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bruceinwayne

Fighting The Tpa!

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Like many of you, my district is working on meeting the new regs and I've been appointed by my Union to act as the teacher representative to the Board while they figure out what to do.

 

I'm sure they will consider using a Third Party Administrator (TPA), which I am completely against because it will create more expense to the teachers, but my question is exactly how a TPA charges.

 

I went to a presentation last year and listened to a TPA tell me that they had one of the lowest costs in the industry at around 1%. I argued with him that that represented 5 TIMES what I currently pay for my account at Vangaurd and he argued that I was getting great value...blah, blah, blah for my 1% which I easily identified as a hollow sales pitch but my question is this.

 

If my district does in fact decide to use a TPA that charges 1%, and my 403(b) is currently with Vanguard, and Vanguard ends up still being a part of our plan, does that mean that the TPA will be entitled to take 1% of my current assests? If I have $150,000 in my 403(b), am I correct that the TPA in that first year will be entitled to $1500 of that money?

 

Thanks,

 

Bruce

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BruceinWayne,

 

Unless it is a single vendor platform I don't know any 403(b) TPA's that charge 1%. Even if a single vendor (401(k) style) platform 1% is high. Having said that, it is a startup plan with no assets (they can't force you to move your assets and can't force Vanguard to pay the 1%) and thus no income. 1% of zero assets is nothing. They are willing to take a loss in the short term as they believe they will make money in the long term as all new assets will supposedly flow to them. The one advantage you might have is that as assets rise (and they would be all in one place) the district can issue and RFP and hopefully lower the price, the district has a little more control than if the assets were spread all over the place.

 

I do think a single vendor can work, but it has to be done the right way. To answer your question, TPA's of multiple vendor 403(b) plans usually charge a flat fee per participant.

 

ScottyD

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In my experience, a good quality TPA will give you a well-specified budget for a well-specified scope of work. The good quality TPA will give the sponsoring employer the option of raising revenue from participants by assessing a per capita fee and/or asset based fee or some combination of the two. (Participants with small balances are better off with asset based fees while those with large balances are better off with per capita fees - so some combination can produce a reasonable compromise).

 

The TPA that charges a flat 1% is in my view - automatically disqualified. Why? Because the fee schedule generates revenue that is un-related to the amount of work, resulting in either too much revenue for the TPA or too little (relative to the work), either of which are not good.

 

Free Advice: Find another TPA that provides a clear explanation of how their fees relate to the amount of work they have to do to serve the plan.

 

Cheers,

 

Danc

 

 

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TPA's do not charge any basis points on assets so Scottyd is correct. Even insurance company supposed TPA plans do not. There are many options out there for a TPA although many are being bogged down. It appears to me that you may have spoken to someone that is a product provider and not a TPA.

 

There are some free TPA options out there of which are insurance company deals. While I am not a big fan of insurance companies there is one that I have found that appears to be good at being a TPA. Great American Plan Administrators has been doing TPA work for over 10 years so they are not new to it. They do not have captive agents like some insurance companies do. They work through the independent channels. I have brought them to some districts that were looking for a free deal. This company does not charge anything for the service for two years. All they want is to have a vendor slot. They are the one insurance company that I have seen that does not attempt to push out mutual fund options.

 

An independent TPA has to charge something because there is a cost associated to doing the work. CPI for example has a basic plan that charges $1000 up front and the $1 per month. The employer can also elect to have the providers pay the $1 per month and then the employees are not charged. There are many variations out there but time is running short and in my area 90% of the districts have still not finalized anything.

A district should make every attempt to keep TPA and product separate in my opinion. If they no longer like a product they do not have to change their TPA and vice versa. No chance of improprieties and privacy issues.

 

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