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2366967

Does Tpa (or Common Remitter) Matter?

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I am on my district's 403b committee and we are looking at a new plan because of the change in regs. We have not chosen our vendors yet but I am fairly confident that a low cost one (Fidelity) will be among them. The problems is that others still want a "full service" provider (Insurance Company). I am not asking to debate the vendor merits, I already know we don't want the insurance company, some others on the committee don't see it that way. We will probably end up choosing at least two vendors.

 

Some of the insurance companies (the usual suspects) we are looking at can also be a TPA. Because we get it "free" this one will be harder for me to argue against. I can't honestly believe it will be free-call me jaded. I would rather go with a fee for service provider that has no conflict of interest. My question is: will an insurance company be OK as a TPA? Why or why not? I can't believe they can somehow take money (as a fee) from me if I invest in Fidelity if they act as a TPA. But maybe, these are the things I don't understand. If not, can someone provide me with some valid points to go with a separate TPA or Common Remitter? I need to be able to present this to the committee if the issue comes up. TIA

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You have raised an interesting question and a complicated issue. I will give you my opinion as to the question - Will an insurance company be OK as a TPA? Why or why not?

 

My response is maybe and it depends on who (as a participant in the plan) you are.

 

Those who want "full service" and the attendant higher fees will get those elements.

Those who want "self service" and low cost & index funds might get those elements.

 

The insurance company is not in the business of being a TPA only, and therefore is willing to serve these two participant archtypes if & only if those wanting the full service approach is sufficiently large relative to those wanting self service.

 

In formulating its bid, the insurance company will assess these issues and price the case accordingly. It will also make some sort of assumption about the current & future of the relative sizes of these participant archtypes. Over time, to the degree that the self service group expands relative to the full service group, the insurance company's margins will decrease.

 

The self service approach will therefore be discouraged exist precariously as the insurance comany will make every effort to minimize the absolute & relative size of that group.

 

Just like Lunch, there is no such thing as free TPA services.

 

Regarding how insurance companies and TPAs can get paid for services (when the plan uses non-proprietary mutual fund companies), I'd encourage you to do a web-search using words such as revenue sharing, sub transfer agent, 12b-1, dealer concession, plan expense credit, PEC, etc, etc.

 

Good luck with your research and influence on the Committee.

 

Danc

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Hi 2366967

 

I just finished being on committee to select a TPA/Common Remitting Service for my employer's 403b plan. I would be happy to share that experience with you.

 

If you would like, you may contact me by email through this site.

 

Look forward to hearing from you,

 

 

jyork

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jyork, thanks, I sent you a PM.

 

 

 

Hi 2366967

 

I just finished being on committee to select a TPA/Common Remitting Service for my employer's 403b plan. I would be happy to share that experience with you.

 

If you would like, you may contact me by email through this site.

 

Look forward to hearing from you,

 

 

jyork

 

 

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jyork, I have been away for a while. How did this work out for you and your fellow employees. My wife's employer my be going this route (I think omni is in the running and a couple of others). I will pm you if you do not want to post all of the details!

 

Thanks, Gerry.

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Hi Bruceinwayne and Gerry Lef,

 

You are both welcome to pm me at this site. I would be more then happy to share the details in a telephone call.

 

I will be looking for your emails.

 

 

jyork

Redding, CA

 

 

 

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Guest Sierra

jyork: Why are you opposed to sharing your experience with all of us.

 

Joel

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