A Third Party Administrator (TPA) for a 401(k) plan is a service provider that manages administrative, compliance, and government reporting duties. By handling these complex tasks, a TPA helps employers save time, reduce risk, and keeps their retirement plans running smoothly.
What Does TPA Stand For?
TPA stands for “third party administrator.” A TPA helps employers handle 401(k) compliance testing, filings, and plan design, ensuring the retirement plan stays in good standing. When it comes to your 401(k), a TPA typically provides administration services that are included in the purchase of a 401(k) plan.
They can be bundled with your 401(k) recordkeeper, payroll solution, or hired as a third party for preparation of IRS testing and the Form 5500. The primary role of a TPA is to ensure your retirement plan follows regulations as outlined in the Employee Retirement Income Security Act of 1974 (ERISA).
Why TPAs Matter in Retirement Plans
There is a lot that goes into the management and upkeep of a 401(k). While many 401(k) providers handle services such as customer service, fiduciary responsibilities, and investment selections, the administration aspect of a retirement plan can be covered by an administrator who specializes in those solutions.
This typically includes designing plan documents, preparing employer and employee benefit statements, tracking employee eligibility and participation, calculating 401(k) loan provisions, performing compliance testing, generating annual reports required by the IRS, and more.
The Role of a Third Party Administrator (TPA) in 401(k) Administration
Behind the Scenes: How TPAs Support Employers
TPAs help make it easy to set up and manage a 401(k) plan. They provide regulatory documents required by the IRS and simplify uploading and downloading employee payroll information. TPAs serve as the online tool to keep track of 401(k) tasks and requirements. TPAs manage essential 401(k) plan tasks, including conducting discrimination tests, updating plan documents, handling employee eligibility, and ensuring compliance with vesting schedules. They also provide a signature-ready IRS Form 5500, streamlining the process of meeting government requirements.
Compliance, Testing, and Plan Administration
Companies that sponsor a 401(k) plan are responsible for staying compliant with IRS rules and regulations. This includes annual non-discrimination testing to ensure the plan treats all employees fairly. There are two tests called Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) that must be satisfied to ensure your plan is compliant. The good news is that most Third Party Administrators (TPAs) handle these compliance requirements for you and help you with any corrections or adjustments needed. This helps keep your plan in good standing and reduces the risk of costly mistakes.
TPA vs Recordkeeper vs Advisor
Who Does What in a 401(k) Plan?
You may hear the terms 401(k) third party administrator, recordkeeper, and financial advisor thrown around without understanding the differences. Together they support the overall management of a retirement plan, with each responsible for specific tasks.
| Role | What They Do | Key Responsibilities |
|---|---|---|
| TPA (Third Party Administrator) | Handles 401(k) plan compliance and administration | - Compliance testing (ADP/ACP, top-heavy, etc.) - Drafting & maintaining plan documents - Filing Form 5500 - Ensuring plan follows IRS & DOL rules - Employee eligibility and participation - Monitors vesting schedules, supports loan provisions, and calculates RMDs |
| Recordkeeper | Manages the data and accounts for the 401(k) | - Tracks participant balances - Processes and tracks contributions, loans, and withdrawals - Provides participant website/portal - Provides plan sponsor website/portal - Supports plan design, investments offered, and employee enrollment - Generates statements |
| Financial Advisor | Provides guidance and investment advice | - Helps select or determines the investment lineup - Advises employer on or satisfies the fiduciary duties regarding the investment offering - Offers participant education & support - May act as a fiduciary advisor (ERISA 3(21) or ERISA 3(38) advisor) |
Benefits of Working with a TPA
Expertise in Plan Design and Compliance
A TPA brings knowledge of IRS and DOL regulations, ensuring your 401(k) plan is designed correctly and remains compliant year after year. They also run critical tests, like non-discrimination testing, to make sure your plan works in the best interests of all employees.
Fiduciary Protection and Risk Management
By managing complex administrative and compliance tasks, TPAs help reduce the employer’s risk of errors or penalties. This extra layer of oversight gives plan sponsors added protection and peace of mind.
Do You Need a TPA for Your 401(k)?
When a TPA is Essential
For most businesses offering a 401(k) plan supporting a number of employees, a TPA is invaluable. Managing the complexities of a retirement plan on your own can be both time-consuming and overwhelming—especially with regulations that change year after year. As described, TPAs handle compliance testing, filings, and plan design, ensuring your retirement plan meets IRS and DOL requirements while aligning with your company’s goals.
Bundled Solutions
While you can start a 401(k) and integrate with a TPA separately, many 401(k) providers offer bundled solutions that include administration, recordkeeping, and investment advising. You simply sign up for a 401(k) with that provider, and everything else is included typically with a fixed monthly fee for employers and a per-participant or asset-based fee for employees. This makes starting and managing a retirement plan for you and your employees simpler and more cost-effective than trying to figure out everything separately.
Conclusion
A 401(k) plan is one of the most valuable benefits you can offer employees—but it also comes with rules, paperwork, and responsibilities. A Third Party Administrator (TPA) helps simplify the process by handling compliance, plan design, and oversight, allowing you to focus on running your business.
TPAs are just one part of the process of setting up and managing a 401(k). You’ll need to consider the other aspects of running a 401(k), such as payroll integration, investment options, and employee contributions. By understanding the roles of the TPA, recordkeeper, and advisor, you'll be better equipped to choose the right 401(k) solution for your business. Whether you prefer to handle the investments and administrative duties yourself, or opt for a bundled retirement solution, the right approach will help ensure your employees are set up for long-term financial success.
Ready to simplify your 401(k) administration and ensure compliance with ease? See how ShareBuilder 401k can handle plan design, compliance testing, and recordkeeping—so you can focus on growing your business. Explore ShareBuilder 401k today and discover the right solution for your company.
Key Takeaways
- A Third Party Administrator (TPA) manages the compliance, administration, government reporting, and plan design tasks for a 401(k), ensuring your retirement plan follows IRS and DOL regulations.
- TPAs simplify 401(k) administration: Third Party Administrators handle compliance testing, government filings, and plan design, reducing risk for employers.
- Different roles matter: TPAs, recordkeepers, and financial advisors each have distinct responsibilities, from compliance and administration to investment guidance.
- Bundled solutions make 401(k) management simpler: Bundled 401(k) providers can combine administration, recordkeeping, and investment services into one package.
- Informed decisions lead to success: Understanding the roles and benefits of TPAs helps businesses choose the right 401(k) solution, keeping employees on track for long-term financial growth.