The MTV reality series The Real World ended their opening intro with \u201cto find out what happens\u2026 when people stop being polite\u2026 and start getting real.\u201d As an ERISA attorney working with retirement plan clients, I often find that what determines a good third-party administrator (TPA) from a bad one is when we find out what happens when the TPA gets fired, and we start getting real.<\/p>\n
TPAs get fired for multiple reasons and for a good chunk of the time, it\u2019s not for a lack of competence. TPAs can get fired for higher fees, a change of advisors\/brokers (who want to make the change), or because the brother of the law firm\u2019s partner works for the mutual fund company that will now be the new TPA. So it\u2019s business, not personal.<\/p>\n
Again, it\u2019s easy to determine who the good TPAs are from the bad ones. The good TPAs will not take it personally and will try to make the transition to a new provider as seamless as possible. I think reputation means everything and since it\u2019s such a close-knit industry, making it easier for a former client to transition business away from you will only help your reputation. Also, there is always the chance that the former client may be your client again, especially if the new TPA fouls things up. I always believe in paying it forward, that making it easier for former clients to leave will only make it easier for new clients to come in. The good TPAs will also spell out in their original service agreement with the client, the exact cost (if, any) of the de-conversion when the TPA is replaced.<\/p>\n
The bad ones are easy to spot. They take things so personally and feel the need to take out the frustration of being fired on the former client. Again, it\u2019s business, not personal. I had a client who changed TPAs a few years back. During the change to a new TPA, an IRS audit discovered that the Top-Heavy test was done incorrectly because a couple of law firm partners were misidentified as non-key employees. Rather than admitting the error, the TPA blamed the client for the error and then whined that the client still had not paid all their invoices, forgetting that the client had spent thousands in legal representation to correct that Top Heavy error.<\/p>\n
I knew well of one of those bad TPAs. The de-conversion costs were never mentioned in their service agreement with their clients. So based on the level of frustration of being fired and based on who the financial advisor was on the Plan, a client could pay anywhere from $1,500 to $5,000 in de-conversion costs, which effectively became a ransom because the TPS would not release any plan data until we were paid. Of course, screaming three letters, D.O.L. (an acronym for the Department of Labor) usually got fees reduced or waived.<\/p>\n
Divorce can be difficult, but changing TPAs should not. I think it\u2019s important for TPAs should maintain a high level of professionalism, especially when it comes to the time when the TPA is being replaced because it\u2019s at those times that delineates the good TPAs from the bad ones.<\/p>\n
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