Plan sponsors sign a lot of paperwork when it comes to their 401(k) plan.
Plan documents. Amendments. Recordkeeping agreements. Investment paperwork. Payroll authorizations. TPA agreements.
My advice is pretty simple: don’t sign something you don’t understand.
One area where this especially bothers me is TPA contracts. I’ve reviewed agreements that seemingly absolve the TPA of almost everything while making the plan sponsor responsible for almost everything.
The TPA isn’t responsible for inaccurate information. They’re not responsible for payroll problems. They’re not responsible if the sponsor doesn’t provide information on time. They’re not responsible for certain errors. They’re not responsible for the work of other providers.
After reading some of these agreements, I sometimes wonder what they’re actually responsible for.
I’m not suggesting that these provisions are necessarily unreasonable. A TPA can’t be responsible for bad census information supplied by the employer, and every service provider needs reasonable limitations on its liability.
But there is a difference between reasonable protection and a contract that essentially says the provider is responsible for nothing.
The problem is that most plan sponsors don’t read these agreements. They see a signature page, sign it, and move on.
Then something goes wrong.
That’s usually when somebody finally reads the contract and discovers what they agreed to.
This isn’t limited to TPAs. Plan sponsors should understand agreements with recordkeepers, advisors, payroll providers, and anyone else servicing the plan. Know what they’re supposed to do, what you’re supposed to do, what you’re paying, how the relationship can be terminated, and what happens when somebody makes a mistake.
You don’t need to negotiate every sentence in every agreement.
You should at least understand what you’re signing.
A contract doesn’t become unfair because you didn’t read it.
And your signature doesn’t mean less because you didn’t understand it.