Every week, I check the headline on 401khelpcenter.com and the news part usually involves one or tow purchases of third party administration (TPA) firms by larger TPAs. It’s the nature of a very competitive business and with large TPAs wanting to be larger and smaller TPAs wanting to cash out.
While consolidation may allow these large TPAs get savings when dealing with other providers and becoming more efficient, it does have costs within the industry. One way is the loss of jobs for very experiences plan professionals. The New York area, for example, has suffered the loss of a handful of very well known and well run TPA firms. Heck, I had a friend in the business from my own village that had to move to the Midwest to get a good job as a plan administrator. Consolidation always decreases choices and less competition could lead to increased pricing even if fees have been going down for years.
While the TPA business seems to remain healthy, my concern is that while consolidation can be good for business, there are chances and reasons why it can’t.