Last week, I published on JDSupra.com my annual article regarding payroll provider third party administration (TPAs) firms and my recommendation that using them is a bad mistake.
The article gets a lot of raves from other TPAs and the financial advisors that aren’t the biggest fans of the large payroll companies who do TPA work. The article is my opinion based on almost 19 years as an ERISA attorney including 9 years working for TPAs. My qualm about payroll provider TPAs is that their work is inferior to the TPAs I usually work with. Payroll provider TPAs offer a no frills type service with limited plan design options and lots of errors in administration.
Again, it’s my opinion. Now I don’t think there is anything wrong with using a payroll provider TPA if you’re dealing with a small plan that has a safe harbor plan design, so you don’t have to worry about most of the compliance testing. Otherwise, I think TPAs where their bread and butter is plan administration is the best option out there for a plan sponsor. I just don’t think you can dabble in plan administration and that’s what I find payroll provider TPAs do.
I understand that people who work for payroll provider TPAs have a different view than I do and I respect that. They’re going to defend the work of fellow employees and the folks that sign their paycheck. I understand that there are plan sponsors whom maybe happy with their payroll provider TPA and that’s fine too. My opinion is my opinion and I have no issues with people whose views contradict my own.
One issue that I have with payroll provider TPAs that I haven’t included in my payroll provider TPA articles is the fact that these payroll provider TPAs curry a lot of favor with brokers and registered investment advisors by referring plan sponsors that don’t have a financial advisor to them. It builds goodwill, but my concern is that it’s just a cheap way to get referrals by referring business to advisors. Are plan sponsors getting the short end of the stick by being recommended to use a payroll provider TPA because their advisor has received referrals from the payroll provider TPA? I don’t know, but if the advisor is a fiduciary, that could be an issue one day.