Q: How did you start in the retirement plan business?
A: Like most of us in the industry, I stumbled into. I had a friend in college whose father owned a TPA firm. After telling him about being robbed at my job as a manager of a fast food restaurant, he said “Why should come to work for me.” I stayed with them for 10 years and learned
Q: How do you think the TPA business has changed since you started?
A: When I first started in the business in 1980, 401k plans for small businesses were non-existent and the thought of allowing participants the ability to direct their accounts were very rare. Plan designs for small business (where most TPA’s focus) were limited to pro-rata and integrated allocation scenarios. The most prevalent designs combined a Profit Sharing Plan with a Money Purchase Plan to get the owners to the maximum allowable allocation of 25% of pay. Now we have many more tools for plan design. Cross-testing formulas and combining 401(k) plans with cash balance plans is the best way to maximize small business owners benefits while providing a meaningful benefit to their employees. The TPA’s job has become infinitely more complicated in complying with the many regulations that continue to come from the government mental giants.
Q: Many plan sponsors and financial advisors don’t understand the value of a TPA, how do you get that message across?
A: The complexity of advanced plan designs and the ongoing requirement to comply with the myriad of government regulations make it almost impossible for one firm to meet all the needs of a plan sponsor. We believe it takes a team of professionals interacting together. The advisors we work understand that we are a valuable part of their team in supporting them in creating a successful retirement plan where we are each focused on our particular expertise. Advisors focused on this market do not have the time to devote to learning all the nuances of plan design and compliance and we find the most successful advisors incorporate a TPA in their meetings with clients.
Q: Many people talk about a retirement crisis especially because of the 401(k) plans, what do you think of this criticism?
A: I think the criticism of the 401k plan is unfair and at times harmful. While it is not perfect, it continues to evolve, making them more and more affordable and meaningful for employees. I believe the fee disclosures have helped address certain fee abuses and advisors and plan sponsors focusing more on retirement readiness as opposed to investment performance has been particularly beneficial to plan participants. Automatic enrollment, automatic escalation of deferrals and automatic investing will provide more participants with a chance for a meaningful retirement. The coming focus on “plan leakage” will also help participants achieve their financial goals.
Q: You’re out in California, is your business more regional or is it national? With technology today, do people still have a bias for a local TPA?
A: With the proliferation of online platforms, we have seen the bias for local TPA reduced. While we have a national presence, headquartered in Roseville, CA, we also have established regional administrative offices in Charlotte, NC and Fort Collins, CO, Encinitas, CA and San Luis Obispo, CA which helps us deliver services from a local area when demanded. Technology has allowed us to connect these outer offices as if they were sitting in our headquarters.
Q: Is revenue sharing a dinosaur in the 401(k) plan business?
A: With the fee disclosure regulations in place and the continued media attention on mega lawsuits focused on revenue sharing, we have seen a drastic uptick in plan sponsors and advisors asking for no-revenue sharing arrangements for their plans. I believe this trend will continue and could possibly make revenue sharing arrangements obsolete.
Q: What are plan sponsors missing out with TPAs when they focus just on cost?
A: Like with any other product or service, focusing strictly on costs misses the “quality of service” question. TPA’s in the past have unfortunately been commoditized while the TPA’s job complexity has increased exponentially and plan sponsors are facing increasing scrutiny, not only from government regulators, but from their own plan participants. This has been the unfortunate un-intended consequence of fee disclosure that in some respects has the industry racing to the bottom in costs. This could ultimately harm participants if not addressed in the near future. For instance, is the lowest cost mutual fund always the best choice? Unfortunately, plan sponsors who focus on lowest costs find out the hard way that such a decision oftentimes lead to disastrous mistakes that can cost them so much more than what the perceived savings were.
Q: How has fee disclosure impacted your business?
A: Prior to fee disclosure some providers would have a published low fee schedule without disclosing the fact they were receiving outside revenue. Since we have always disclosed any revenue sharing arrangements and used them to offset our fees, the fee disclosure rules have actually been beneficial to our business.
Q: What do you think of payroll providers in the TPA business?
A: While I think that payroll providers do an adequate job of recordkeeping, it appears that they have not been stellar in the compliance area. In many instances plan sponsors are left to navigate the intricate issues of compliance testing which includes determination of Highly Compensated employees, average benefit testing, top heavy requirement and the rest. Unfortunately some clients are only sold on the integration of payroll capabilities and the real meat of compliance is not addressed.
Q: Where can people find out more information about your company?
A: PenSys is a nationally recognized TPA providing services to over 3,200 plans across the country. Advisors and plan sponsors can find out more about us at www.pensysinc.com and can also connect to a regional marketing specialists on out “contact us” page.