Why use a TPA?

If you sponsor, or if you are conisdering sponsoring, a retirement plan, why should you retain the services of a Third Party Administrator (TPA)? The easiest answer to that question is: Because that's what Wells Thomas, LLC is, and we want your business. But there is much more to it than that.

When you start a retirement plan for your company, there are a couple of options that you have. Will you use a bundled product, where the recordkeeping and administration are done by one organization, or will you un-bundle your plan, having different entities handle the different aspects of your particular retirement plan. Most people will instantly think that a bundled approach is easier, cheaper, and will mean only one point of contact for the plan rather than mutiple contacts. So let's look at it in a little more detail.

An un-bundled approach to the plan does not mean it will be more complicated. When working with the right partners, you life as the plan sponsor will not be burdened with more of a workload, and indeed in many circumstances you work on the plan may decrease when compared to using a bundled product. Why?

• Most TPA firms have a close relationship with multiple investment providers and platforms making the administration seamless
• A TPA firm can administer plans with investment holdings across multiple platforms or investment companies, whereas using a bundled product usually ties the plan to one product
• Many bundled products have limited plan design options, which could potentially limit the benefits the onwers or key individuals in a company may receive under the plan. A TPA can tailor the plan to fit your needs and help you meet the goals while keeping the plan in compliance and satisfying the rules and regulations

Cost is often a consideration when looking into setting up, or transfering a retirement plan from one provider to another. One of the great lines we hear as a TPA when meeting with a potential client is, "Your services look great, but XYZ Investments can do the administration for free if we move the plan assets to them." So let me ask you, as a business owner: When was the last time YOU gave away services for free?

• The reason many investment companies can offer 'free' administration is that by using their bundled product, they are making a considerable amount of money off of the plan assets
• Their 'free' services generally will be limited to simple plan designs
• Many times these services will NOT include functions such as employee educational meetings, completion and filing of the Form 5500 series, assistance in completion of plan audits

And finally, the issue of having multiple contacts can be a sticking point for some plan sponsors. But again, there are a number of advantages in having the plan set up in that manner:

• Your TPA often will have one point of contact that is assigned to your plan, so that whenever you call with questions you are always getting the same person. This not only helps build a long-term relationship between the TPA and the plan sponsor, but makes things much easier for the sponsor knowing that one person is already familiar with the history of the plan
• TPAs, in general, specialize in retirement plan design and administration, and do no focus on 'other' aspects, and therefore can provide you with the best guidance in plan design, ongoing administration, and changes in your retirement plan needs
• TPAs will usually assist in employee education, and work closely with your investment advisor and the custodian of the plan assets to be sure employees receive the latest and most accurate information

Now I could go on for another 2o pages about the advantages of using a company such as ours to administer your retirement plan. But instead I just wanted to touch upon some of the major points that come up in meeting with potential clients. So before you jump into a new retirement plan, stop and look at the options before you. And ask around for service providers in your area to get additional input and quotes...

IRS Releases 2008 Limits

The IRS has released the 2008 Inflation Adjustments, which have limited impact on Defined Contribution Plan limits. For a link to the IRS publication with the complete list of Cost Of Living Adjustments, please click on the title of the article above. Below is a summary of those impacting retirement Plans:

• The Annual Compensation limit has increased from $225,000 in 2007 to $230,000 in 2008
• The 401(k) and 403(b) limits have remained unchanged from 2007, with the maximum contribution at $15,500
• Those age 50 and over in 2008 may make Catch-Up 401(k) contributions with the limit remaining the same from 2007 at $5,000
• The Annual Contribution limit (total of all sources( has increased from $45,000 in 2007 to $46,000 in 2008
• Employee Contributions to SIMPLE plans remains at $10,500 for 2008
• The Taxable Wage Base has increased from $97,500 to $102,000

Please contact your plan administrator to determine if any of these change impact your retirement plan desgin.

Form 5500 Notices

2004 Form 5500 Notices - IRS is mailing delinquency notices in order to update and correct the IRS' records, and to allow nonfilers to become compliant. In some cases, a 2004 form was not required, or had been filed correctly and timely. "We recognize that some of these notices will be received by employers that fully complied with their Form 5500 or Form 5500-EZ filing obligations..."

The following was included in the latest edition of the Employee Plans News, on page 11 (of 12):
In February 2007, the IRS began mailing Taxpayer Delinquency Investigation
(TDI) Notices to employers that failed to timely file Forms 5500 and 5500-EZ for the plan year ending December 31, 2004. The first delinquency notice, CP 403, is normally sent 15 months after an employee plan return was due. The second delinquency notice, CP 406, is sent 15 weeks after the issuance of the CP 403 if the filer did not respond with a completed return or an acceptable explanation as to why it did not need to file a return.

For several years prior to 2007, the IRS had suspended mailing TDI notices.

The reinstatement of these notices is allowing us to obtain missing returns and allowing nonfilers to become compliant. In addition, the responses received to the notices have helped identify and correct EIN, plan number, and return posting discrepancies, and update records.

We recognize that some of these notices will be received by employers that fully complied with their Form 5500 or Form 5500-EZ filing obligations and we ask that these employers allow us to correct our records by responding to the notice as requested.

SMALL PLANS TAKE HEED

Single participant retirement plans, those filing a Form 5500-EZ each year, are being targeted for audit. Why? It is not with the intent of looking for prohibited transactions within the plan, but rather a focus on the plan documents.

A large number of single participant retirement plans utilize an investment provider's prototype document. Because it is the responsibilty of the plan sponsor (in this case, also the participant) to maintain all records, auditors are finding that proper plan documents are not being maintained. Specifically, the necessary plan amendments that are mandated in between restatement cycles may not have been adopted. Those plan sponsors that are deemed to have incomplete documents for their plans, or those not up-to-date, could find the plans disqualified, and suddenly the tax-deferred status of their plan investments compromised.

What should you, as a Form 5500-EZ filer, do to protect yourself? Be SURE your document files are up to date. Call your document provider and ask for copies of all of the amendments you should have on file. Or contact a Third Party Administrator and ask to have your document reviewed.

Western Benefits Conference - San Francisco

Last week the joint conference of ASPPA and the Western Pension Benefits Conference took place in San Francisco. I arrived late on Sunday, so I missed the events on Sunday. But I jumped right in on Monday. The usual IRS and DOL Q&A sessions were held, along with sessions on various topics througout the day, more of which I'll write about later.

One of the highlights of he three days was the entertainment during lunch on Tuesday. Will Durst, the political comedian, did about 45 minutes of stand-up for the crowd. With an "equal opportunity" abundance of comments about both the left and right, he was genuinely funny...even when the power to the hotel went out during his routine (coincidentally, a split second after saying "empowered").

This year's conference seemed to have a big draw, though the ASPPA conference in Washington DC in October will sure to be bigger...

Once I've digested some of the information I gathered, I'll post some of the more significant issues...

Living Through a DOL or IRS Audit

Many plans go experience it. Most Plan Sponsors dread it. Those three words that cause instant panic: "You're being audited." But it doesn't have to be painful at all.

Here are some things that I have learned in dealing with plan audits on behalf of our clients.

• There are many reasons a plan may be pulled for audit: Random sampling, complaints from participants, "red flag" data on Form 5500 filings to name a few.
• The agents (whether IRS or DOL) are not "out to get you". The last thing they want to do is disqualify a plan, so they will work with you...as long as you work with them.
• The agents are human. Most are easy to deal with. All have lives outside of audits, and all would prefer a easy-going relationship during the process rather than a hostile one.
• If asked for data or information, provide it. Don't try to hide anything or sugar-coat issues. The agent will discover it one way or another, so best to be up front about any issues that may exist on the plan.
• Better yet, if you know of an issue that exists (late 401(k) deposits for example), correct them right away, BEFORE you are pulled for an audit. That way you can show what the issue was, how and when it was corrected, and the back-up. In most cases this will suffice and no further action may be required.
• Keep copies of everything for at least 5 years. Make sure your Third Party Administrator keeps copies even longer.
• Rely on your Third Party Administrator to assist in the audit. Don't try to handle it alone.
• Know that the audit must take place at your place of business. So try to make the agent comfortable and provide him/her with plenty of room to work. If you stick him/her in a supply room (or meat locker -- YES! I have heard of someone trying that once!), you will come off as confrontational and instantly put the agent in the wrong frame of mind.
• In the end, the auditor is there to ensure the plan is operating correctly, and to protect the employees. It is actually and admirable function, but one misunderstood by most...

Now it may sound like I am sticking up for DOL and IRS agents...and in a way I am. In the dealings I have had with them over the years, it has been the rare case when the agent was difficult to work with or unwilling to compromise. The majority have been a pleasure to work with, and have been more than reasonable in their requests and time-frames provided to get the information.

There is the old saying that you can catch more bees with honey...and I believe this is true. An audit can be quick and painless, or it can be a long drawn out process with negative results. You can control which path the audit goes down...