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Antonb1985

TPA administration firm

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For someone with no experience getting into TPA service, what would you recommend as educational sources? Specifically on designing 401k plans and obtaining approved safe harbor agreements?.

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I'm a cpa trying to expand into a new niche, 401k administration. Essentially at this point, I'm trying to gain as much knowledge as I can about the area. I've signed up for the asppa rpf middles and plan on the getting the qpk certification. However, I find that their is lack of information specifically on the plan desing and nothing safe harbor plans. Basically Im looking to learn plan design from a to z. Also, when is comes to safe harbor plans, does a tpa design their own and have them approved by IRS or are there negeric plans one can obtain from from IRS or other sources?

 

Also, how does does tpa establish data communication between the records keeper and the employer. Since essential we want data flowing freely to tpa to perform the testing, payroll reconciliation, have info on contributions/distributions and so on. Are there software packages that allow for this or a 3rd party IT vendor hired to do this?

 

Thank you for your help.

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I will give you super extra credit for asking.

we almost took over a block a plans (or at least to work on them) from a cpa.

upon review:

what few plans I looked at:

no coverage testing ever done

no top heavy ever done

no ADP test run

volume submitter documents were haphazardly checked

etc.

we ran far away. what a mess.

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So your overall perception of cpa's is based on single negative experience? If you have nothing positive to add here, please go away.

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your best bet would be to try to establish a relationship with a current TPA because what you are asking is not a small question or easy answer.  Try to find one to partner with or takeover because they will have that knowledge and be able to share it with you. Trying it go it on your own is going to be tough.  Many TPAs started out working a different path (HR consulting firms, the big daily 401k houses, etc) and have gotten experience way before ever starting a TPA firm.  It truly isn't just expanding into a new niche.

and being snarky with a long time poster isn't going to get you much from other long time posters. 

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Most TPAs use an industry recognized plan document service provider, which allows them to "purchase" the use of their IRS pre-approved 401k plan document.  Examples of providers are Sungard Relius, ftWilliam and Actuarial Systems Corporation (ASC).  ASC also offers great webinars on all things 401k, including plan design.  ERISApedia.com also offers webinars, often free of cost.  Avoid the "safe harbor plans aren't subject to testing" trap.  Safe harbor plans offer automatic satisfaction of some of the required nondiscrimination testing, but not all.  Coverage testing is the most important test, and often overlooked.  Beware of controlled groups of companies - companies with common ownership.  Regulation requires companies with specific common ownership to be treated as if they were a single company for purposes of tax-advantaged plans.  401k plan administration is complex, but very interesting and rewarding.  Good luck!

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Can you do what you are asking to do? Yes. Can you be successful at it? Less likely.

Most CPA firms that do TPA work in house with people that have never worked in a TPA firm are doing a multitude of things wrong. It seems to be an obvious niche, but, for some reason, a great many CPAs just can't understand the way the 400 section of the code works. And I worked for on of the 30 largest CPA firms in the nation for 12+ years.

So, I recommend buying a TPA firm or hiring an experienced professional from a TPA firm to start your practice.

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Antonb-

my apologies if you were offended by my comments.

they certainly were not meant to be offensive about CPAs, but rather, proceed with caution if you know little regarding plan design, safe harbors, etc. there is no easy quick guide I know of. There is just to much stuff that can be missed even with the best of intentions. I've got bigger complaints about asset houses than CPAs who try to do everything - run ADP tests and the like because of their bundled they can do it 'cheaper'. I'm sure I'm not alone in that regard. And I'm sure I'm not alone when saying, despite as many years as I have worked in the field, I've hade to use the IRS Self correction for errors discovered.

again, my apologies if I stepped on your toes!

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Just an observation:

I am a CPA and every CPA firm I know that got into the TPA business is out of it now.  They found it didn't work for them.  They found they couldn't make the money they wanted or needed to justify it.  You need specialist to do the work.  It is easy to do an EO if you aren't a specialist. 

Obviously some people make it work as this forum is full of 401(k) TPA people but it was trendy about 10 or 15 years ago for a CPA firm to go into the TPA business and they all seem to have left it that I knew personally. 

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Just my two cents here.  "Plan design" is not something you can sit down and learn "a to z."  Plans are designed based on client needs and their (perceived) needs of their employees, consistent with legal and cost constraints.  It isn't "book learning" at all.  It takes a keen analytical mind and the ability to separate client "wants" from client "needs" consistent with the law - and that takes experience in the industry.  I would say that typically plans are 95% the same as every other plan, but it's the 5% that is truly crucial.  I would also add that based on a variety of factors, plan design includes proposing multiple plan (DC, DB, cash balance, a variety of non-qualified "Top Hat" plans) safe harbor vs. non-safe harbor, cross tested, etc. that cause the permutations (despite the legal and regulatory constraints) to be enormous.

I agree with hr for me - latch on to an exist TPA and learn, and possibly buy them out (or possibly offer certain services to them so they can "out source" overflow while you learn).

Better yet - hire someone with experience to get you started while you learn.

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1 minute ago, MoJo said:

Better yet - hire someone with experience to get you started while you learn.

100% this.  If you are going to get into this space, you will need to hire people with experience.

What is the biggest motivator here?  A new revenue stream or offering more services to your clients because that's what the competition does?

If you want to offer more services to your clients to keep up with competition, you can always partner with an existing TPA to do the work for you.  We have this arrangement with several CPA firms, as do most of my TPA competitors. 

If you just want to add a new revenue stream, this isn't an area you can just dip your toes in.  If you are going to do it, you will need to hire experienced staff who understands the ins and outs of design, testing, etc. There are too many traps to fall into while learning to not have that safety net of experienced people backing you up. 

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Just my two cents here and it is nothing you haven't heard already from others. I have spent over 26 years learning what I need to know to do this job properly; and I am still learning.

We all come together on this board because we all recognize that we don't know everything.  We ask questions of each other for special circumstances that we come across.  We are all competitors, but we all help each other anyway, because the 400 Section of the code is complex. I feel old when I say that, "back in my day the 1994 401k Pension answer book was only 7 chapters." The 2011 version is 22 chapters. (Yes I still have the 1994 edition. Don't ask why.)   

But to start a TPA business with no prior experience is not a good idea.  That is not meant to be mean, but constructive.  I doubt very highly, that if I passed my CPA exam or EA exam, you would recommend that I start a tax practice. You would probably point to my lack of experience in taxes and highlight your years of experience.

That being said, like every one else here; go hire a QKA to work for you or buy a TPA practice. 

 

 

 

 

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I worked for 8 years for a very successful TPA in the West that was spun off from a large regional  CPA firm.  The CPA firm recognized that it needed a reasonable number of retirement plan experts to make a go of the business and it needed to devote significant resources to that business.  The spin off also allowed the TPA to go after plans whose plan sponsors had relationships with other CPAs, which the business couldn't do while it was part of the CPA firm.  The CPA firm later acquired several other CPA firms that did TPA work as an additional service for their clients and, not to be mean but, when those plans were transferred to the TPA I worked for, they often had significant issues that needed fixing.  I say all this to support the notion of the others that you really need to align yourself with retirement plan experts to learn this business and do a decent job.  Whether you do that through hiring qualified folks, acquiring a TPA firm or partnering with a TPA firm is up to you, but you need to do one of those or you likely will inadvertently cause your clients no end of headaches.  I have been in this business for over 35 years, I'm an attorney and I still learn something new every day.

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