I will never understand a TPA asset based fee

Ary Rosenbaum

Ary Rosenbaum - The Rosenbaum Law Firm P.C.

I’m stubborn and there are just some things I don’t understand, so hear me out.

I got a call not too long ago from a financial advisor about my practice and how I price my work on a flat fee basis. I told the advisor that I charge $2,000 for a volume submitter retirement plan and the advisor asked me if the price differentiated if the plan had thousands of participants. I understood his question and I kind of thought it was funny because for me, drafting a plan for one person or drafting one for thousands of employees is about the same amount of work. I told him that the number of participants has no bearing on my plan document work and participant account is more interest for a third party administration (TPA) firm who has more expense in administering a retirement plan because of the number of sub-accounts they have to set up (if the plan is a defined contribution plan) or benefit statements they have to provide (for a defined benefit plan).

I’m no expert on TPAs, but I assume the only fee that may go up with an increasing plan asset size is the custody fee because regardless of the size of the plan, a plan is paying up to 6 to 8 basis points in a custody fee for a daily valued no transaction fee 401(k) platform Otherwise, there is no extra cost for a TPA to run a 100 participant, $100 million 401(k) plan than it is for a 100 participant, $10 million plan.

So I am flabbergasted by some very well known and well regarded TPA firms that still charge their administration based on assets. Having them charge on assets is not much more different than me charging for plan documents based on participant headcount. I know if it’s OK if it’s disclosed, but it still doesn’t make sense to me. Call me old fashioned, but I think a fee should be relevant to the work involved and assets bear little relation to the work of a TPA.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ary Rosenbaum, The Rosenbaum Law Firm P.C. | Attorney Advertising

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Ary Rosenbaum

The Rosenbaum Law Firm P.C. on:

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