Don’t Be Over-Wowed by a Plan Provider’s “Polish”

The namesake of this New York based producing third party administration (TPA) firm was always impeccably dressed and he brought a law firm presentation to many of the services that his firm provided. Plan documents were bound like classic novels with all the government filings attached. The materials presented by his registered investment advisory firm were also professionally collated.

He belonged to the New York Athletic club and had Yankees season tickets to entertain investment advisors or potential clients. New clients and investment advisors who were new in bringing business to this TPA were overwhelmed by the whole client recruitment which resembled a courtship. The conversion specialist was almost able to always make the transition from the old TPA to the new TPA rather seamless. Like Commander Montgomery Scott from “Star Trek”, he was a miracle worker.

While the client recruitment and conversion process for this TPA was so professionally done, it was apparent that after the client wooing was over, the wheels came off.  At that point, the Emperor had no clothes. The work product was poor; there was no oversight of what poorly trained administrators did or didn’t do in the handling of hundreds of daily valued 401(k) plan. In addition, plans were being gouged in fees as plans were pushed to select mutual funds that paid revenue sharing that this TPA simply pocketed it without offsetting administration fees that the revenue sharing was intended to be used for. It was also discovered that this TPA had an improper relationship with an auditing firm that they referred business to, in effect they were self auditing their client’s plan when these clients needed an independent audit. So despite the polish that this namesake of this TPA has, he was simply a liar, a cheat, and a thief.

When it comes to picking plan providers, there is nothing wrong with picking a retirement plan provider that has polish, but you have to make sure they are competent. Don’t be wowed by a plan provider’s polish, be wowed by their value and their attention to detail.

It’s great to pick a TPA that has a great participant website, but it means nothing if they don’t run the compliance tests correctly or don’t get your Form 5500 on time.

It’s great to pick a financial advisor who could produce flashy charts and graphs, but it doesn’t mean anything if they don’t work with the plan fiduciaries to develop an investment policy statement or provide investment education to participants.

It’s great to pick an ERISA attorney with fancy offices and beautiful presentation folders, but it doesn’t mean anything if plan documents are incorrect and the billing is excessive.

Plan sponsors should make sure all plan providers are doing their jobs diligently because plan fiduciaries are liable for the choice of providers they make. There is nothing wrong with bells and whistles, just make sure that there is a competent service behind it.

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