Are You a Producing TPA?

In industry speak, 401(k) third party administrators (TPAs) fall into two broad categories: producing TPAs and non-producing TPAs. Neither of these is necessarily better. These are just two different business models.

Producing TPAs

A producing TPA is a 401(k) TPA that provides two services to many or all of its 401(k) clients: the TPA serves as both the third party administrator for the 401(k) plan and the 401(k) plan’s investment advisor. So, in addition to preparing the plan document and Form 5500SF, the TPA may serve as the investment advisor and also assist with choosing the record-keeper, investment fund lineup, and enrollment meetings. When a producing TPA serves as the financial advisor, the TPA typically receive commissions in addition to the TPA fees the firm collects.

Non-producing TPAs

A non-producing TPA is a 401(k) TPA who does not sell any investment products. So, the TPA would focus only on compliance issues and would not perform any of the functions that a financial advisor would usually perform.

When choosing a TPA, a plan sponsor should ask whether the TPA is a producing or non-producing TPA for several reasons:

First, a plan sponsor needs to understand who will be serving as the financial advisor on the plan – the TPA or another party.
Second, the plan sponsor needs to understand all sources of compensation that each of its 401(k) plan providers are receiving.
Third, a plan sponsor will want to understand if a producing TPA segments its financial advisory clients from its TPA clients. Do clients who are just TPA clients receive the same level of service as the financial advisory clients?
Fourth, if a plan sponsor is considering using a producing TPA with an independent advisor, the plan sponsor will want to ensure that the producing TPA is prepared to cooperate with the independent advisor.

Nova 401(k) Associates is a non-producing TPA.