While fees should never be the sole determinant of choosing any vendor or product, fees are always relevant. Sometimes it is hard to unravel 401(k) TPA pricing even when TPA firms fully disclose their pricing, and any indirect compensation that the TPA firm may receive. Additionally, sometimes the employer has to consider which expenses the employer should bear and which expenses participants should bear. It is easy to see this with a couple of examples.
How is Revenue Sharing Handled?
Some record-keepers pay 401(k) TPAs revenue sharing to help TPAs keep plan document and administrative fees charged to mutual clients lower. Each record-keeper’s program varies in which TPAs qualify and how the amount of revenue sharing is calculated. Many TPAs have some clients where they receive revenue sharing and some where they do not. There are several ways that TPAs handle revenue sharing amounts.
Welcome to Nova 401(k) Associates’ Resource Center
Nova 401(k) Associates is pleased to be launching its Resource Center. The Resource Center will contain articles about retirement plan issues that affect our clients. The Resource Center will contain information about breaking news as well as reference articles.
PBGC Coverage FAQs
Here are some FAQs to review which plans are covered by the PBGC and the owner-only exemption. The next article in our series will address the professional employer exemption.
Owner Only Exemption from PBGC Coverage
All defined benefit plans (including cash balance plans) are covered by the PBGC unless the plan qualifies for a statutory exemption from PBGC coverage.
There is an exemption for plans that cover only substantial owners. If a defined benefit plan covers even one employee who is not a substantial owner, then the plan does not qualify for this exemption.
How Do You Get Paid?
It is important to understand how any service provider to the 401(k) plan gets paid. Ideally, each and every 401(k) provider would proactively disclose any indirect compensation, and there are fee disclosure regulations effective later this year that will require this. But, if a 401(k) third party administrator (‘TPA’) does not volunteer this information, a business owner should directly ask. It is best to ask the TPA directly and not filter the question through the financial advisor.
Plans Covered by the PBGC
The general rule is that all defined benefit plans are covered by the PBGC unless, the defined benefit plan qualifies for a statutory PBGC coverage exemption. These statutory exemptions are covered in ERISA Section 4021(b).
Questions to ask a 401(k) TPA
A financial advisor goes out to a small business owner and presents three options for a 401(k) record-keeper. He talks about each of the record-keeper’s due diligence on the funds, the investment fees, the enrollment material, and the website. There is a lengthy and robust discussion about the pros and cons of each record-keeper. At some point in the process, the financial advisor explains that a third party administrator (TPA) will do the plan document, Form 5500/Form 5500-SF, and the IRS-required nondiscrimination testing. Usually the time spent on the choice of TPA is minimal, but sometimes a representative of the TPA attends the meeting.
Introduction to the PBGC
The Pension Benefit Guaranty Corporation (PBGC) is a federal agency that guarantees the payment of pension benefits when private company pension plans are unable to pay all promised benefits.
Nova 401(k) Associates Announces Addition of Two Company Shareholders
Houston, TX, January 2, 2011 – Nova 401(k) Associates, a leading Third Party Administration (“TPA”) firm in the 401(k) industry, announced today two new company shareholders, Arasely Colchado, Nova Practice Manager, and Kim Davis, Director. Both employees now directly hold Nova 401(k) Associates shares.