Another day, another TPA fire (error)

Retirement plans with more than 100 participants require a CPA audit for their Form 5500. However, small plans with less than 100 participants may sometimes require an audit. This often happens when more than 5% of the Plan’s assets are invested in what is called non-qualified assets and a fidelity bond wasn’t purchased in the amount of the non-qualified assets.

For many years, this client held a partnership interest in a privately held real estate partnership that exceeded 5% of assets and was considered non-qualified according to the Department of Labor’s guidance. The previous third party administration firm (TPA) never raised the issue of the 95% rule, even though it’s been around for years. Of course, this issue only pops up after they make the transition to a new TPA. The new TPA tells the client they need an audit for $10,000 and the audit should have been done for years.

If this client never changed TPAs, would they have ever noticed this error? Of course not, because the lousy TPAs out there have no checks and balances to ensure proper administration. The good TPAs have a system of checks and balances where work is reviewed, checked, and checked again.

I hate to shill, but I stress the need for an independent ERISA attorney who can discover these errors. A review of Form 5500 and a plan asset schedule would have easily uncovered this.

As stated before, my Retirement Plan Tune-Up is a legal review that looks at the plan documents, administration, testing, Form 5500, and the investment policy statement for a flat fee of $750.

This entry was posted in 401(k) Plans, Retirement Plans. Bookmark the permalink.

7 Responses to Another day, another TPA fire (error)

  1. Bill Presson says:

    Ary, in your first line, you refer to a Form 5500 as Form 500. For a flat fee of $75, my Retirement Blog tune up will review spelling and principal ideas.

    🙂

  2. admin says:

    Thanks for the pickup, your fee sounds reasonable

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  4. Would bonds issued by a sovereign nation be considered a non-qualified asset?

    • admin says:

      The issue is whether the assets are custodied. If you have Fidelity, Schwab, or Matrix, or anyone qualified to be a custodian/trustee for individual retirement plans, then anything that is within their custody in the name of the Plan would be qualified.

      If you have them lying in the back of your drawer, it would be non-qualified.

  5. I am very pleased you wrote this!?

    -Warm Regards
    Clifford

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