Three things every adviser (and provider) wishes plan sponsors understood about recordkeeping conversions:
Everybody wants to change providers on January 1. Everybody can’t.
If your plan year end is December 31 (and it is, for the vast majority of plans), there are some real benefits to making a provider change at that point in time. Plan reporting—both participant and regulatory (Form 5500)—is quite simply neater when you finish the reporting year at the same time you conclude your arrangements with a provider. Anything else is going to require someone somewhere to “splice” together reports at some point. Doing so doesn’t have to be a big deal—but it can be “awkward.”
There are some reasons not to make those kinds of changes at year-end, of course. First off, there’s generally quite a queue wanting to do so. You may well be able to get in that queue, but your new provider will likely have their hands full with a lot of plans just like yours. More significantly, your soon-to-be-ex provider likely will as well—and guess who is likely to get the most/best attention?
Bear in mind also that a 1/1 change means that a lot of the preparation, review, and/or testing—not to mention participant communications—will happen during a time of the year when people are generally more inclined to be worrying about other things.
Your provider search will take longer than you think.
Human beings are, generally speaking, poor judges of time requirements, particularly on things they don’t have a lot experience with (like provider searches) and that require the involvement/input of committees (like provider searches). We tend to assume that we’ll have more time available for such things than actually winds up being the case, and we tend to assume that such things will take less time than they actually do. We also tend to make those types of assumptions about the participation of other members of the team. It’s not just that those assumptions tend to be optimistic, it’s that, all too frequently, they are wildly optimistic.
Your provider and/or adviser will likely make a good faith effort to provide a timetable of events, and will likely take pains to emphasize to you the amount of time it will take to actually conduct this process. Doubtless they will remind you—and remind you more than once—just how important it is that you make the time commitment—and deadlines—noted in that timetable.
My advice: Take whatever timetable they give you—and double it.
A big part of the reason your provider search will take longer than you think…is you.
Conversions generally involve providers—both new and soon-to-be-ex—and frequently involve an adviser in addition to the members of the employer team. Every one of these parties is, generally speaking, highly motivated to see the conversion take place. Now, one could argue that you, the plan sponsor, who set all this in motion, has as much motivation as anyone. However, the reality is that, unless you have some SERIOUS servicing issues, your motivation for change is probably somewhat less than the others.
Change, after all, is generally disruptive. A change of providers inevitably brings with it additional work, greater time commitments, and what sometimes feels like an incessant series of questions about things to which you never previously gave much thought. Moreover, you’ll have to think about how to communicate this change to your participants—and deal with the inevitable flurry of questions from THEM about how to do things to which THEY never previously gave much thought.
However, these realities are generally not top of mind when we enter into discussions about making a provider change. So, while the search is generally set forth on a wave of optimism and hope, it can, before long, find itself bogged down in the inevitable administrative minutia that consumes so much of a plan sponsor’s time. And the longer it takes, the worse it can become.
So, considering those issues, what should a plan sponsor thinking about making a provider change do? Well, I would suggest you start early, allow plenty of time for slippage in schedule, and be open to the possibility of making a mid-year change instead.
—Nevin E. Adams, JD