What Plan Sponsors Need to Know About Changing Retirement Plan Providers

As a responsible plan sponsor, you may occasionally wonder if there’s a different retirement plan provider that’s more beneficial to your employees and your organization. Before you do any legwork, and certainly before you make any decisions, it’s important to formulate a game plan because no two plan providers are exactly alike, and there are no “cookie cutter” solutions. 

First things first

Before considering other providers, carefully review your current situation. Clearly identify and understand why you’re unhappy with your plan and its services, as well as the improvements you’re looking for going forward.

While your list of negatives might include something along the lines of “costs too much,” do not let the bottom line number fool you into thinking that paying less is getting more. Comparing plan providers based exclusively on fees does not provide a clear snapshot of what you’re getting for the money.

Selection criteria

Instead of shopping on price, find out what each of the prospective plan providers offers in terms of:

●     Fee amounts and structure

●     Plan sponsor and participant customer experience and support

●     Services and design features

●     Fiduciary support

●     Investment options

●     Financial Advisor support

Making the conversion

Perhaps your research reveals it’s time to make a change. Now what? Like most things, switching plan providers isn’t quite as easy as it may appear:

Understand your provider’s transfer process and fees.

When a plan sponsor decides to transfer a plan they will be required to review and complete paperwork on their current plan to share between the old and new providers.  There may also be a surrender fee, or transfer/termination fee the plan sponsor may be obligated to pay in order to make the transition to a new provider.  

Going beyond changing providers.

As part of the provider change, a plan sponsor may decide to make changes to the plan design.  Most documents allow changes to the plan provisions to be made at any time.  However, these changes usually require plan amendments.  Some changes may be subject to regulatory and notice requirements before becoming effective.  The plan sponsor should have conversations with the old and new services about anticipated plan design changes to determine if there are any issues.    

Timing is everything.

Along with the fees related to the switch, it’s imperative that plan sponsors understand the parameters around timing. Changes in plan design must align with the changes to the plan document.  Investment changes may have to be timed with notice and “black out” period requirements. The timing of the transition of compliance testing from one service provider to another should be established. 

Keep employees in the loop.

Plan sponsors are under no obligation to consult with or receive approval from employees to switch retirement plans providers. However, in keeping with the spirit of being a partner in their retirement journey, it’s advisable to educate participants about the transition and set expectations about its potential impact. Sharing as much information as possible prior to the switch will make it easier for everyone.

Plan sponsors can arrive at the decision to change retirement plan providers for any number of reasons. But, at the end of the day, you want to do what’s best for your business and your employees. You’ll feel better about the outcome if you make sure you’ve done your due diligence and kept the big picture in mind. 

Understanding your responsibilities up front can help in the decision making process. Click the button below to download your free copy of A Plan Sponsor’s Fiduciary Playbook.