Bundled Versus Unbundled: Five Myths


As human beings, we’re often motivated to seek simpler solutions to life’s challenges. But sometimes “simpler”… isn’t.

While there are some amazing bundled solutions, ERISA’s admonition to act solely in the interests of plan participants (and beneficiaries), alongside the requirement that those be reasonable in terms of cost and value, call for a careful and considered evaluation.

In that vein, there are some “myths” that seem to be prevalent regarding those choices, perceptions that persist even today. Here are some points to consider:

An unbundled approach is more expensive.

The reality is, it can be—depending on the point of comparison. If all other things are “equal,” then certainly engaging another level of service and compliance oversight can bring with it additional costs. Then again, engaging the services of a third-party administrator[i] (TPA)—at least the right TPA—is hardly an “all other things equal” comparison. Their involvement and engagement may well streamline the time involved in reconciling data and contribution flows, could provide insights on plan design that could save money and enhance benefits, positions them to coordinate communications on plan audits—and, significantly, likely forestalls the need for plan corrections, fees and fines.

It might appear to cost more on the front-end—but it could more than pay for itself in other ways.

With unbundled solutions, there is a single point of contact.

With most bundled solutions, it’s probably more accurate to say that there is a single starting point of contact. No matter how gifted, talented and powerful the designated point of contact for a given plan is, there are inevitably silos of information and resolution. For example, legal questions are routinely passed along to other departments, payroll reconciliations in another—those resources are not only in another department, they may often be in another state—or time zone.

That doesn’t mean there’s no value in that single designated contact—but it’s rarely a “one-stop” shop.

Using a third party complicates communications.

Without question, adding a TPA to the plan’s “phone tree” does add another point of contact when it comes to communications regarding plan compliance or administration. On the other hand, the right TPA can actually centralize and even streamline critical communications between the plan sponsor and recordkeeper, or with payroll. It might look like another point of contact—but it could actually simplify and consolidate the number of calls that have to be made—and, more importantly, could reduce the need for calls to correct the misunderstandings inevitable in telephone “tag.”

TPAs are best suited for smaller plans.

Smaller plans—where plan designs frequently take into account specific objectives of the business owner (including complications of things like top-heavy testing)—are certainly a good fit for the expertise of a TPA. That said, issues with payroll, compensation definitions, eligibility evaluation and vesting determination are issues with which plans of every size and shape must deal—not to mention the correction process with the DOL and IRS when things don’t happen as they are supposed to. A good TPA can mitigate the former, and smooth the way with the latter, should the need arise.

All TPAs are the same.

All of the responses above are conditional—on engaging the “right” TPA, or a good TPA. But TPAs, like bundled providers (and advisors), are comprised of individuals of varying levels of skill, talent, experience and commitment. It’s important to find the one(s) that fit your needs—and those of your plan sponsor clients.

Things—administration, compliance, and yes, correction—have grown significantly more complicated over the years and today TPAs not only keep up with participant accounts, they can be an invaluable resource to plan sponsors—and advisors—on issues like regulatory compliance and plan design.

That makes it hard to obtain an apples-to-apples comparison. Indeed, the fact that each record keeper has a different process for… just about everything, makes it easy for things to fall by the wayside if you don’t have a clear assignment of responsibilities with every party involved.

Those looking for a good place to start that assessment can find it in the NAPA-Net Black Book listing of TPAs—or among the membership of our sister association, the American Society of Pension Professionals and Actuaries (ASPPA).

Because sometimes the best way to keep things “together” is to break them apart…

See also “What’s in a Name?” and Resource ‘Full’?

[i] It’s worth noting that your recordkeeper is a TPA.

This post originally appeared here


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