Symbiosis and retirement plans

Sean Jordan

By Sean Jordan
Sean Jordan is Head of Emerging Client Management for the Workplace Solutions unit of MassMutual.
Posted on Nov 20, 2019

Under the sea, clownfish and sea anemones share a mutually beneficial relationship. Clownfish emit a high-pitched sound that wards off butterfly fish, which feed on anemones. In return, clownfish are immune to and protected by the anemones’ sting, which wards off larger predators.

The special relationship is known as mutualism, a form of a symbiosis in which two species benefit from each other’s special skills, talents and behavior. In the retirement plan marketplace, a similar relationship exists between financial professionals and third party administrators (TPAs). While both help each other, in tandem they bring added value to employers that sponsor 401(k)s and other defined contribution retirement plans. It’s an evolving, trilateral form of symbiosis that continues to grow.

Increasingly, financial professionals are partnering with local TPAs to help sell, design, administer and support retirement plans. MassMutual, for instance, relies on such relationships in approximately two-thirds of the retirement plans for which it provides recordkeeping services.

Together, financial professionals and TPAs typically deliver a more comprehensive package of services to retirement plan sponsors. These services are becoming essential in an environment where the designs for retirement plans and the regulations that govern them are becoming ever more complex.

Pending federal legislation that would make it possible for employers to join Open Multiple Employer Plans (MEPs) as way to reduce the costs, administration and fiduciary responsibilities associated with sponsoring a retirement plan may make this symbiotic relationship even more important and prevalent. Before employers take advantage of any new legislation or regulation, it’s critical to have an expert point of view and support.

So who brings what to the table? Where do the lines of demarcation between financial pros’ and TPAs’ duties, responsibilities and value start and end? Who is the clownfish and who is the anemone?

Financial pros who support retirement plans start by helping employers evaluate their unique needs in sponsoring a retirement plan, guiding decisions on the appropriate investments, helping enroll and educate plan participants, evaluating plan providers and working with the TPA on designing the plan.

TPAs, on the other hand, can help guide plan sponsors on regulatory and administrative issues and consult on retirement plan designs, services, and features. Common plan administrative duties that any TPA should be able to perform include: designing and amending plan documents, providing plan audit support, monitoring IRS nondiscrimination testing and contribution limits, preparing Form 5500, allocating employer contributions and forfeitures, calculating participant vesting percentages, and preparing loan paperwork.

Where a TPA can really add value, though, is helping assess the needs of the sponsor to minimize plan expenses and maximize successful retirement outcomes. TPAs are a valued expert to guide an employer through the process of starting a plan or moving a plan from one provider to another. A TPA is a local retirement plan and benefits expert who can help maximize an employer’s time and ensure that all parties are performing according to contractual provisions and client needs.

A critical component of a successful retirement plan is its design, which can be created to achieve any number of goals. The right design can prepare employees to retire on time, help the business owner save more, increase tax benefits to the business, reward key employees, give a boost to older employees or achieve a combination of goals.

There are myriad options for achieving plan goals and it can require an extraordinarily deep dive to understand which makes the most sense even for long-time plan sponsors. A TPA can help sponsors view how a specific retirement plan design will work, and provide options and a cost-value analysis, including hypothetical projections on performance. The insights and analysis can help reach the right choice based on goals, budget and regulatory requirements.

On a day-to-day basis, TPAs can serve as an employer’s retirement plan manager without being on the payroll, needing a desk, phone or other office accoutrements. It’s an important consideration given that many small and even medium-sized employers lack a dedicated, in-house specialist to administer retirement plans.

As mentioned above, Congress is busy reviewing new regulations concerning retirement plans. So how can a sponsor stay abreast of such developments? How can employers quickly evaluate, understand and apply new regs, requirements and requisite laws?

Again, TPAs are experts and can help sponsors make the most of any such developments. More importantly, a TPA can help sponsors steer clear of potential trouble.

Like the clownfish and the sea anemone, TPAs, employers and their financial pros can enjoy a mutually beneficial, symbiotic relationship by complementing each other’s skills and strengths. The result can be a highly effective retirement plan that benefits both the employer and its employees.

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