What is a Third-Party Administrator (i.e., TPA)?

At its most basic, the TPA helps the "plan administrator" follow all IRS rules and regulations in regard to retirement plans.

Do the TPA, financial advisor and CPA all have to be involved in managing the retirement plan?

In our experience, business owners that involve all three parties get the most out of their retirement plans.

This is accomplished when the retirement plan is designed according to the business owner's retirement goals and budget, while maximizing tax savings, and building retirement benefits through sound investments.

Ok, but can't the employer handle the retirement plan without you?

Sure, an employer could attempt to establish an IRS-approved retirement plan document, file the annual reports by itself, provide notices, and attempt to complete annual discrimination testing itself. However, non-compliance in any of these areas can lead to severe penalties and disqualification of the retirement plan.

Which employers need a TPA?

Any sized business (including self-employed individuals) which sponsors a retirement plan, should have a TPA under contract ensuring that the plan document, annual reporting, and testing are all being completed and followed.

When an employer adopts a retirement plan, the IRS ultimately holds the employer responsible for the management and compliance of the retirement.

What services does the TPA specifically provide?

Services:

Establish IRS approved retirement plan (or plans).

Complete annual discrimination testing for Defined Benefit, Cash Balance and 401(k) plans.

Handle recordkeeping services for smaller plans.

Coordinate communication between the employer and the plan's recordkeeper/custodian.

Prepare annual Form 5500 for clients.

Conduct annual calculations to maximize contributions and tax savings.

Calculate RMDs, participant loans, and distributions for plan participants.

Provide annual notices and participant statements that the employer is otherwise required to disclose.

Conduct in-person or virtual meetings with clients and their employees.

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Defined Contribution Plans

Defined Benefit Plans

A Defined Benefit plan (also called a pension plan) offers guaranteed retirement benefits for plan participants.

The two most common types of Defined Benefit plans are: Traditional Defined Benefit and Cash Balance Plans.

Defined Benefit plans allow for much larger annual contributions than Defined Contribution plans.

These types of plans are best for business owners who have stable income, are generally older than their employees, and want to quickly build up their retirement savings faster than is available in Defined Contribution plans.

The most common type of defined contribution plan is a 401(k) plan. These plans allow much more flexibility than a Defined Benefit Plan and give participants more control over investments.

These plans allow for both employee salary deferrals and employer contributions; however, the contribution limits are lower than DB plan limits.

The 2025 annual additions limit is $70,000 (i.e., employee + employer contributions) plus a catch-up of $7,500 for individuals aged 50 and above.

These plans can be designed to feature Safe Harbor contributions, employer profit sharing, and participant loans.