Consider this statistic provided by Jerry Bramlett, head of FuturePlan with Ascensus: There are 250,000 financial advisors working with at least one 401(k) plan. Many of these advisors view wealth management as their core business with retirement plan consulting as a secondary, but still important, business line.
The emphasis on wealth and investment management means that most wealth managers probably outsource plan design and account management. Consequently, those advisors can often benefit by working with third-party administrators (TPAs) and recordkeepers to provide plan-clients a coordinated, full-service offering.
In choosing these partners, it’s natural for a wealth manager to focus on the investment-related aspects and the recordkeeper’s platform and services. But if you’re going to build what Bramlett describes as a “dream team,” it’s important to evaluate the key elements of the TPA’s technology and relationships with the recordkeeper and the plan sponsor.
Working with Recordkeepers
Recordkeepers prefer to focus on providing recordkeeping services and investment management, says Bramlett. However, many recordkeepers prefer to outsource plan design, testing and the various administrative tasks like tax report filings to TPAs. That preference has led to about 55 percent of plan services being “unbundled,” which he defines as the presence of both a TPA and a recordkeeper servicing the plan.
The first thing that recordkeepers look for in a TPA is an emphasis on cybersecurity and data protection, Bramlett maintains. TPAs that handle distributions and have access to recordkeeping systems through a portal must have the resources to build out their security systems. “There’s been a number of events where bad actors have penetrated recordkeeping platforms through TPA firms and accessed participants accounts and now the recordkeepers have made them whole, (while) in some cases the TPAs have had to make them whole,” he explains. “So, it’s not a huge problem right now but it could be a growing issue and that’s important in their mind.”
To reduce this risk, when Ascensus acquires a TPA business it integrates the acquired company’s information technology (IT) with its own systems. “We take them to an IT integration,” he explains. “We take all the computers out and we put all new computers back in with all new software and we lock it all down behind a VPN (virtual private network). And, then, we also look at things like the building security. We look at background checks on individuals. We look to make sure that proper procedures are in place. So, that’s very important to the record keepers.”
Recordkeepers also value seamless system data integration with their TPAs. It’s not just sending information manually, he says. Using application programming interfaces (APIs) allows the systems to exchange data without human interion. “Increasing tighter integration around data between the record keeper and the TPA is attractive,” he adds.
Pricing consistency is another valued attribute. Large recordkeepers can work with multiple TPAs with a proliferation of pricing arrangements. “There are recordkeepers out there that have contracts with over 1,500 TPAs, so that’s 1,500 different pricing schedules, 1,500 different service levels, 1,500 different systems,” Bramlett points out. “(They’re) not necessarily different systems but different ways of processing and that kind of thing. So, they’re looking to standardize as much as possible.”
Sponsors’ Perspective
Sponsors are particularly interested in three aspects of a TPA’s technology offering, says Bramlett. First, they want transparency into the TPA’s workflow, so they can directly monitor operations’ status. He cites the required annual filing of Form 5500 as an example. Late filings are costly, and sponsors want to monitor the status of their plan’s forms in real time. They also want the ability to monitor compliance testing and timely distribution of the notices a plan must send out. That’s true of participant distributions, too, he adds. Instead of a company’s HR staff and the TPA playing phone tag to deal with participants’ questions on distributions, the HR staff “could potentially log on to the system and actually just see where that distribution is at and why it’s taking as long as it’s taking.”
Payroll integration is another hot button for sponsors. Payroll data often needs to be “cleaned” to ensure the recordkeeper can process them properly, and that duty often falls on the sponsor. A TPA can add value at this stage, Bramlett says. APIs allow the payroll provider to send the data to a TPA, which then scrubs the data before forwarding it to the recordkeeper, reducing the sponsor’s workload.
The third desired tech feature is the ability to simulate and evaluate plan design features before implementing them. Sponsors consider a feature’s prospective benefit, its cost and how it might influence participant outcomes, Bramlett explains. Simulating the inclusion or modification of plan features gives sponsors added insight. “The ability to analyze and simulate those various plan design features helps in the decision support of the plan sponsor,” he observes.