I am the trustee of a medium-sized (325 participant) 401(k) plan. Participant accounts are directed by participants among a menu of funds I select in conjunction with the input of our TPA (which is a regional TPA firm which offers a daily valuation/website interface). Accounts are valued daily.

We know from talking with other businesses in our area that some investment mistakes have been made in the past on the TPA's daily val platform. Mistakes such as participant investment changes (either for old or new money) not being processed timely (or, in a few cases, at all). Mistakes with 401(k) contributions not being invested right away--things like that. In the past, the TPA has written checks to correct the mistakes resulting from use of its daily val platform. However, in connection with an "upgrade" of the TPA's website/daily val platform, all users now have to agree to a number of conditions--some of which seem like overreaching to me. I need your help to determine whether a few of the conditions are inappropriate and may even subject me, as the plan's trustee, to fiduciary liability for retaining the TPA.

The condition I am most concerned about reads as follows (my editorial comments are contained in brackets):

You [the participant] are responsible for monitoring your account [I thought that's what we paid the TPA to do]. You agree to notify ***** immediately if you properly submit, via the website, any instruction regarding investment of your plan account (including instructions relating to the investment of future contributions) that are not reflected on the website within three (3) business days. ***** will have no liability for any claim, loss, cost or expense resulting from your failure to report promptly any of the items listed above.

I take this language to mean, for example, that if a participant makes an election change and the TPA doesn't process the change and the participant doesn't notify the TPA of its (the TPA's) mistake, the TPA doesn't want to be responsible for the mistake.

What do others think about this? It troubles me--especially in light of the fact that the TPA has made these sorts of mistakes in the past.

I work for a TPA and we use that sort of logic as well. We use Relius Administration and have web access for participants and sponsors. The system generates a confirmation numbers and letters for all transactions and changes performed over the website. We run these confirmation letters daily and either mail them to the participant or email them (if they have an email in the system, it will kick it out to the participant when we run the confirms). We have no choice other than to rely on the participant confirming the change via the email or confirmation letter they receive. If they did not complete the change properly they won't get a confirmation number and a letter will not be generated. We can review the logs of activity on the web and see if that person was in fact logged in but if they do not get a confirmation then the action was not executed properly. If we are not notified by the participant we are not even aware of it. The responsibility has to go back to the participant requesting the action or no one will even know it was requested.

I would find out if the tpa is using a software program where these activities are automated or if someone at the tpa has to actually manually make the changes. That would be the most likely reason for something now happening at all or within the 3 day limit they offer. Our system is automated so it happens instantly for most changes and we generate transactions daily and trade daily. Our recordkeeping agreements state that activity executed prior to 1pm will trade same day and after 1pm will trade next day (day meaning business day). But we spell that out in the agreement as well and expect the client to provide this information to the participants.

My suggestion, however, is if you are not comfortable with the skill level and practices of the TPA find a new one!

A difference (not sure whether it is important or not) is that your firm's software apparently generates a confirmation of a trade request or transaction request and that confirmation is emailed or mailed to the participant. Our TPA firm's upgraded platform doesn't do that. The only "confirmation" a participant has of a transaction is (1) their recollection of clicking the right buttons on the TPA's website and (2) what the TPA's website reports as "transaction history". I very much like the idea of electronic or written confirmation. If there is a system glitch and an election change is made for a participant by the system for some reason, under the terms of the disclaimer, the TPA is only responsible if the participant notifies it of the change within 3 days of the change. This suggests to me that a participant is responsible for monitoring his or her own account on virtually a daily basis. That strikes me as impractical. The TPA also disclaims liability for such system glitches by disclaiming liability for any errors resulting from the software package it has selected. I know why the TPA is trying to shift the responsibility. Prior to the upgrade, if a participant made an election change on the TPA's platform and the TPA failed to execute the change and it was later discovered that had the change been made within a reasonable time from the date it was made the participant's account would have an unrealized gain of $X, the TPA would write a check for $X and implement the change so that the participant was in the same position they would have been in had the TPA executed the change request when originally made. In a few cases, I've learned that $X was as high as $60K. Now, the TPA is attempting to shift responsiblity for making sure trades are executed onto the participant. That just doesn't seem right. To me, it is similar to a bank telling a customer that the customer is responsible for making sure credits and debits are properly added to or deducted from his/her account. If the bank erroneously debits a checking account and it isn't discovered by the account holder within 3 days of the debit the bank is off the hook.

Disclaimers make the world go 'round.

However, I agree with you. If the TPA has elected to be responsible for investment activities, such as the changing of allocations, etc., then unless they have an agreement with the Sponsor regarding who picks up the tab when a mistake is made BY THEM - a 3 day window seems unreasonable. Especially since they have a history of making mistakes and particularly because it leaves a damaged participant out in the cold.

If the TPA has decided to remove themselves from liability (except for that first 3 days), that is fine ---- but now it speaks to a different level of service.

Perhaps a 30 day window is more palatable. Sounds like it may serve you well to question the Sponsor's awareness of this fact and suggest they consider comparing other TPA's.

By the way - no confirmation - did I understand that right .... ? (ahem)

Without commenting on whether language of the kind described above is or isn’t effective to limit a recordkeeper’s liability to any person, it doesn’t limit the plan fiduciary’s liability to the plan, which could include a personal liability to restore an affected participant’s plan account.

Beyond a duty to do the right thing for the plan and its participants, a fiduciary who cares about his or her personal liability might want to negotiate service contracts that get the best mix of services, fees, and other terms in the plan’s interests, which could also help lessen the fiduciary’s personal liability.

The question the fiduciaries should be asking themselves is how they justify (in court if it comes to that) continuing to do business with a TPA that has told them they will not be responsible for the accuracy of the work they do.