of services being provided by the administrators. Unfortunately, employers often fail to understand what services their administrators are providing and therefore cannot determine if fees are reasonable.

Further, employers are often not the parties paying the fees and so are not motivated to review fees or determine if the fees charged are reasonable for the services provided.

Plan sponsors must understand the different types of administrators, so that they can select TPAs or single providers that provide the services necessary to support their 403(b) plan or understand that the employer will be responsible for any services not provided by the TPA or single provider. (Some product providers may provide services equivalent to a TPA where they are the sole provider or operate under agreements with certain other providers. In that case, references to the TPA below would include such providers acting as administrators.) Further, it is essential that the TPA for each 403(b) plan be identified and communicated to the authorized product providers.

Finally, it is essential to know which party is responsible for administering the specific features of the employer’s 403(b) plan. This should be done on a standardized form acceptable to the industry. This should eliminate repetitive and conflicting requests for transaction authorizations.

Employers should review the Checklist for Third Party Administrator (TPA) Selection form (see Best Practices for 403(b) and457(b) Plans Support Materials section) which describes the different types of TPAs and the differences in the services that each type of organization is providing in the 403(b) marketplace. Employers should determine which type of TPA is desired and then find a TPA that provides the appropriate level of service. This checklist will also provide helpful information when comparing the services and fees of TPAs.

Employers should use the TPA Services Grid (see Best Practices for 403(b) and457(b) Plans Support Materials section) when evaluating the bids or proposals of multiple 403(b) administrators. This grid identifies important services that TPAs provide based on the features of the plan. The grid may be used as part of a bid or RFP by requiring bidding TPAs to complete the Grid, or employers may gather information provided by TPAs onto the Grid so that they can compare the services that are being offered in a standard, unbiased format.

Once a TPA is selected, or if none is selected, employer (or preferably the TPA) should complete the Plan Features Grid (see Best Practices for 403(b) and457(b) Plans Support Materials section). For purposes of this section, the focus is on the columns under the heading “Party Responsible for Monitoring.” The party responsible for monitoring each identified feature on the Grid should be indicated by a mark. A copy of the completed Plan Features Grid should be provided to every product provider authorized under the plan document.

Product providers should forward a copy of the Plan Features Grid to their financial representatives servicing the plan participants and make certain that any participant communications accurately reflect the information on the Grid. This information will help the participants know what features the plan includes and where to send plan transaction requests.

Beginning with the adoption of the new IRS pre-approved 403(b) Plan documents, each employer’s plan will be accompanied by a new document referred to as an “administrative appendix.” This appendix will outline all of the requirements for day-to-day administration and will be completed indicating who is responsible for each requirement. This will lay out for employers who they need to contact if something is not done, or it will tell them that it is the employer’s responsibility. (See the Best Practices for 403(b) and457(b) Plans Support Materials that includes a sample administrative appendix for use by public schools.) The employer should contact their TPA or if there is no TPA, the document provider will have an administrative appendix form since it is now required for the new pre-approved plans.

Bill Fisher is a member of the NTSA Leadership Council, serves as Chair of the NTSA Professional Education Committee and is Director of Business Development for PenServ Plan Services, Inc..

More information on communicating a 403(b) plan to employees, as well as a host of other topics relevant to running and building your practice, can be found in the Best Practices Guide for 403(b) and 457(b) Plans. Information about the Best Practices Guide for 403(b) and 457(b) Plans is available here.

For a complete guide to 403(b) and 457 plans, contact NTSA for information on The Source, a reference manual for internal staff, advisory firms, TPAs, broker-dealers, and employers.