A few weeks back, I published a blog post on some third-party administrators (TPAs) are not really in the administration business but are in the business of selling insurance and assets. So I used some examples from my past and I stated that a plan sponsor should only hire a TPA where the administration is their main business.
Someone on LinkedIn thought that was some sort of attack on producing TPAs and suggested while there are bad producing TPAs, there are also bad attorneys. Maybe the knock about attorneys was trying to knock me, but honestly, there are a lot of bad attorneys out there and that has nothing to do with me because I know how I carry myself.
As for producing TPAs, I used to have a bias against them because I worked for one. I worked for a producing TPA in the days before fee disclosure and I thought there was an inherent conflict of interest that my TPA was pushing certain mutual funds that paid revenue sharing and this wasn’t disclosed to the plan sponsor client. My old TPA would tell the client that by changing platforms they’d save $2,000 in direct fees, but not tell the client that they were pocketing $4,000 in revenue sharing. Thanks to fee disclosure regulations and thanks to the increased bias against revenue sharing funds, my bias against producing TPAs is pretty much gone. I’m the attorney for a Northeast-based multiple employer plan with a producing TPA and things are fine when they’re using index funds. My point against any type of producing TPAs is that as long as the interest lies first with doing great administration, I have no problem. The only issues are when TPAs see plan administration as an ancillary business to what they think their main business is: assets, insurance, and payroll.
