MOVING YOUR PLAN?

IT’S CRUCIAL YOU DO IT RIGHT

Perhaps you’re seeking a lower fee structure—especially now that new disclosure requirements have exposed how much your employee benefit plan is paying for the services your plan vendor provides. Or maybe there’s been a change in your plan’s demographics or participant needs. Or it could just be that your corporate guidelines mandate a plan vendor rotation every so often.

Regardless of the reason you seek to change your plan’s record keeper, trustee, or custodian, you face an increased risk of error if the change isn’t managed properly. As a result, if you’re debating a change in vendors for your benefit plan, it’s important to consider the potential risks to both the plan and its participants.

It’s also important to remember that the plan sponsor (the employer) has a fiduciary responsibility to ensure that the change is monitored and performed properly. Plan assets aren’t guaranteed by any federal agency, and the plan sponsor is liable if assets or earnings on assets are lost. Let’s take a brief look at the steps involved in a vendor change, pitfalls to look out for, and how you can help smooth the transition.

WHAT COULD GO WRONG?

Whenever there’s change, there’s potential for error.

Here are some common issues to look out for:

• Beginning participant or overall plan asset balances at the successor vendor don’t agree with ending balances from the predecessor vendor’s auditor.
• Amounts transferred aren’t mapped to the proper investments.
• Participant contributions aren’t remitted in a timely manner to the successor vendor, which could be deemed a nonexempt prohibited transaction under ERISA Section 406.
• Reconciliations aren’t completed, and differences are noted several months later during the audit.
• One of the vendors fails to provide the “limited scope certification,” if applicable, for the period of time it held the investments, thus resulting in the need for a generally more costly “full scope” audit.
• The plan administrator’s designated representative fails to go through the plan provisions, line by line, to ensure the same provisions were elected, in which case the sponsor could be administering benefits not in accordance with the plan document.

WHAT CAN PLAN SPONSORS DO TO EASE THE TRANSITION?

In performing their due diligence, those charged with governance (generally members of management and benefits committee members) should discuss why the change is needed and ensure final decisions are documented in formal committee minutes. Designate a point person to monitor the transition from start to finish. This person will be responsible for all communications with vendors, participants, and management.

To document the process, create a timeline illustrating how the plan assets will be transferred from one plan to the other. Often the new record keeper will assist with this if the request is made during the planning phase of the transition.

WE’RE HERE TO HELP

Changing plan vendors can be a complex and time-consuming undertaking, but it doesn’t have to be a risky one. Adequate planning and monitoring can result in a smooth transition. For questions about employee benefit plan vendor transition—either as you plan for it or as you go through the process—contact Anchor Bay Capital, Inc.’s employee benefit plan professional.