Role of TPA as party to trust agreement

My client is being asked by its TPA to enter into a new trust agreement with a directed institutional trustee (a trust company) that makes the TPA a party to the trust agreement. Under the proposed trust agreement the TPA, called the "Designated Representative," is responsible for ensuring the timelines and amount of contributions, and the TPA is given authority to authorize distributions and payments on its own, with the trustee being indemnified by the plan sponsor for any losses resulting from following the TPA's directions. These provisions are part of a new standard package designed by the TPA to simplify the plan sponsor's tasks with respect to the plan and lower costs, and it is being urged on all of this TPA's clients, as I understand it.

I am used to trust agreements that allow the trustee to rely on plan sponsor instructions it believes in good faith to be authentic, and to provisions in which the plan sponsor indemnifies the trustee for everything short of willful malfeasance or some other low standard. We push back on those with mixed success, depending on size of the client. But this is the first time I've seen a trust arrangement in which the TPA is a party to the trust and the plan sponsor delegates extensive authority to the TPA. I guess at a minimum this makes the TPA a fiduciary, which they usually don't want to be.

My question is, is this common and I have just not run across it before, or do others think it is unusual and perhaps not well thought out?

Is the TPA offering a comprehensive 3(16) service as part of this?  Outside of this I don't think it's common at all.  Within 3(16), probably typical. 

Speaking as a veteran of the TPA business, it does sort of sound like something a TPA would do - take on more work, responsibility and risk for lower fees!  Our industry is sort of addicted to abuse. 😖

15 hours ago, shERPA said:

Is the TPA offering a comprehensive 3(16) service as part of this?  Outside of this I don't think it's common at all.  Within 3(16), probably typical. 

Speaking as a veteran of the TPA business, it does sort of sound like something a TPA would do - take on more work, responsibility and risk for lower fees!  Our industry is sort of addicted to abuse. 😖

Good points, shERPA (and consistent with your tagline's dry humor🙂). I had not reviewed an agreement between the TPA and client that stated that, but will ask them if there is one. Would explain a lot. The issue is then narrowed down to how do you evaluate the appropriateness of a 3(16) fiduciary.

Agree with shERPA.  I work for a TPA and ran our 3(16) service for a short time (thank goodness; Ascensus has a TPA which has an active and experienced 3(16) service and I am no longer involved).   The documents for hiring a 3(16) are much more comprehensive and involve more decision making than this suggests.  Aside from what this TPA intends, I would not suggest to this plan sponsor that they sign such a document without a thorough review of all the documents and the delegation involved.  The plan sponsor remains a fiduciary on the hiring and delegation issues.