TPAs Look to Be OK in Final Fiduciary Regulation

Third-party administrators (TPAs) got some good news, and some much-need clarity, in the final fiduciary regulation.

While “producing” TPAs that act as a plan’s investment advisor would, of course, need to keep in mind the provisions of the new regulations that focus on the advisor role, those new regulations, issued April 6, made clear that a TPA’s recommendation of a recordkeeper would not constitute a “recommendation,” and thus would not result in fiduciary status for the TPA, even if there was a differential in compensation as a result.

Additionally, the platform exception was simplified, and broadened in the final regulation, addressed ambiguity which had caused concern in the 2015 proposal. Specifically, the final regulation made clear that there were:

• no restrictions on proprietary investments on the fund platform; and

• no requirement or limit as to the number of investments.

It was also spelled out that so-called “segmented” platforms were permitted. This would include differentials in, say the menu of funds offered to plans in a certain size segment. As long as the segmentation isn’t to a specific plan, these segmented platforms are allowed under the final regulation.

Of course, that doesn’t mean that there are no considerations for TPAs. Activities such as helping plan sponsors choose investments, making a recommendation as to the selection of an advisor (and receiving compensation for that advice) would constitute recommendations, and establish fiduciary responsibility. Similarly, if a TPA were to make a recommendation regarding a rollover transaction and receive a referral fee for that service, it would likely be considered advice.

One item that wasn’t included in the final regulation, though it was acknowledged — a platform exception for IRAs. As stated in the regulation, the lack of an intervening, independent fiduciary in reviewing the funds (as there is in ERISA plans) concerned the Labor Department. While the regulation acknowledges that in the presence of such an entity could provide the desired shield, the particulars of that situation are not yet clear, and would require additional research.