TPA review Q&A

TPA review: what should I look for in a Third Party Administrator?

There have been many changes in the TPA market over the years. Mergers and acquisitions have made it challenging to keep track of who is who. However, TPAs have invested heavily in their services and there are many offerings out there. Technology, quality of service, communications and client relationship management are all factors to consider.
Above all, it is important to understand precisely what service you are likely to get, especially as contracts are typically for around five years. Marketing material and consulting speak often hide the real service and may imply something that is not contractually binding. A robust sourcing exercise will help you get under the skin of the various offerings and establish which TPA fits best with your scheme and business requirements.

Does it matter which TPA I choose?

To get the return on your investment of time and money in an out-sourced contract, you probably want the relationship to last well beyond the initial term. Your TPA should be a long-term professional partner, perhaps seen as an extension of your own business. Satisfy yourself during the selection process that the TPA is offering you a sustainable solution that meets your requirements and fits well with your culture. Consider what might happen on a merger or takeover and consider ‘parachute’ clauses. Strong commitment to quality of service, and investment in their long term road map are probably key considerations to get through a challenging decade ahead.

How often should I review my TPA?

Best practice over recent years has definitely increased the frequency and intensity of TPA reviews. There can be a tendency to wait for contract renewal points to carry out reviews. However, this misses the opportunity to correct any defects early and may lead to an irreversible decline in the service. Seek reviews at top level to ensure the TPA’s strategy remains aligned – perhaps a focus discussion between senior stakeholders. Specific service reviews should be undertaken as soon as issues arise. Annual, light touch oversight reviews can be carried out as part of the Trustees’ governance best practice schedule.

How easy is it to transition to a new TPA?

Like many things in life, implementing a new TPA is easier if you have done it before. There are many lessons learned from experience and it’s worth finding out what these are before embarking on a once-in-a-lifetime project. A robust implementation and quality assurance plan is a must, and using a specialist transition manager and team of experts will really ease the process for your senior team / stakeholders. The work is likely to be intense and time consuming but well worth the effort if delivered to high standards on schedule.

Is it better to ‘bundle’ administration services with actuarial and investment consulting?

Generally speaking, we have found no material advantage in selecting a bundled service. There is a perceived advantage of a single point of contact but in practice they rarely have the breadth of authority or knowledge to cover multiple service lines. Much will depend on circumstances and preferences but a ‘best of breed’ approach is certainly something to consider, particularly when it comes to the specialist area of administration.

Is off-shoring a good idea?

Some TPAs have teams of people situated in countries outside the UK. They generally undertake bulky, repetitive, automated services to alleviate pressure on specialist resources in the UK. That said, many people in offshore locations are highly qualified and can deliver on a wide range of topics. Off-shoring makes sense as it reduces costs – which should of course be passed on to Trustees and Scheme Sponsors. Data protection is a key consideration and there are various solutions when managing data that may go off-shore.
If properly managed, with robust technology and data management, off-shoring can work really well. Take care that the TPA is not simply off-shoring poor processes for lower costs – investment in technology needs to work in parallel with an off-shore strategy.