If I want to get a new doctor or an attorney, I certainly want to know their background. Same with a financial advisor, I don’t want the next Bernie Madoff. When you hire a professional, you want to know their credentials.
So it’s often surprising that when a plan sponsor hires a third party administration (TPA), they rarely check the credentials of the plan administrator in charge of their plan. Sure, many plan sponsors learn about the TPA through a referral or research, but they never check the credentials of the individual administrator.
Why bother? Simple, since the bulk of the work is usually done by this administrator; you want to make sure you are being handled by someone with the credentials and experience to do the job right.
I often find that the difference between a good TPA and a bad one is the experience of the administrators they have as well as training. Good TPAs tend to have the most experienced administrators with credentials from ASPAA with training for them to achieve that level. Bad TPAs have administrators with little or no experience, as well as limited training and oversight.
I remember moving a law firm from one TPA to another. The administrator at what we call the bad TPA had the administrator butcher a top-heavy test, namely the administrator failed to label partners of the firm and their spouses as key employees. This administrator had 15 years of experience, but clearly with no oversight to check her testing. The good TPA (which was less expensive by 30% because they actually used revenue sharing to reduce administrative expenses) had an administrator who discovered this error upon conversion. This administrator had all the credentials from ASPAA as well as 28 years experience and she once owned her TPA. This TPA had compliance specialists to assist this administrator with the testing, so there clearly was a check and balance to ensure correct results.
The difference between a good and bad administrator isn’t years of experience, its training and oversight. Just one thing most plan sponsors don’t ask of the TPA and I think they should.