Pension Trends   Volume IX, No. 2, May 2008    

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Third Party Administrator or Attorney… Whom Should You Call?
          

Third Party Administrator or Attorney… Whom Should You Call?

Many parties are involved in creating and maintaining qualified retirement plans and trusts. It is not always clear which party is responsible for a given issue or task. While the roles of attorneys and third party administrators (TPAs) are generally distinguishable, many overlap or are very similar. As such, you may sometimes wonder whether to contact your attorney or TPA. Obviously, the attorney will handle legal issues while the TPA handles administrative issues. Some issues or tasks fit neatly into one and only one category. For example, the client’s attorney should be contacted for legal opinions such as whether a client belongs to a controlled group or affiliated service group. And you would contact the TPA to explain the results of a top-heavy test in the prior year’s annual administrative report or to determine a defined benefit plan’s required contribution for the year.

Where the line between legal and administrative work becomes blurred, you might consider the following ways in which Independent Actuaries, Inc. (IAI) works with attorneys before contacting either of us:

Design of a New Plan

In the world of pension plans, TPAs tend to be “street smart”—we work day in and day out with all kinds of plan designs. The TPA is likely to know what type of plan design features will best accomplish the goals of a particular employer. A TPA is most qualified to consider the demographics of an employer and, through experience, know how to tweak a plan design to optimize its benefit to the employer.

However, a plan design must comply with all applicable pension (and other) laws. Interpretation and application of the law to particular situations or employers are the attorney’s purview. The knowledge and skill of an experienced TPA does not replace the need for competent legal counsel. Designing a plan is a good example of the overlapping roles played by plan advisors.

Plan Documentation & Maintenance

Retirement plan provisions must be contained in a written document. Most employers will benefit from using what are known as volume submitter or prototype documents. These documents tend to cost less, are “pre-approved” as tax-qualified by the IRS, and allow an employer to tailor a plan to its unique needs by choosing from a range of pre-determined options. As plan documents are highly specialized legal documents, often 100 pages or more in length, they require the drafting skills and expertise of an attorney. It is not surprising that ERISA attorneys often sponsor their own volume submitter/prototype documents. Nonetheless, most investment companies (e.g. Fidelity, Charles Schwab, Standard Insurance) and many TPAs, including IAI, also provide volume submitter and/or prototype plan documents. When an investment firm or TPA plan document is used, the employer should enlist his/her legal counsel to review the document.

Once the plan document is implemented, amendments are required to keep the document compliant with ever-changing pension laws. Non-attorney document providers typically supply such amendments for review by legal counsel. Regardless of whose plan document is used, it is our experience that a collaborative effort between the attorney and IAI is the best way to insure that the plan used is the appropriate plan for the client, and that amendments are appropriate and timely.

Benefit and Present Value Calculations

Attorneys often call on IAI for benefit and present value calculations associated with any number of issues that might come before the court. For example, IAI has developed such calculations for ongoing bankruptcy or divorce proceedings, estate valuations, and for nonqualified executive deferred compensation plans. When these calculations are to be kept confidential, IAI will work for the attorney rather than the plan sponsor or participant, to protect the attorney-client privilege.

Expert Witness Testimony

Attorneys often hire the pension consultants and actuaries at IAI as expert witnesses to give opinions regarding benefit and present value calculations.

Forensic Accounting

When a plan’s assets may have been harmed by mistake (e.g. potential malpractice by a service provider) or with malice (e.g. possible embezzlement by an employee), IAI assists attorneys by investigating the plan’s trust activity, suggesting methods of correction, and producing reports for Department of Labor or IRS auditors or investigators.

Operational Compliance

Despite the best efforts of employers, attorneys and TPAs, retirement plans are often operated incorrectly. The consequences of such mistakes range from minimal (e.g. payment to the plan of lost earnings for the late deposit of 401(k) contributions) to catastrophic (e.g. loss of tax-qualified status where a plan document has not been properly maintained) for both the employer and employees. Fortunately, the IRS and Department of Labor recognize the complexity of operating such plans and offer numerous programs for correction of operational mistakes. TPAs are particularly adept at identifying operational issues. As the available programs or methods of correction typically diminish over time, an experienced TPA who can readily identify such failures is of paramount importance. Once such mistakes are identified, attorneys are qualified to negotiate with the IRS and Department of Labor over the correction of such mistakes.

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This newsletter has been published in order to share general information with our professional contacts. The information presented in this newsletter should not be acted upon without first seeking the advice of a CPA, attorney or other benefit professional. 

Pension Trends, Volume IX, No. 2, May 2008
Copyright © 2008 Independent Actuaries, Inc.