Changing retirement plan providers sounds straightforward. Move from Provider A to Provider B, transfer the assets, and you’re done. But anyone who’s actually been through the process knows it’s rarely that simple.
More plans are making the switch these days, moving from their existing third-party administrators or bundled providers to new service partners. The Plan Sponsor Council of America (PSCA) recently spotlighted a webinar from Brian Furgala, Senior Director of Retirement Services Strategy at PenChecks, who examined what’s driving these transitions and identified several critical areas where plan sponsors and their new providers need to pay close attention. His points are worth understanding before you sign that new provider contract.
Start with compensation. It seems basic, but mismatches between plan document exclusions and actual operations cause headaches. Can your new plan document handle deferral exclusions for bonuses the way your current operations do? What about fringe benefits? These details matter because getting them wrong means correcting them later, often expensively.
Roth deferrals deserve a hard look too. If your prospective provider doesn’t offer them, you might want to reconsider. The 2026 catch-up contribution changes will require high earners to make catch-up contributions on a Roth basis. If your plan doesn’t support Roth now, you’ll be scrambling to add it soon anyway.
The matching contribution structure affects your flexibility more than you might think. Discretionary matching gives employers room to adjust when needed. Fixed matches don’t. Non-elective contributions need clear rules about whether they’re pro-rata or allocated differently across employee groups. These choices shape how your plan works for years.
Vesting schedules require careful thought during transitions. Mr. Furgala specifically cautioned about graded vesting arrangements, where benefits vest incrementally over time. Whatever vesting approach you choose, make sure it’s intentional and properly documented.
Distribution timing is another area that needs clarity upfront. Will you process in-service distributions as soon as practicable, or only after year-end? What about distributions at retirement age? Different providers handle these differently, and participants notice when their money isn’t available when they expect it.
Protected benefits can’t be reduced. You can’t decrease accrued benefits or eliminate optional distribution forms. But some benefits aren’t protected. Ancillary benefits like loan availability, investment direction rights, and certain investment types can be changed. Know which is which before you make promises you can’t keep.
Form 5500 compliance carries over to your new provider. The EIN must match. Participant counts need to be accurate. You’ll need to verify whether an audit is required and ensure plan codes are correct. Late contribution issues don’t disappear with a provider change. Neither does your fidelity bond requirement.
Finally, participating employers must sign joinder agreements. This includes related employers. Skip this step, and you’ve got a correctable error that’s easier to prevent than fix.
Provider changes can improve your plan, but only when you handle the transition carefully. Understanding these issues before you make the move protects you, your new provider, and most importantly, your participants.
