Many years ago, I started the idea of creating a law firm that intended to be the Wal-Mart of legal service where I would do wills for $100 and tax returns for $150. The business miserably failed because the fact is that most people wouldn\u2019t pick a lawyer just on price.<\/p>\n
Yet, many 401(k) plan sponsors pick the third party administrator (TPA) that is the cheapest and that is the only reason why. Selecting plan providers has to be a prudent process and picking a TPA just because they\u2019re the cheapest is like picking a financial advisor just because they\u2019re your cousin. A process for selecting plan providers has to be prudent, rational, and fair. There are so many factors to consider when hiring a TPA such as technology, competence, plan design expertise, cost, and service that just picking a TPA based on cost is irrational. There are a lot of good TPAs that don\u2019t charge much, but they offer a competent level of service. Yet, there are those that are no frills when it comes to cost and service.<\/p>\n
There is nothing wrong with picking a TPA that is cheap, it\u2019s just like with high-cost providers, the costs have to be reasonable for the services provided. There has to be something else out there for hiring a TPA other than they\u2019re cheap. Otherwise, you may have violated your fiduciary duty when things go south with this TPA, especially when that level of service causes a lot of administrative headaches.<\/p>\n
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