I\u2019ll say it a million times and I will say it again: there is something to be said about finding a\u00a0 good third party administrator (TPA) to handle your plan.<\/p>\n
I came across a 401(k) plan recently where there was a change of plan administrators at the very same TPA and the news administrators explained that there were several problems with the plan. The first problem was the fault of the plan sponsors by overfunding the safe harbor matching contributions since the sponsor didn\u2019t cap employees\u2019 salary at $245,000 (for 2011). That\u2019s OK since a TPA may not find this error until they do the end of year compliance.<\/p>\n
The other issue was a little more problematic. There were outstanding loans in the Plan, the kind of bad loan variety as the participants who took out the loans didn\u2019t make a principal repayment for 5 years. These loans should have been defaulted about 4 \u00be years ago. The TPA\u2019s contention is that they had asked the plan sponsor about the loans every now and then and never heard back. This isn\u2019t about asking for the DVD you loaned your friend, this is about a transaction that threatens the tax qualification of a retirement plan and one of the TPA\u2019s main jobs is to help administer the plan in a way to maintain its tax qualification. To think this went on for 4 years until a competent administrator started to handle the plan is both amazing and alarming.<\/p>\n
Again, the difference between a good and bad TPA isn\u2019t just competence, it\u2019s about pro-active vs. re-active. It\u2019s about asking the right questions and getting the right answers.<\/p>\n
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