The Advisor - September 2011

IMPORTANT NEWS FOR YOUR FINANCIAL AND PERSONAL FUTURE

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The District’s Third Party Administrator

Many districts have hired a third party administrator (TPA) to help them with IRS regulations, including remitting contributions to various 403(b) vendors. Some 403(b) TPAs include TDS, Envoy Plan Services and CalSTRS 403(b)Comply. Typically, TPAs charge annual fees ranging from $24 to $36 a year per participant.

Some districts pay the fee on behalf of participants, some districts require 403(b) participants to pay the fee via payroll deduction and some districts or chapters want the fee to be paid out of the participants’ accounts (note that, even if the fees are taken out of participants’ accounts, they are not subject to pretax treatment). In the latter case, some 403(b) vendors, especially low-cost vendors, might not be able to accommodate this, which could result in losing access to competitive vendors. Be careful not to let the issue of how the TPA fees are paid influence the list of approved vendors. Participants should want to maintain access to a quality list of low-cost vendors offering a wide range of investment options, including 403(b)(7) mutual funds. Too often, the list of approved vendors is dominated by insurance companies that promote sales of annuities.

Sometimes the TPA is affiliated with a 403(b) vendor. This can create a conflict of interest if the third party administrator is influencing the list of approved vendors available to you. The good news is that upon request, a 403(b) TPA must disclose to participants any affiliation or relationship to a 403(b) vendor and disclose to the employer any fees, commissions, markups or promotional items received by a 403(b) vendor. See the box on page 8 for a sample disclosure request letter.

The disclosure requirements are found in Education Code Section 44041.5.


Education Code Section 44041.5

Under Ed Code Section 44041.5, the TPA should, when requested:

  • Disclose affiliations with vendors as well as direct and indirect compensation.
  • Provide proof of liability, fidelity bond.
  • Provide proof of a safe chain of custody (fiduciary responsibilities and timely placement of investments).
  • Demonstrate that there is a firewall to protect TPA data to be used by TPA affiliated vendors.