By Laurie C. Wieder
Are you ready for a change to your 401(k) plan . . . but concerned that moving from one service provider to another may be too daunting a task to take on? Working with a knowledgeable advisor and vendors who have well-defined onboarding processes can reward plan sponsors and participants with a better retirement plan.
The following points can help you better understand the conversion process to determine whether a prospective provider is up to the task of smoothly onboarding your plan.
- Understanding Service Providers – Whether you are changing one vendor or hiring a new team, it’s important to understand the role of each provider. Your advisor should be knowledgeable in plan conversions and committed to guiding you through each step. Whether your plan is “bundled” – meaning a single service provider acts as both recordkeeper and Third Party Administrator and interfaces with a custodian – or whether you are hiring a separate recordkeeper and/or Third Party Administrator, any proposed vendor should describe their onboarding process to your satisfaction. Ask for a timeline and probe to clarify how vendors will manage the process for you.
- Contract Signing – How easy will it be for you to understand and complete the service agreements? Preparation of these documents, which often are lengthy, can be eased by a briefer questionnaire that gathers such information as company and ownership information, plan assets, number of participants and current plan vendors. The new vendor can then populate the agreement(s). Vendors should allow at least three days for your review before signing.
- Your Role in Providing Information – Your most important task is providing an accurate census of all employees and any terminated employees with remaining balances. Your new recordkeeper will request personal information; dates of hire, termination and re-hire; hourly and/or salary pay; current deferral rates; and more. Your recordkeeper will set up accounts for all participants and should notify you as employees become eligible to participate as well as calculate vesting for participants who terminate. Your effort in compiling this data allows your recordkeeper to assist you with compliant plan administration.
- Transitioning from Current Vendors – Your new vendors should assist you in terminating current relationships by providing you with letters that inform them of discontinuation of service. Often, the new vendor will send the letter(s) on your behalf. Ask how a new recordkeeper will interface with your current provider to schedule the transfer of plan assets. If your plan year does not end before the conversion to a new Third Party Administrator, ask how the new vendor will obtain the year-to-date data to perform your annual plan testing and Form 5500 filing.
- What’s a Blackout? – When plan assets move from one recordkeeper to another, participants must be notified 30 days before the transfer. There is a blackout period during the transfer when participants cannot make investment changes or take loans or distributions. Assure that the new vendor will prepare the blackout notice and determine if they will send it out on your behalf, as many do. Ask how long plan assets will be in blackout and the recordkeeper’s timeline for reconciling accounts before lifting the blackout.
- Plan Investments – If you are hiring a new recordkeeper, you will likely need to change plan investments. Retail recordkeepers may require that you include their proprietary funds in your line-up, while independent recordkeepers will not. If a retail recordkeeper accepts non-proprietary funds, you will want to ask if they charge additional fees to participants who select them.
Also, consider the role of your plan advisor. The highest level of advisory service is that of an ERISA 3(38) Fiduciary Investment Manager. This plan fiduciary will act on your behalf to select the plan investments. This relieves you of potential liability for the investment selections and saves you time. Or, your advisor may serve in either a co-fiduciary or sales consultant role.
- Plan Design – A new Third Party Administrator likely will need to restate your plan using their prototype document. The TPA can adopt your plan without change after reviewing current plan documents and testing results, but ideally should interview you on your plan objectives and recommend potential improvements. Some changes may be made mid-year while others must wait until the next plan year. Your TPA can handle both types of changes through a restatement and amendments. Your TPA should also guide you in purchasing an ERISA bond.
- Enrolling Participants – You’ll want help to orient employees to the new plan once accounts have been set up but before assets have transferred. Your recordkeeper and TPA can help you identify and prepare necessary participant notifications. These can include all legally required notices including a Summary Plan Description as well as account log-in information and instructions on changing deferral rates and selecting plan investments. Ask how your recordkeeper will provide this information at enrollment and in the future; will they send information out on your behalf and/or provide you with copies? Ask your advisor for help in holding an Enrollment Meeting. It could be on-site or online and could be recorded for re-viewing. Best practices for an Enrollment Meeting include not only introducing investments but speaking about the importance of adequate savings to lead to a secure retirement.
Sponsors often wonder about the best time for a vendor change. With sophisticated providers and automated systems, a vendor change can be made smoothly at any time during the plan year. Considering the answers to your questions on the topics above can help you identify qualified vendors that can provide improvements to benefit you and your employees.
This blog is written to help make the lives of plan sponsors easier in the process of meeting legal requirements under ERISA and improving their defined contribution plans. Please understand that reading this blog should not alone take the place of a one-on-one consultation regarding the needs of your specific plan and hence cannot be a guarantee against fiduciary breaches.
Laurie Wieder is Vice President - Institutional Retirement Plan Specialist with Alliant Wealth Advisors. She consults with 401(k) plan sponsors on retirement plan best practices, particularly in the areas of strategic plan design, plan management and compliance. She backs her expertise as a retirement pan specialist with more than 30 years of experience as a consultant, business owner and organization executive.