Summary paragraph: How to efficiently convert to a new recordkeeper
No one ever said switching recordkeepers was painless. The process can take an average of 90 days; there are blackout periods to consider, plan design changes, participant communications and more. But a conversion can be less complicated than plan sponsors might fear-if they do it the right way. And the right way requires extreme organization from all parties involved: the sponsor, adviser, new recordkeeper and existing recordkeeper.
"It's an art and a science," says Jason Chepenik, managing partner of Chepenik Financial in Winter Park, Florida. "So, in that moment of moving over, [the plan sponsor] really needs to make sure it has the right transition team. And that requires detailed organization."
Plan sponsors could think of a successful conversion as a puzzle composed of four critical elements: planning, communication, education and information, says Ray Bellucci, senior managing director and head of TIAA's institutional client solutions in Denver. "Open dialogue and high engagement throughout ensures a much smoother process," he says.
Jim Phillips, president of Retirement Resources in Peabody, Massachusetts, says that once the decision is made to switch recordkeepers-whether by choice or due to provider consolidation-planning and meeting deadlines is "completely essential" for a successful conversion. "Some conversions go very poorly, and, [with] others, it's just a wonderful, reinvigorating experience," he says.
When voluntarily switching recordkeepers, plan sponsors must first submit requests for proposals (RFPs) to find a provider that is a good fit for the plan type, the plan's makeup and its vision for the future. Plan sponsors that go through a conversion should be open to changes that extend beyond cost or administrative duties, Chepenik says. "Plans that are the most successful have the courage to try something new," he says. "As an adviser, I'm looking not just to save money but to improve [participant] outcomes."
Although three months for a conversion is about average, there is no "normal" length of time. "The timeline depends on the unique situation of each client, including the size and scope of the conversion," Bellucci says.
LyndaSue Miller, vice president of data and reporting at Prudential Retirement in Woodbridge, New Jersey, considers a recordkeeping conversion to have three phases: discovery, setup and testing, and execution. Below is a rundown of what to expect during each phase.
Phase One: Discovery
During the discovery phase, the new recordkeeper gains an understanding of the current plan design and what the plan sponsor wants to accomplish, then agrees on a conversion timeline. Tonya Douglas, senior vice president of implementation at Fidelity Investments in Westlake, Texas, says her company also follows these three basic phases when converting a plan and often refers to the first phase as "discovery and planning." These three stages have overlapping time periods, practically speaking, she adds. In the discovery phase, which she says can last about one to one-and-a-half months, her firm learns about the client and discusses ideas and best practices for the plan's future. The firm takes a consultative approach and treats every implementation as an opportunity to create the best plan sponsor and participant experience. "We really look under the hood together," Douglas says.
First things first, plan sponsors should choose when they want to convert the plan, working with the new recordkeeper to establish which dates are best. Prudential offers a number of conversion time slots throughout the year and will not book beyond capacity. "Once those are filled, we work to select another date," Miller says. "We don't want to overbook resources."
Plan sponsors should involve colleagues in the conversion as early as possible, to discuss their role-before and through the decisionmaking process, Bellucci says. "This could involve everything from obtaining access to IT [information technology] and payroll to working with legal counsel on plan documents to having third-party consultants or their board consult on the finalized investment menus," he says.
The new recordkeeper should send the plan sponsor a timeline of the steps needed to convert a retirement plan, and it is up to the plan sponsor to pay close attention to deadlines. The sponsor should also read through the existing recordkeeper agreement and see if there is a required notice period for changing providers, Phillips says. Not only is it essential for the plan sponsor to communicate with the new recordkeeper early on, but also it is important for the new and existing recordkeepers to speak.
Recordkeepers typically have "de-conversion specialists" assigned to a plan to help close it, Phillips says. This specialist will speak with the conversion specialist in the new plan, and the sponsor and adviser should be on the call when the two parties formulate a timeline. That way, they can be in the loop should any scheduling conflicts arise.
During the discovery phase, plan sponsors can determine plan changes they would like to make. This is a good time, for example, to change the plan's match formula or investment options, or add a feature such as automatic enrollment. Plan sponsors might opt to change investment offerings when they convert to a new recordkeeper if the investments in the old plan are not supported by the new recordkeeper's platform or if the sponsor decides to change investments approaches, Chepenik says.
While it is theoretically possible that a plan would move to a new recordkeeper and change no investments at all, Phillips says he has never seen this scenario. "We like to give everybody a fresh start," he adds.
Two problems during this step can delay the entire process, says Chepenik. First, the plan sponsor either misses the recordkeeper's deadline for deciding on plan design changes or, secondly, the sponsor decides on the plan changes without consulting the company executives, then the two parties disagree and must revisit the conversation. "You need a commitment from leadership," he says.
The majority of conversions run on-time, Douglas says, but she agrees that delays mainly occur because of investment decisions.
Occasionally, a plan sponsor requests a service outside of the recordkeeper's offering, which also has the potential to delay the conversion process. "It may or may not impact the timing of the transition," Miller says. "It depends on the request-in most cases, when the recordkeeper agrees to do something outside the offering, it does its best to deliver within the agreed upon transition date and/or review all the options with the plan sponsor, including any potential impact to timing so an informed decision can be made."
Phase Two: Setup and Testing
The second phase is all about testing and is composed of data gathering and analysis-it can take about a month, according to Douglas. Experts agree that thorough data is essential for enjoying a seamless transition and preparing the plan for the future. "Data is the lifeblood for successful retirement plans," Miller says. "All roads lead back to the data."
Prudential assigns an implementation manager during a recordkeeping transition, as well as a data manager who gathers details about the plan and tests the data for possible complications. For example, a plan may perform automatic enrollment without knowing participants' hire dates, so participants may get notifications too late to enroll before deadlines. Plan sponsors should feel comfortable working with the new recordkeeper to untangle these complications and understand that the more data they provide, the better off their plan will be down the road.
"We've pretty much seen every data complication, and we have solutions to address them," Miller says.
At Prudential, the data manager forms an ongoing relationship with the plan sponsor and stays in the picture after the onboarding process. He asks the sponsor what it would like to see in the plan, both now and in the future, and collects data based on these requests. Plan sponsors do not have to remedy all data issues before transitioning to a new recordkeeper, Miller says, but the data manager will alert them of the necessary changes during this phase.
At this time, sponsors should also make sure required notices, including those related to blackout periods, are being prepared for both eligible and terminated employees. Douglas notes that document preparation occurs in the discovery phase, but the actual sending of notifications can happen in either the discovery or testing phase, or both. During a blackout period, when participants cannot access their account, the original provider runs a final tally on how much each participant has invested. This usually lasts three to four business days, but some plans may even have a weekend blackout period, Miller says.
In accordance with the Sarbanes-Oxley Act of 2002, plan sponsors are required to send out blackout notices to affected participants and beneficiaries at least 30 days before the period. These notices contain important information such as the reason for the blackout, the expected duration of the blackout and which investments are affected.
If the plan is changing investment providers, the assets are sold and the proceeds wired to the new provider where they are typically reinvested in similar funds, in a process called mapping. Participants' new account data is forwarded to the recordkeeper. When the data is entered into the new provider's computer system, the plan goes live and the blackout ends.
Plan sponsors should also check with their existing and new recordkeepers about how they handle settlement/transaction confirmations during the blackout period. The documents should make it clear that the participants' funds have been transferred to a new provider; otherwise, participants may think their funds no longer exist. It is the plan sponsor's responsibility to ensure that the existing and new recordkeepers have coordinated sending these documents, Phillips says.
In addition, plan sponsors need to communicate with the old and new recordkeepers, confirming which will file the Form 5500.
In general, preparing and sending documents can take about two to three weeks, Chepenik says.
Prior to the actual execution of the conversion, sponsors should also prepare participant meeting details, including the format that meetings will take and what content will be covered. Participant communications are normally accomplished across multiple phases beginning with discovery, with a delivery schedule that aligns to regulatory notification requirements and participant choice deadlines, Douglas says.
As part of the conversion process, Prudential assigns a communication director to the plan to gain an understanding of the culture and the company values.
"It's a selling job," Phillips says. "It's a matter of creating that excitement and convincing participants, 'Wow, this really is better.' And it's also good to get those other people on board who haven't participated yet."
After all, it is human nature to stick with what is familiar, so participants may be disappointed to have to navigate a new recordkeeper's website and get used to other changes a conversion may cause. "To figure out how to communicate in the language that's most easily received could take a few weeks at least to build, and then releasing the information over a period of another six weeks is a nice way to let the changes sink in," Phillips says.
To ensure employees are comfortable with and understand the changes, TIAA sets up a call center to drive best employee-outcomes, Bellucci says.
Phase Three: Execution
The third phase of a conversion is the actual execution, in which assets and loan balances are transferred, all accounts are reconciled and the plan goes live with the new recordkeeper.
During the transition to a new recordkeeper, Prudential provides participants an informational website that enables them to review communication in a central hub. The company has a call center available in addition to the website, Miller says.
Prudential also creates a website for the plan sponsor to find all conversion information in one central location and be able to consolidate and control all email communications regarding contract negotiations and project plans. Fidelity sends a comprehensive brochure to participants listing all necessary information and sends an announcement welcoming participants to the new plan once the conversion is complete.
If your company is considering a conversion or is in the midst of one, remember that none will be completely smooth sailing. But stellar organization and communication can ensure the entire process runs efficiently and that participants are better off for the change in the end.