The Advisor - November 2010

IMPORTANT NEWS FOR YOUR FINANCIAL AND PERSONAL FUTURE

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How Do I Know If the District’s Third Party Administrator (TPA) Is Informing or Selling?

Many districts have hired a TPA to meet IRS compliance responsibilities. Generally, there are three ways a TPA is compensated:

  1. Explicit fees charged to the participants or employer to cover its cost of business.
  2. Income from the sale of 403(b) products that may be affiliated with the TPA. This cost can be passed on to participants directly or indirectly.

A combination of 1 and 2. The best way to identify whether a TPA is informing or selling is simply to ask. In addition, the chapter should exercise the provision of Ed Code Section 44041.5 (C)2(d) and ask the district to disclose all forms of compensation to the TPA. Transparency is the best way to ensure that educators are aware of how the TPA is generating income or its affiliation with specific vendors or products. All investment products include fees, but some are more egregious than others. California Education Code, section 25101 et seq., requires all companies selling 403(b) products to California public school employees to disclose all fees for each of their products on the 403bCompare.com website.