What Work is Done by your Third Party Administrator During the Year-End Compliance Testing Season?
Updated: Mar 10, 2022
Part One: Gathering Census Data and Balancing Asset Reports
If you sponsor a retirement plan for your employees, you will soon discover that the bulk of the government compliance work done by your Third Party Administrator (TPA) occurs in the first quarter of each year. Your duties as a Plan Sponsor will also become more demanding during that time as you gather the required data and have more frequent communications with your TPA. We often get questions on why the TPA is requesting so much data and what work is being done. In this post, we will outline all of the work that your Consultant is doing from January to March, what that means for your plan, and why it is of extreme importance that you hire an industry-certified TPA to do this work to ensure it is done timely and correctly.
The “testing season” work begins in mid-December when RPCSI sends out requests for your year-end census. This is sent before the final payroll of the year to give you time to read it over before it must be completed. If your plan is new, your Consultant will call to discuss how to complete the census so there is no confusion. Once the last payroll has been processed and contributions have been posted, you must complete the census. The required census data varies depending on how the document is set up, but it generally requires the following information:
• Employee names
• Social Security numbers
• Dates of hire
• Dates of birth
• Annual compensation
• Hours worked and whether they are salaried or hourly
• If they deferred—how much
• If there were employer contributions—how much
You should begin working to complete the census in early January once the final contributions have been posted at the financial institution. The deadline to return the census is in early February. We work on a first in/first-out basis, so the earlier the census is returned, the sooner your valuation report can be finalized.
While your Consultant is waiting on the census data, they are reaching out to financial institutions and ordering asset reports. When the Consultant receives the census, they begin comparing the data to the asset report. They must compare data for each person and each source of money to ensure it is correct
Once the Consultant has reconciled the deposits, they finish balancing the rest of the plan to the asset statement. This involves posting and checking distributions to ensure that any distributions listed came through RPCSI. Next, they check that assets were properly vested and that loan payments were posted to the right sources of money. If they discover an error, they must track down what money is missing and why it is missing. Errors can stem from a variety of causes, including a typo or a participant’s money going into an incorrect account. Because this comparison must be done for each participant, and errors can come from anywhere, this process can be very time-consuming.
If there are any discrepancies during this process, they need to be investigated and resolved. The Consultant first tries to determine the origin of the error on their own, based on their extensive industry experience and familiarity with common errors. Once they find the error, they can help the Plan Sponsor, or the financial institution remedy it more quickly. This is one of the many reasons why having an industry credentialed and experienced TPA is immensely beneficial. However, sometimes the error cannot be determined by the Consultant alone. In that case, they contact the Plan Sponsor and/or the financial institution to search for the solution and remedy it quickly.
When all the data is in, everything matches, and it all balances as it should, the Consultant can begin testing. To view the second half of this post which covers testing and valuation, click here.
This outline is based on the “average” 401(k) plan with a 12/31 plan year-end. If your plan includes a Cash Balance Plan, a Safe Harbor Plan, or a different plan year-end, some of this information does not apply to your plan or occurs in a different time frame. If you would like more information on the work being completed specifically for your plan, please let us know and we would be happy to provide you with an outline like the one you see here.