Careful planning can help make DC plan recordkeeper changes go smoothly: Segal
A change in recordkeepers can be a positive experience -- if you avoid certain pitfalls and follow some best practices, says Segal.
Defined contribution plan sponsors often select a new recordkeeper to improve service, cost-effectiveness or both. Although services have become more standardized, the process of moving from one recordkeeper to another is complex, according to benefits and HR consulting group Segal, parent company of Segal Marco Advisors. In a recent paper, Segal experts discuss challenges that might occur when changing recordkeepers, such as unexpected disruption to participant accounts, lengthy blackout periods, lost data, costly reconciliations and misunderstood communications are among the potential risks associated with a conversion. However, they say, these risks can be managed effectively through a well-developed transition plan.
Segal emphasizes several points related to creating a smooth and successful transition:
Clear sponsor vision. The plan sponsor should have a clearly articulated vision for the transition. Knowledgeable and experienced staff should be part of the transition team.
Clarify terms, concepts. A service transition is, in its simplest terms, an exchange of information and data with the newly selected recordkeeper. As part of this process, take care to ensure that the parties are “speaking the same language,” Segal says. Because terminology is unlikely to be uniform and individuals representing the new and former recordkeepers will have different points of reference, it is critical to have thorough conversations, define concepts and ask clarifying questions.
Create a timeline and don’t expect a short process. A transition period that is too short increases the likelihood of errors, because the parties will be rushed to meet unrealistic deadlines, Segal says. For large DC plans, a typical timeline may span six to nine months. This allows for a deliberate process. Timelines in that range have room to deal with both complexity and slippage in deadlines.
Allowing even more time may be helpful if plan changes are being made, such as introducing auto-enrollment, adding new services or instituting a customized communications campaign. The timelines should have critical milestones, responsible parties assigned to the specific tasks and progress stages to ensure the parties meet each requirement by the deadline.
Manage how best to communicate with plan participants. Most service providers have conducted hundreds, if not thousands, of transitions and have a general process and timeline for communicating with plan participants. That said, your input is critical in developing a communication plan that will work best for your participants.
Resist an aggressive blackout period. Given today’s expectation of instant information, the blackout period that will occur in any transition period can be unsettling for participants. Nevertheless, selecting a blackout period that ensures adequate transition time is better than being too aggressive. If the transition work is complete faster than expected, the plan can go live early.
For large plans, a three- or four-day blackout is typical, according to Segal. It usually can be arranged over a weekend to minimize the impact on participant’s’ ability to change their investments.
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