If you have a 401(k) plan then you already know that it is a proven and powerful benefit for you and your employees. It can be a retention tool for your business, and give employees the ability to save for their future and think about what retirement looks like for them.
If you have a plan in place and you are benchmarking costs, you may find it useful to transfer your plan to a new provider. Choosing a retirement plan provider can be a very educational experience. Many of them provide reliable services, but pricing and customer service vary a lot, and it’s difficult to understand and analyze them.
Once that provider is chosen, you’ll need to keep an eye on the details during the transfer process.
Before Transferring Your 401(k) Plan
Review your plan details and expectations with the new provider to ensure everything is in line.
Is my plan bundled or unbundled? Your new provider will need to understand whether you have a separate recordkeeper and Third Party Administrator (TPA), or whether a single provider does both roles.
TPAs manage the plan documents and test the plan each year to make sure it is compliant with the IRS regulations.
Recordkeepers manage the assets/investments of the plan and provide the platform your employees will use to access their balances and make changes.
What kind of provisions are in my plan document?
What is the process of transferring my plan to the new provider? The new provider should set expectations about how the process will work and give you an idea of the timeline.
Once these details are reviewed, your new provider will review your current plan provisions, establish the plan on the new platform, and begin onboarding. This sets the stage for the first contributions entering the new 401(k) platform.
Asset Transfer
There are a few strategies that are commonly used to transfer assets. These include:
Liquidation and re-enrollment: The current assets are liquidated out of the market and wired to the new provider. Employees must re-enroll on the new platform, and select their deferral rates, investments, and beneficiaries.
Mapping of assets: In this strategy, money still is liquidated and leaves the market but the deferral rates, beneficiaries, and assets are mapped over using a predetermined strategy. Sometimes the assets are put into what is called a Qualified Default Investment Alternative (QDIA).
In-kind: Money does not leave the market in this strategy, and the investments are essentially switched over to the new provider. This is the least common strategy because several variables can cause complications or disallow the process entirely.
The most common strategy is to liquidate and re-enroll, as this also encourages employees to reconsider their current elections and allows them to get used to the new platform.
Once your new provider settles on transfer dates with your prior provider, some important dates will be established.
Blackout date: The projected 30-day window during assets will be transferred and allocated. Changes are not allowed during this period.
Liquidation date: The date which assets leave the market.
Wire date: The date which the assets are wired to the new provider.
Keep in mind that during the blackout period, your new provider will be working with your old provider to receive final files so that all the account balances can be made current in the new system. It takes time to do this accurately, so the 30-day window is critical, and important to keep in mind. Your new provider should work to lift this window as soon as possible. Once assets are allocated, your employees should see their current balances in the new system.
Blackout notices must be sent 30 days prior to the blackout date to meet DOL regulations. Your new provider should assist with providing these notices either to you or to your employees directly.
Choose Wisely and Worry Less
401GO has proven and streamlined systems for ensuring smooth plan transfers. A dedicated implementation team is assigned to support every plan transfer and maintain contact for good communication.
The process of switching retirement plan providers can feel daunting at first, but if you have chosen your new provider wisely, they will help you every step of the way.
