We often hear – “I use a bundled provider when the client wants something cookie cutter and I use a TPA when they need something creative.” Do you really want your retirement plan to come off of the One-Size-Fits-All rack? Isn’t your retirement needs, and the ability for your employees to retire comfortably more important than that?
Both bundled and unbundled TPAs should theoretically have the same outcome for the Plan Sponsor – a plan operating in compliance within the Internal Revenue Service (IRS) and Department of Labor (DOL) rules and guidelines. These are the things essentially every plan sponsor needs, but how the different choices help the Plan Sponsor get there is the biggest difference.
Having the same theoretical outcome is important because most plan sponsors need a tremendous amount of help in figuring out what needs to be done, who needs to be involved, what the minimum contribution requirements are, what the maximum contribution options are, what document provisions need to be maintained, how much employees should be paid out, how to handle divorced employees, how to deal with companies being bought or divisions being sold, and what the government does or does not need to be told each year. Lets dig in.
What Is A Bundled Retirement Plan?
There are 2 main bundled solution options. The first one has the payroll company acting as the payroll vendor, the record keeper and the compliance consultant (what people also call the TPA). The second one has the record keeper and the compliance consultant under the same umbrella.
The financial advisor is almost always independent and works for a different employer. I’ve heard that you can theoretically also have the financial advisor work for the record keeper, but that would not be that common.
The perceived (or expected) benefit is that there’s one number to call (often referred to as the “one throat to choke” approach) and that fees are less. Plan Sponsor who have come from a bundled solution explain it to me this way – The presumption is that all of the functions are under one roof and that all the operations of the plan are being watched over by one department or person.
What Is A Unbundled Retirement Plan?
The unbundled approach is what we use at Hunter Benefits. Some in the industry like to refer to it as professionally bundled approach. In the unbundled approach there are 4 independent parties or elements, all accountable to the others.
- Plan Sponsor
- Financial Professional
- Record keeper
- Compliance Consultant (the TPA and that’s Hunter Benefits)
The advantages for the Plan Sponsor are that the 3 separate firms that have been hired to help are all easily replaceable. Yes, I said that. On purpose. That means we have to be responsive to the clients’ wants and needs.
In the unbundled method, we treat the Plan like a living organism. As the Plan Sponsor grows and changes, very often the wants, needs and demographics of the Plan change as well. That means that when the Plan outgrows – or no longer feels like it’s the right fit – one of the vendors, that vendor can be changed without changing the other two.
Other Resources: https://www.employeefiduciary.com/blog/bundled_vs_unbundled_401k_providers
How To Decide On Which Plan Is Best For You?
Very often financial advisors or decision makers at Plan Sponsors pick the solution that they’ve always used or are familiar with. This is a perfectly natural and understandable way to go about things. If the person who trained you in the industry taught you Option Z is the best option, you are probably going to keep going that way until something is broken. If your first job at a Plan Sponsor chose Option Y, you are probably going to pick that option the next time you get to be the decision maker.
But, for those making a choice for the first time, why did we build Hunter Benefits on the Unbundled Solution? Why do we insist this is the more effective option?
- Most compliance consultant firms are much, much smaller than the national bundled shops. As such, we can develop our business practices to be much more creative and provide the Plan Sponsor with more flexible options. It’s not a legal thing, it’s just how we like to do business. While we have to have consistent policies and business practices, we can tune those so that they are more responsive to our clients’ needs and not some massive publicly traded entity.
- Along with Hunter Benefits being more flexible and creative, we have found we are much more attentive to detail. We work very hard to make sure we find all the little things that have gone sideways and have the Plan Sponsor fix them timely – or before they happen. And this is how we act as the Plan Sponsor’s advocate (It has not been my personal experience that bundled provides act as an advocate for the Plan Sponsor. The tend to act as advocates for the aforementioned massive publicly traded entity). We can talk about self correction programs in another blog, but the IRS and DOL actually have programs set up that encourage Plan Sponsors (with Hunter Benefits’ help) to find and correct their own errors. So when I say Hunter Benefits acts as the Plan Sponsor’s advocate, they’re much better off hearing they have to correct things from us than from a government entity.
- When we take over plans from bundled providers, we ask for the prior work. So we can see what they ask for, how they ask for it, and the work product. Very often under the guise of information gathering, the bundled provider actually has the Plan Sponsor make all the determinations as to who the Highly Compensated Employees (HCEs) are, who the Key Employees are, whether or not the Plan is Top Heavy, etc. Isn’t that what you want to hire us for? We feel it’s our role to provide a tremendous amount of assistance in that area.
Check out this post: https://hunterbenefits.com/how-do-financial-professionals-benefit-from-tpas/