Who's a good service provider for a super-micro 401(k) plan?

[Peter Gulia]

Here's today's problem on which I ask for your help.

An employer has a 401(k) plan that the employer established without help from anyone beyond the salesman who sold the recordkeeper's packaged service.

The recordkeeper's service is unsuitable for this employer because everything depends on the employer knowing that it needs to do something. For example, the employer never filed any Form 5500 report. The recordkeeper's letter said all the right things, but the business owner never read that letter (or any of the few dozen other things that the recordkeeper mailed).

The employer has only three people: The owner is the designer of the business' products, the sole salesman, and the corporation's president, secretary, treasurer, safety officer, and everything else that's supposed to be done. A craftsman and a laborer do all the manufacturing.

While I don't condone the employer's conduct, I'd like to pursue practical suggestions.

Although I'm aware that it's almost impossible to get a service business to act as a retirement plan's named administrator, is it possible to find a service provider that would have a service rep (someone who's smarter than just reading from canned scripts) make telephone calls affirmatively to tell the business owner what he needs to do and why it's important? (It's okay if such a service is more expensive; the business has money to spend.) I understand that this would be a reminder service or an I'm-too-busy-to-read service; but is it possible to buy something like this? If so, what does a micro business pay for this?

[WDIK]

Don't third-party-administrators provide the services you are looking for?

[MoJo]

Don't third-party-administrators provide the services you are looking for?

Most certainly they do (that's precisely the business my employer is in). Check out the local TPA's - and find one with experience "fixing" non-compliant plans. Some work (and some cost) will be incurred.

[Peter Gulia]

WDIK and MoJo, thank you for the help.

Will a third-party administrator run its service so that everything is proactive? Will a TPA tell the employer what to sign and how to sign it? So that the message isn't buried in a letter or e-mail that the employer won't read, will a TPA do the proactive steps by telephone?

[david rigby]

Peter, comment from the outside looking in.

In several working environments, I've encountered business owners who are reluctant to care about the details or deadlines of plan administration. I've tried to enlist the aid of the accountant and/or attorney, on the assumption that the owner is likely to trust that person more than me as unbiased. In your case, you appear to be the attorney, so my hunch is that this owner will not treat a TPA with the same level of trust. That does not bode well for your situation.

Sorry for the pessimistic outlook. That said, where is your client located? Perhaps a close geography might reveal some possible help.

[MoJo]

WDIK and MoJo, thank you for the help.

Will a third-party administrator run its service so that everything is proactive? Will a TPA tell the employer what to sign and how to sign it? So that the message isn't buried in a letter or e-mail that the employer won't read, will a TPA do the proactive steps by telephone?

That depends on the TPA. Some are better than others. Get references, and talk to existing and former clients to see how it worked for them. I agree completely with David - the success of the arrangement really depends on the engagement of the company's principles.

[BG5150]

I'll do it.

(in my best Autin Powers voice)

For One. Million. Dollars.

[Peter Gulia]

David and MoJo, thank you for the helpful perspectives.

This business owner really does want to do the right stuff.

The problem I’m seeking to solve isn’t about the business owner’s readiness to trust a TPA. It’s that he’s so busy that we don’t want to leave an action step to depend on expecting him to read a letter or even an e-mail. He needs to hear a human’s voice telling him what to do. Better still would be someone who stays on the telephone with him until the task is completed.

I thought about whether I could provide the reminder-and-nag service. Although my fee is not as big as BG5150’s quote, I’d rather help a small business find a more efficient service.

Although the problem I describe happens often and everywhere, the most recent particular situation is in Central New Jersey.

[Gadgetfreak]

My Firm provides added hand-holding when necessary but we really depend upon the client (or the CPA, Adviser, etc.) to be responsive to our communications. For example, if I send instructions on how to electronically file the 5500, we have procedures in place to send a reminder in 30 days, 60 days, etc. As the deadline gets closer, we will call on the phone. But we have some clients that won't return even our voice messages which leads us to send letters stating something like "If you don't follow our instructions or return our calls, we will not be held responsible....". We, for example, do not sign 5500s for our clients. Maybe there are some other TPAs that do. But, if your client is really interested in "doing the right thing", they need to be aware that there are several things per year that require their attention and action. A good TPA will lay that out for them (and remind them periodically).

I also wonder if a client like this is careful with depositing deferrals in a timely fashion. I have found that to be the biggest problem as there is a question on the 5500 which specifically asks that. Most of the national recordkeepers don't monitor this or send reminders that a payroll deferral contribution is due. A client like this might benefit from that added service. Some TPAs may monitor this for the client when using the big recordkeepers but I have not seen that very often. Perhaps looking for a small TPA/Recordkeeper that offers that hand-holding may be a good match for this client. Good luck.

[GMK]

It feels like this business owner needs to find a person who will accept the bulk of the fiduciary responsibilities for the plan, maybe from the trust department of a local bank. If you're not willing to take the time to follow the instructions in a letter or e-mail for your plan, your plan is headed for proubles.

And the business owner should get an ERISA attorney to write the service agreement, detailing all the babysitting duties, including operations like those RPG mentioned.

[John Feldt ERPA CPC QPA]

Will a third-party administrator run its service so that everything is proactive? Will a TPA tell the employer what to sign and how to sign it? So that the message isn't buried in a letter or e-mail that the employer won't read, will a TPA do the proactive steps by telephone?

Everything plan-related, Yes. Yes. Yes.

Not all TPAs are the same, though. Generally, the lowest cost provider will not likely provide all the services you describe, but it's not about cost here, it's about service.

MOJO's suggestion to get references and ask questions is a good place to start. To help you find providers in your area, if you want, you could look at the ASPPA website under retirement plan pros, administrators/consultants, professional services directory. This link might get you there: http://www.asppa.org/sp/Custom-Apps/PSD-Search.aspx

[Peter Gulia]

Thank you, everyone, for the good suggestions about working with a TPA.

[Belgarath]

TANSTAAFL. (There Ain't No Such Thing As A Free Lunch.)

No one can afford, as a TPA, to provide excessive handholding/telephone time/letters/client visits, etc., for a client who refuses to help themselves, without charging for it. Either the base fee is higher, or there will be hourly charges, or maybe some revenue sharing, or some combination, etc., etc...

Or at least no one can afford to do this for free for very long. Those people are called former TPA's.

Most good TPA's will provide as much service as you want/need. So the question is: how much is the client willing to pay? If he requires lots of service but isn't willing to pay reasonable fees for the time/services required, then most TPA's are going to drop him as a client. (Well, maybe I shouldn't speak for others - I'll just say that WE would drop him.)

[ForksnKnives]

If the owner is unwilling to perform his duties as plan administrator then he needs to pay somebody else to do it, whether it is an internal HR/legal employee or a TPA. Either way, as others have said, it won't be cheap to have somebody else do that much work for him. If he is that busy and the business is doing that well then it is probably an inefficient use of his time to deal with the daily operations of the plan anyway. He could dedicate more of his time to operating the business and generating more profit.

[Bird]

My 2 cents...everyone seems to be coming down hard on this employer. But I've taken over plans that were handled by large firms, and had all kinds of problems because of poor communications, and they're running just fine now. There's a big difference between spitting out computer-generated e-mails and taking the time and effort to print something and mail it and put a "Sign here" sticker on it.

Clients like this are why most of us are in business and able to compete against bigger firms.

[Jim Chad]

FWIW. MY services are targeted for the small business owner that is wearing so many hats, he doesn't have time to read the letters he gets. Is this client in Michigan?

[Peter Gulia]

Again, thanks to everyone for the many thought-provoking suggestions.

By the way, Bird hits it on the head: The recordkeeper's instructions about how to get electronic signer credentials and what website held the unfiled draft Form 5500 were near the END of a many-pages dense-text letter that purported to explain how the recordkeeper had compiled the draft Form 5500 (which was not enclosed with the letter, or ever furnished on paper).

To those who mentioned an availability of services, I'm keeping your names so that, if my new client doesn't terminate the plan (which might be a realistic possibility), we can consider changing or adding service providers.

One remaining question, does any business offer a service of acting as a plan's administrator so that the employer wouldn't need to read or sign anything beyond the plan documents?

[PensionPro]

TPA firms (and possibly even some law firms) are starting to offer ERISA §3(16) fiduciary services and assume the responsibility of administrator from the plan sponsor. Maybe this type of arrangement will serve your client's purpose.

[Bill Presson]

Again, thanks to everyone for the many thought-provoking suggestions.

By the way, Bird hits it on the head: The recordkeeper's instructions about how to get electronic signer credentials and what website held the unfiled draft Form 5500 were near the END of a many-pages dense-text letter that purported to explain how the recordkeeper had compiled the draft Form 5500 (which was not enclosed with the letter, or ever furnished on paper).

To those who mentioned an availability of services, I'm keeping your names so that, if my new client doesn't terminate the plan (which might be a realistic possibility), we can consider changing or adding service providers.

One remaining question, does any business offer a service of acting as a plan's administrator so that the employer wouldn't need to read or sign anything beyond the plan documents?

Peter, they are firms that are starting to provide Plan Administrator services, but that still doesn't excuse an employer from performing their own duties.

We have clients of all sizes and some of them are in this arena: very small and so busy they have almost no time available on a daily basis. What we do in that situation is have an agreement with the employer as to how and how often we will contact him. We only reach out when action is required. And we send a letter/email but follow up with a quick call. In return the employer has to promise that he will read and act in those limited times.

Maybe a discussion like that would save your client time and expense in switching?

[Peter Gulia]

Bill, thank you for describing your idea of scheduling the times for attention.

About your first-paragraph observation, if the plan's named administrator is an external business, what remaining duties (beyond paying over the specified contributions and furnishing vesting service info to the administrator) might an employer have?

[BG5150]

The Plan Sponsor has implicit duties to monitor the fiduciaries it employs in regards to the plan.

[Peter Gulia]

Yes, an appointer must monitor its appointment.

Along with other steps, an appointer might satisfy itself that each year's Form 5500 was filed and that sufficient fidelity-bond insurance (I'd want much more than the statute's amount) is maintained.

Can we think of anything else that remains with the employer after an independent administrator is on the job?