Some 401(k) TPAs outsource some of their work to independent contractors, to US based outsourcing firms, or international outsourcing firms. There is nothing wrong with outsourcing, but plan sponsors and trustees have the right to know about such arrangements before retaining a third party administration firm. In some cases, outsourcing is used to reduce cost or smooth out workflows. In other cases, a small TPA firm may occasionally use an independent contractor to perform peer review to ensure the quality of their work product and that the TPA firm is keeping current with all laws and industry developments. Or, a 401(k) TPA may engage an outside expert to assist on specialized engagements.
Questions that a plan sponsor will want to ask about outsourcing and use of independent contractors:
- Is the use of these outside parties fully disclosed at the beginning of the engagement and as services are provided each year?
- May a client request that no work be outsourced?
- What types of services are outsourced?
- How does the 401(k) TPA choose which clients will have their work outsourced?
- How is my day to day contact involved with the outsourced work?
- When working with outsourcers and independent contractors, what steps are taken to protect the confidentiality of employee records and company data?
- What type of due diligence does the 401(k) TPA do on outside providers?
- What type of review does the TPA do on work provided by outsourced firms?
- Do all independent contractors and outsourcing firms have E&O insurance?
- Are outsourced firms US based or international based? If international based, what recourse does the plan sponsor have if there is an issue?
- How does the outsourcing affect the plan sponsor’s pricing? Is an outsourced client charged a lower fee?
- How does the outsourcing affect the timing of the work?
Nova 401(k) Associates does not routinely outsource client work. From time-to-time, we make use of outside professionals with specialized expertise to assist us in delivering client services. For example, we may collaborate with a health actuary on retiree medical valuations. All such arrangements are fully disclosed to clients before the beginning of the engagement.
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