Archived Insight | February 1, 2020

Changing DC Plan Recordkeepers Can Be Complex

The process of procuring defined contribution (DC) plan services is a significant undertaking that may result in a plan sponsor selecting a new recordkeeper as a means to improving service, cost-effectiveness or both. Although DC plan services have become more standardized over the years, the process of moving from one recordkeeper to another is complex. Risks associated with a conversion include the potential for unexpected disruption to participant accounts, lengthy blackout periods, lost data, costly reconciliations and misunderstood communications.

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Steps for successful implementation and management of risks

In our experience, it is important to consider the key areas that will drive success before undertaking a service transition:

  • Sponsor Involvement and Commitment — The DC plan sponsor should have a clearly articulated vision for the transition. Knowledgeable and experienced staff should be part of the transition team.
  • “Meeting of the Minds” — A service transition is, in its simplest terms, an exchange of information and data with the newly selected recordkeeper. As part of this process, care must be taken to ensure that the parties are “speaking the same language.” Because terminology is unlikely to be uniform and the individuals representing the new and former recordkeepers will have different points of reference, it is critical to have thorough conversations, define concepts and ask clarifying questions.
  • Reasonable Timeline with Critical Milestones — A transition period that is too short increases the likelihood of errors as the parties will be rushed to meet unrealistic deadlines. For large DC plans, a typical timeline may span from six to nine months. This allows for a deliberate process. Timelines in that range have room to deal with both complexity and slippage in deadlines. Allowing for even more time may be helpful if plan changes are being made, such as introducing auto-enrollment, adding new services (like managed accounts) or instituting a highly customized communications campaign. The timeline should have critical milestones, responsible parties assigned to the specific tasks and progress dates to ensure the parties meet each requirement by its deadline.
  • Participant Communications — Most service providers have conducted hundreds, if not thousands, of transitions and have a general process and timeline for communicating with plan participants. That said, your input is critical in developing a communication plan that will work best for your participants. As the plan sponsor, you play a pivotal role in identifying key audiences, messages and communication channels. You also need to ensure that all key stakeholders are aware of and understand the transition process as it will be communicated to participants.
  • The Blackout Period — Given today’s expectation of instant information, the blackout period that will occur in any transition period can be unsettling for participants. Nonetheless, selecting a blackout period that ensures adequate transition time is better than being too aggressive. If the transition work is completed faster than expected, the plan can go live early. That is infinitely better than not taking enough time and missing the go-live date communicated to participants. For large plans, a three or four-day blackout is typical. It can usually be arranged over a weekend to minimize the impact on participants’ ability to change their investments.
  • Vendor Consolidation — In a multi-vendor environment, fewer recordkeepers would likely make administration easier. It may make sense to consider reducing the number of vendors to a more manageable level and to use one as a master or lead administrator. Under this arrangement, one of the selected recordkeepers would serve as the single point of contact in areas like enrollment, contribution/distribution processing and limit monitoring. A master administrator can also consolidate information from all of the recordkeepers being used to provide a more comprehensive picture of the program.

Three critical components of painless recordkeeper transition

Every recordkeeper transition must have a project plan, an experienced team and a participant communications campaign. These core components are described briefly below.

Transition plan: Typically, the new recordkeeper takes the lead

As alluded to above, the transition plan is critically important. Generally, the incoming service provider, in consultation with the plan sponsor, prepares the transition plan. A thorough transition plan will:

  • Outline the roles and responsibilities of the various parties involved. These include the plan sponsor staff (including human resources, benefits administration and payroll) and its consultant, as well as representatives from the outgoing and incoming recordkeeper. As one would expect the outgoing “de-conversion” team is significantly smaller, but no less important, than the incoming service provider’s local and home office teams.
  • Define the many tasks that are involved and assign responsibilities for each task along with targeted time frames for completing each task.
  • Set the schedule for meetings and calls, including the kick-off meeting. A typical schedule will involve an ongoing weekly conference call of all parties to ensure the plan transition remains on track. Although weekly conference calls are important to keeping the process moving, periodic face-to-face meetings can add greatly to the future success of the client/service provider relationship.

Starting off on the right foot: What to cover in the kick-off meeting

We recommend an in-person kick-off meeting that covers the following:

  • Review the plan documents and guidelines.
  • Review the proposed transition plan. Confirm custom processes.
  • Identify issues any of the parties have.
  • Ensure complete buy-in from all of the internal parties involved.
  • Agree on how much time and what resources are needed for testing.

The transition team: expect a deep bench from the new recordkeeper; be prepared to provide administrative support; and include a de-conversion specialist

Because the incoming service provider is the primary driver for the transition process, at a minimum its team should include:

  • A primary plan contact or client relationship manager
  • A conversion specialist and various IT personnel
  • A communications manager, including a website specialist
  • A field services manager.

For a large plan’s transition, these core team members will lead various sub-teams. The DC plan sponsor should expect to meet, either in person or via conference calls, all of the team leaders and many members of the full team.

The DC plan sponsor needs to appoint at least one day-to-day administrative contact who will be designated as the plan’s “go-to” person. The responsibilities of that person or people are noted in the box below.

As the implementation process nears completion, the plan sponsor can expect to see new additions to the team. For example, field services may be covered initially by a home office or regional person. Later, that person might be supplemented by a local representative.

A DC plan recordkeeper transition requires a total team effort. The team must be flexible and fluid enough to address unexpected obstacles.

The outgoing service provider should provide a de-conversion specialist to aid in the successful transition. Typically, a de-conversion specialist focuses on “transitions out” and provides the central source of contact for all of the data, test files and plan documentation that the new recordkeeper will need. As you might expect, the outgoing recordkeeper will not be happy about losing your plan to a competitor. Do not expect them to drop everything to respond to “rush” requests for data files and other reports or information. This is why Segal recommends the use of the timeline and ongoing calls with all parties.

This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.

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