If you are considering changing 401(k) plan providers, there are a number of things to do and consider before making the move. Plan sponsors should treat this transition with the same care and planning that they would devote to any change in their business.
Work with a professional
While it may sound self-serving, unless your benefits people are experts in the 401(k) provider space, you will want to work with an expert in evaluating your plan’s needs and determining what a new provider will provide in terms of administration and an investment platform, if applicable.
Generally your plan advisor is a go-to resource to serve as your consultant in this transition.
Review your current provider
The first step is to do a thorough review of your current provider to determine what they do well and where improvements can be made. This review should include areas like:
- Fees and expenses. Keeping fees and expenses paid by plan participants as low as possible is a key fiduciary responsibility that falls on the plan sponsor’s shoulders.
- Investment performance. Are the investments offered performing within an established criteria relative to their peers?
- Service levels. Is the plan recordkeeper providing the level of administrative service you expect both to plan participants and to you as the sponsor?
- Compliance support. Is your current provider meeting the plan’s needs in areas like non-discrimination testing and all required filings such as 5500s? Do they act as a fiduciary in this role?
Be clear on why you are seeking a new provider
Your review of the current provider should lead you to the reasons why you are seeking a new provider. This review might also lead you to determine that a good first step might be to voice your concerns to your current provider and to see if there are ways to resolve any issues you might be having with them.
There may be any number of reasons that lead you to believe that a new provider is the best solution for your participants. The important thing is that you have a clear idea of why you are searching for a new provider and what criteria you will use in making the decision.
The search process
It’s important that you and your plan consultant develop a search methodology. This might include a formal request for proposal (RFP) for larger plans, developing a set of questions might be sufficient for a smaller plan.
Once you have done your diligence on various providers you will want to review their responses to the RFP or your questionnaire and your own observations to come to a decision.
Plan the transition
Once you’ve chosen a new provider, it’s important that you plan the transition to ensure minimal disruption for your participants.
This means coordinating what needs to be done in leaving your old provider and the timing of when the plan assets will port over, and new participant contributions will start.
You will also need to coordinate with both providers to ensure that all compliance related tasks for the year are done and that nothing falls through the cracks. This can include the annual 5500 filing requirements, discrimination testing and other tasks.
Key parts of the transition process include:
- Transferring plan assets from the old provider to the new provider.
- Ensure that a new plan document is prepared. This can be a good time to review your old plan document and to make any changes that might be needed.
- Select the new investment lineup for the plan.
- Ensure that all plan participants are properly enrolled with the new provider.
- Communicate the features and benefits offered by the new provider to your plan participants.
Changing 401(k) plan providers can be a complex process. You will want to have your plan advisor or consultant take a leadership role in this process.
Most importantly, treat this process as you would any other business decision. Have a plan, including a decision-making process. If you decide to move the plan, be sure to do the transition in an orderly fashion to ensure that no critical tasks are missed and that your participants feel well informed.