401(k) service providers are in the hot seat. Plan sponsors have a difficult job when they are requested to participate in a search for a new vendor-partner.
Nearly half of plan sponsors are considering switching to new 401(k) service providers this year and next, according to a recent Fidelity survey. All fine and well, but it’s important to know which services you’re switching, and how to successfully prepare for a smooth transition to a new provider.
Amy Ouelette, VP of Product at Vestwell, recently penned an article for Employee Benefit News on this topic. Vestwell is a retirement plan solutions provider for small businesses. Ms. Ouelette started by detailing the 401(k) service providers plan sponsors might be switching over to a new provider. These include:
- Nondiscrimination testing and government reporting: These are often managed together, and may be done in-house, or by a recordkeeper, third-party administrator (TPA), or accounting firm. The most important thing to keep in mind when transitioning these services to a new provider is timing, because the final plan year of testing and reporting by the current party and when those services will be completed matters. You’ll also need to determine what the new vendor needs from you, and when, to fulfill those obligations.
- Billing and documentation: You’ll need to know when your providers bill for their services, and when possible, try to line up the payments for the old and new providers so you aren’t paying for unnecessary services. In some cases, you may end up paying for both the old and new providers for a time, depending on when during the year you make the switch. As for documentation, be sure to pass on the past two to three years of compliance testing information to the new provider. This is also a great time to make sure all files are in order in case the plan gets audited.
- Recordkeeping: Getting the timing of the switch right is critical here, too, especially since it will be the most evident to your employees. It’s important to know when payroll transfers will take place, and where the money will be and when. Communicating to employees, and providing visuals that illustrate how their retirement savings are being transferred can help them feel more comfortable. Nailing down pre- and post-transfer documentation is also key to ensuring the conversion process goes smoothly before, during, and after the switch.
As Ms. Ouelette aptly pointed out, leaning on your plan’s advisor for support during this time can help. Be sure to carefully and thoroughly gather plan records before you lose access to your current providers. You never know what questions may come up in the future, and having those records in hand could save you a lot of headaches down the road.