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401k Plan Conversion Becomes Opportunity to Update Participant Data

401k Plan Conversion Becomes Opportunity to Update Participant Data

401k Plan Conversions are never simple.  Changing Recordkeepers, adding Investment choices or switching Plan Advisors usually consumes more time than plan fiduciaries anticipate.  However, there can be great opportunities that surface during a 401k plan conversion.

At the conclusion of a TPSU program held at the location of Loyola University in the Baltimore, Maryland area, Fred Barstein, Founder and CEO of The Plan Sponsor University (TPSU), met with Janet, the Chief Financial Officer of an organization that employs approximately 25 individuals.  Janet recently managed the conversion of Recordkeepers when her firm moved from a 403b plan to a 401k plan.

Janet explains that she and her organization had made the decision to move from the 403b plan structure to the 401k plan.  The timing was the same as when other structural changes were occurring at her firm.  They looked at the changes as a great opportunity to update beneficiary forms, up-date participant addresses and tighten-up the investment choices for all plan participants.  Thus, Janet offers a different way to approach the workload associated with a plan conversion.  Some good can arise out of every 401k plan conversion!

Full Transcript Here

Fred:
This is Fred Barstein with 401k TV. I am here in Baltimore, or just outside, at Loyola University where we just completed a TPSU program. And I’m here with Janet. Welcome, Janet.

Janet:
Welcome, thank you. Thank you for having me.

Fred:
Okay if I ask you a few questions today?

Janet:
Absolutely.

Fred:
Thank you. So before we do, a little bit about the size of your organization and your role.

Janet:
Okay. The organization I work for is a nonprofit organization. We’re about 25 employees and I’m the CFO.

Fred:
CFO. OK, great. So one of the things you said you went through is you went from a 403b to a 401k, why did you do that?

Janet:
It was very important for us to do it because we had downsized the organization, so in terms of the number of employees that we had, decreased significantly and therefore our 403b plan required an annual audit, which the number of employees that we currently had at that time, did not match up with the actual number of … Contract that we had in the 403b plan, which is making us to be susceptible to the audit.

Fred:
So you had an huge expense with you.

Janet:
We had a huge expense for the audit.

Fred:
Right. And then you had all these different contracts too, in the 403b, you said?

Janet:
Yes, we had different contracts because many of our terminated employees remained … The asset still remained on our books.

Fred:
Right.

Janet:
Many of them did not transfer to their current employers, so we kind of have to be responsible for every aspect of maintaining the-

Fred:
Keep track of the asset.

Janet:
Keep track of the asset.

Fred:
Was a lot of work to make the change?

Janet:
It was a lot of work. Number one, we had to make sure that we track those employees that had the contract with us and many of them have gone, the information that we had on them were … We couldn’t reach them, some of them had passed on and so we had to depend on [inaudible 00:02:04]. One of the things we learned today was updating the beneficiary sheet, which, at that time, was not quite the way it should be. So that was one of the challenges that we went through.

Fred:
Sure, sure. So now is it good? Was it worth it?

Janet:
Now it’s good. The process was very … Detailing was very stressful, but now that we fully converted the 403b plan into the 401k plan, I think that we have a better understanding of who we’re dealing with, what we’re dealing with and we believe we have a better handle.

Fred:
Right. And also one of the things … I don’t know if you know the 403b plans can’t use collective trusts, 401k can and the collective trust are tending to be … Could be much less expensive than a mutual fund. So now you can get collective trust, so you should ask your advisor about that.

Janet:
Yeah, definitely. I will follow up on that.

Fred:
Yeah. So just a couple of things you learned here that you may want to implement when you go back to the office.

Janet:
One great thing, many of course, not just one, but I think on top of my list is the importance of updating the beneficiary sheet, because without that … That’s really not good for the employees, it’s not good for the employer, it wouldn’t showcase that we are doing our own housekeeping, which was one good thing that I learned. The other piece that I learned is about being fiduciarily responsible for the plan. I feel that there’s gap in our knowledge or our preparedness to step up to that role, and I think this conference is really, really helpful, it’s an eye-opener.

Janet:
I would encourage anyone that’s already doing it to just sit back and pause. What did you really know? We learned about cyber security and, today, how information can easily be taken away and the employer would be responsible. So, this is just the beginning for me and I know that we have layers of layers of knowledge to acquire as we go on.

Janet:
Yes. Very good. Well, well put. Thank you, Janet. I know why I picked you for the video now.

Fred:
Thank you.

Janet:
Thank you. And thank you for watching 401k TV. Please stay tuned.

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