Plan sponsors have a lot of questions and moving parts when 401k and 403b record keepers and even advisors are changed. But rarely does the company they consider questions that employees might have. U.S. News & World Report details the top six questions defined contribution (DC) plan participants might ask when record keepers changes are made.
More common that record keeper changes, which are usually less than 5% of DC plans annually, are changes to the advisor which is 12% each year according to the 2017 TPSU/NAPA Plan Sponsor Survey – Fidelity reports that 23% of plans are likely to switch advisors driven by fiduciary concerns over the DOL conflict of interest rule and the rash of lawsuits.
Question # 1: Why?
It’s important for plan sponsors to be transparent about the reasons for the provider change whether advisor or record keeper along with their qualifications to maintain trust. Otherwise, employees might assume that the company is just looking to spend less money and cut retirement benefits.
Question # 2: Investment Options?
How were the new investments selected? Because so much money is put into professionally managed accounts like target date funds (TDFs) or managed accounts, focus on these investments along with capital preservation funds like stable value or money market. Alarms might go off if there are too many proprietary funds managed by the new record keeper, especially if performance is poor and fees are high.
Question # 3: Potential Glitches?
Most common issue is transferring funds. Has the full balance been transferred?
Question # 4: Dates?
What are the blackout periods and when will balances be transferred? Are there other date changes involving eligibility, enrollment or vesting?
Question # 5: Communications?
Will there be employee meetings to explain changes and dates?
Question # 6: Beneficiary Forms?
Often the old provider will not automatically transfer beneficiary information so participants may need to fill out new forms.
Other common questions? What are the fees and are they reasonable? Providers are required to send DC plan sponsors participant fee information under 404a5 similar to plan sponsor disclosure data under 408b2. 401k and 403b plan sponsors should also spell out any plan design changes like auto-escalation or amendments to the company match.
Next up – question that might come up when the DC plan advisor is changed.
