YOU HAVE FOUND OUR OLD WEB SITE. BE SURE TO CHECK OUT OUR NEW AND IMPROVED SITE!     My View on Proposed Legislation to Amend Teacher Retirement System of Texas (SB 1243)   by David K. Young, MPA, CEBS     Note: this is a follow up to $50 of Hanky Panky Proposed for Texas 403(b) Plans   My Background My firm David K. Young, Consulting is a Texas-based consulting firm specializing in employee benefits and compensation issues. The firm provides third party administration (TPA) services for Section 125/Cafeteria plans and pension plans. In addition to these services, the firm works in general human resource consulting covering areas such as policy and practices, employee communications, and compliance. DKY provides fee-based benefit expertise to its clients as well as insurance agents, stock brokerage firms, CPAs, and law firms not only in Texas but in other states including New York.   Frustration with Current Texas TPA Laws My frustration comes from prospective clients and existing clients being led to believe they can receive something for free (often advertised as: 100 percent Free TPA/Administration Service), and receive the same quality of service they would receive from a fee-based TPA. It has been my experience over the past 16 to 17 years that the vast majority of those who thought they would get proper administrative service did not. What I have seen is that in the long run, they are often out of compliance, and I am without a client.   Benefits I See From SB 1243 It would allow me to compete on a level playing field by stopping the sale of products by insurance agents who in turn split commissions with TPAs who provide administrative services "for free" to employer clients. You may ask, how would this proposed legislation help the consumer while helping me as a fee based TPA? I see it as stopping the practice of rebating the cost of TPA services by insurance agents and/or insurance companies for administrative services that have a determinable value. The rebating by an insurance agent of something of value over $20 to the purchaser of insurance products from the agent selling the insurance product, has long been prohibited by insurance regulations in many states. This practice can result in products being chosen simply because of the return of something of value with little regard to the quality of the products being sold to the consumer. It would appear to me that one goal of SB 1243 is directed at the educational institution vs. the insurance agent to gain the educational institution's cooperation with the State in the enforcement of the rebating laws. In past conversations with the State Board of Insurance of Texas TPA Unit Manager about the practice of providing free administration service in return for opportunity to sell a product or products, it was his hope and suggestion for new legislation centered around gaining the cooperation of ISDs in the enforcement rebating laws.   As a Certified Employee Benefit Specialist I have spent considerable time and money educating and informing myself of the rules and regulations relating to employee benefits, so that I can hopefully help my clients to meet the requirements of the regulations. I am far from perfect, but at least I am in it to provide TPA services for a fee, not to sell insurance and/or investment products. My income and profits are mostly derived from the fees I charge, not insurance commissions.   I further see it helping the consumer by preventing insurance agents from setting up TPAs for the sole purpose of selling their products when they may not be qualified to provide administrative services due to a lack of experience or expertise. For example, I recently took over a large ISD (Independent School District) that had one of these types of TPAs "administering" a 403(b) program at the ISD. The ISD apparently had been allowing retiring participants to rollover the value of unused sick days into the 403(b) program. One particular person had an accumulated value of $33,000 that he wanted to rollover into the 403(b) upon retirement. Of course this exceeds the 402(g) (contribution) limits, not to mention the fact the ISD does not have a formal 401(a) plan that specifically allows for the rollover of sick days. In addition to this, part of the old MEA (Maximum Exclusion Allowance) rules exclude sick pay as includable compensation. That part of the definition of compensation for the purposes of deferring salary into a 403(b) was not written out of the regulations when the MEA rules were dropped (beginning in 2002). The ISD payroll department and administration was totally unaware of this, and it had been allowed by the former TPAs to follow the practice of rolling over sick day. This has been going on for years. The TPA before my takeover of the plan did not even understand the need to have a salary reduction agreement as required by Section 403(b). Meaning: they had allowed salary deferrals to begin with verbal requests to the TPA or the payroll department. The consumer of products under these kinds of examples could be seriously hurt should the IRS discover these practices in an audit.   It is my hope that SB 1243 would put out of business those TPAs who lack expertise in administering employee benefit plans. These types of TPAs that I am speaking of are those that are mainly interested in selling insurance products as opposed to justifying and obtaining a fee for their services. I would hope it would also put out of business supplemental insurance company home offices that assign low wage clerks to do the daily administration of employee benefit programs who don't seem to know the difference between Sections 125, 403(b), 401(k), 457, 401(a) and Sections 415, 402(g) 410(b) 401(m), etc are all about.   David K. Young, MPA, CEBS, is the sole proprietor of David K. Young, Consulting.   Home | Disclaimer | © 2001-2003 bWise Guys, LLC. All rights reserved.