When I was a kid, I remember my parents were shopping for a car and the sticker price had a base fee for the car with so many add-ons that I seriously wondered whether they would charge you for the steering wheel.\u00a0 As with any large purchase, any fine print may make that incredible low quoted fee impossible to attain.<\/p>\n
A client of mine informed me that there is a third party administrator (TPA) that is publicizing its fee of $550.<\/p>\n
As an ERISA attorney, I will always say that picking a TPA just based on price is a losing proposition, but here is another story.<\/p>\n
For the plan sponsor who may not know that a TPA base fee is just a base fee and any additional charges for their work will add up and that $550 base fee may just be like the car that comes without a steering wheel.<\/p>\n
The fees that the TPA listed, adds up with their a la carte pricing. There is a $500 initial fee and a $500 conversion fee, a $250 charge per allocation group if the plan offers cross testing\/ new comparability. A $500 charge if you are not using their prototype document; $400 testing fee if the plan is not safe harbor; and $200 for each complex plan provision (whatever that is). There is a charge of $150 for a late 5500 and $300 for what they call incomplete data.<\/p>\n
When you go to a restaurant, nothing wrong with a la carte pricing when you just want the meal. For the plan sponsor, a la carte pricing is deceptive because a plan sponsor doesn\u2019t know what a TPA typically does. They know a car needs a steering wheel, they don\u2019t know that if they have a four group cross tested allocation, that TPA will charge them $1,000. Unless they get guidance, a plan sponsor may switch to this low base fee TPA without realizing that they may be paying more in the long run with these line item add-ons. A good bargain is only a bargain when you are paying that advertised fees. Whether the TPA is any good is another debate (see above).<\/p>\n
This TPA reminds me of the song, Master of the House, from Les Miserables. \u00a0The innkeeper Monsieur Th\u00e9nardier kept on adding surcharges. He sang:<\/p>\n
\u201cCharge ’em for the lice, extra for the mice<\/p>\n
Two percent for looking in the mirror twice<\/p>\n
Here a little slice, there a little cut<\/p>\n
Three percent for sleeping with the window shut<\/p>\n
When it comes to fixing prices<\/p>\n
There are a lot of tricks I knows<\/p>\n
How it all increases, all them bits and pieces<\/p>\n
Jesus! It’s amazing how it grows!\u201d<\/p>\n
Imagine Th\u00e9nardier with his own TPA; imagine what he could have charged.<\/p>\n
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