Using a Retirement Plan Expert

Navigating the complex world of tax-qualified retirement plans like 401(k)s can be a daunting task for employers. These plans provide tax advantages for both employers and employees, but come with a myriad of compliance duties, rules, and regulations that must be followed to the letter. This is where a third-party administrator (TPA) can be an invaluable asset. 

Handling increasingly complex retirement plan rules and laws became too cumbersome for many CPA firms, which led to the rise of TPAs dedicating 100% of their focus to this niche. The benefit for employers is having a team of retirement plan experts ensuring their plan stays fully compliant and provides the maximum tax benefits for the company and its employees.


The Rules of Tax-Qualified Retirement Plans

Tax-qualified retirement plans get their name because contributions to them are tax-deductible. Employees can deduct their contributions from their W-2 income, while employers receive a deduction for any money they contribute to employees’ accounts.

However, to receive these tax benefits, the retirement plan must comply with a multitude of stringent rules and filing requirements laid out by the IRS and Department of Labor (DOL). The IRS oversees how much can be contributed to the plans to maintain their tax-deductible status, while the DOL enforces non-discrimination rules.

These non-discrimination tests essentially dictate that if an employer allocates a certain amount to the company owners or highly-compensated employees, they must offer a minimum percentage contribution to non-owner staff as well. Failure to follow all applicable regulations can result in hefty penalties and the plan losing its tax-qualified status.


What is a TPA?

While the employer sponsoring the retirement plan is legally considered the plan administrator, very few have the bandwidth or expertise to handle all the intricate compliance details and filings themselves. This is where TPAs come in — they are firms that specialize solely in retirement plan administration and compliance.

Much like how a business would hire a CPA to file their taxes, TPAs are hired to handle all compliance aspects of the company’s retirement plan. This includes performing non-discrimination testing, filing annual returns, conducting compliance checks, distributing required participant notices and disclosures, and staying up-to-date on frequently changing regulations.


A Cost-Effective Solution

While an employer could theoretically try to administer their own retirement plan in-house, the risk of costly penalties or disqualification makes using a TPA a smart choice for most companies offering tax-qualified plans to their employees.

TPAs provide a cost-effective way for employers to outsource the burdensome tasks of handling all the plan management, reporting, compliance testing, and filings related to their retirement plan offering. Their deep expertise in this area allows them to deftly navigate the complex web of rules and laws, while freeing up the employer to focus on running their business.

For most companies, the annual fees charged by a TPA firm are far outweighed by the penalties, taxes, and headaches they could face from just one accidental compliance misstep when trying to administer their tax-qualified retirement plan themselves.

To learn more about how TPAs can help you choose the right tax-qualified retirement plan for your agency, tune in to the rest of our interview with Serena Morse on the Progressive Agency Podcast.


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