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SponsorNews - February, 2017

Managing a Plan Vendor Change


Annemarie Keehn, ERPA, QPA, QKA | Plan Conversions | April 6, 2015

Whatever the reason to consider a change, once the decision is made to move the plan to a new recordkeeper, the plan sponsor must understand the process for implementing and managing the transfer and the timing requirements for the various notices that are used to communicate the change to the plan participants.

What Will Happen Once I Hire the New Recordkeeper?

The new vendor will assign an Implementation Manager to your account. That person will be your main contact during the transition. You will need to send a letter to the current vendor to inform them of the upcoming plan transfer. Normally, the Implementation Manager at the new vendor will provide a template that you can use for this notification that will include instructions to the current vendor on how to wire the funds and transmit the electronic participant records to the new vendor. Make sure that you prepare and forward this transfer letter promptly, as the timing of the transfer will start when the current vendor gets this notification. The current vendor and the new vendor will work together to determine the exact timing of the future transfer of plan assets and participant records.

Blackout Notice

Once the asset transfer dates are determined, the Implementation Manager will prepare a Blackout Notice for your plan participants. The Blackout Notice advises the participants of exactly when on-line access to accounts at the current vendor will cease; when the assets will be liquidated and transferred; and a projected date on when the entire transfer will be completed and on-line participant account access granted at the new vendor. The Notice will also provide details on exactly how the assets will be transferred from the current investment options into the new investment options. This is often done by a “mapping” strategy where all of the money from Fund A at the current vendor is transferred to Fund B at the new vendor, etc. or through reenrollment of all participants into an approved Qualified Default Investment Alternative (QDIA), like a Target Date Series. This entire time period is referred to as the “blackout period”. The Blackout Notice must be given to participants AT LEAST 30 days prior to the time that participant access to the current vendor is terminated. During the blackout period, no distributions or loans may be processed. The new vendor will normally tell the plan sponsor to hold any participant contribution files during this period, as well, until the vendor has the participant records loaded onto their system and can then process the contribution files according to the new participant investment elections.

Employee Education Meetings

Prior to or during the blackout period, the plan sponsor will want to schedule meetings with the employees to make them aware of the upcoming transfer. Usually, a representative from the new recordkeeper as well as the plan’s financial advisor will conduct these meetings and will explain the changes to the employees and also provide them with the paperwork needed to enroll in the investment selections that are available at the new vendor.

Other Required Notices

The new recordkeeper will prepare a Participant Fee Disclosure Notice, which explains the investments available in the plan and the expense ratios for the investments, as well any transactional fees that the participants may be charged. The recordkeeper or financial advisor will also prepare a Qualified Default Investment Alternative (QDIA) Notice that describes where the participant’s money will be invested in the absence of an affirmative election. These Notices need to be provided to the plan participants as soon as possible.

Setting up the Plan at the New Recordkeeper

If there is an outside Third Party Administrator (TPA) for the plan, the TPA will be instrumental in assisting the new recordkeeper in setting up the plan parameters on the recordkeeping system. The new recordkeeper will give the TPA a written or on-line form to complete that describes the important provisions of the retirement plan – eligibility requirements, contribution options, vesting schedules, distribution rules, etc. The TPA will discuss the plan provisions with the plan sponsor to see if any changes to the plan are desired, and then will communicate the final plan design to the new recordkeeper.

The new recordkeeper may ask the plan sponsor for a file of participant census information.   This file, along with the completed participant investment forms, will be used to create the participant accounts on the recordkeeping system so that when the first contribution file is uploaded by the plan sponsor, the accounts are open and ready to receive and invest the money.

Account Reconciliation

Once the plan assets and participant records are transferred to the new recordkeeper, the process of reconciling all of the plan information begins. The plan sponsor should go on-line to the previous vendor’s website and download a year-to-date trust report, which will show the participant account balances at the beginning of the plan year, all activity during the year (contributions, distributions, loan payments, interest, etc.) and the transfer out, with a final ending balance of “zero”. This report should be given as soon as possible to the TPA. The TPA will use this report to compare the balances immediately prior to the transfer to the balances that are reflected on the new recordkeeping system immediately after the transfer, to make sure all money is accounted for and in the correct participant accounts. The TPA will work with the new recordkeeper to ensure that the correct vesting information has been set up on the recordkeeping system, that any loans have been set up correctly, and that any historical plan information – for hardship available withdrawals; Roth contribution basis; etc – has been loaded correctly into the new system.   Contribution files will be loaded for any contributions that were being held during the blackout period. Once the TPA, plan sponsor and recordkeeper are sure that the plan is set up properly and all money has been reconciled and accounted for, the plan will be taken out of blackout and participants will be given access to their accounts. Participants will be able to start requesting loans and distributions. The entire blackout period timing will vary, depending on the vendors involved and how quickly files and assets can be transferred, but typically a blackout period lasts 2-3 weeks.

In Summary

Changing a plan provider can be a stressful and time consuming process. Due diligence must be exercised when considering replacing a plan provider, and once the decision is made to implement a change, the plan sponsor must commit to being 100% engaged in the transition. All parties involved in the plan administration must be onboard with the changes that are being made. Many times, the owner of the company or a high level executive will make the decision to change a recordkeeper, and will not include the actual day-to-day plan administrator at the company in the decision. Then when that day-to-day plan contact starts receiving requests for information, they are overwhelmed by what is happening (and occasionally uncooperative as a result) and upset that their input was never considered. The timing of the decision to change recordkeepers is very important. If the company has a particular time of year when key plan decision makers are more busy, it is NOT a good idea to schedule a plan transfer during that time period.


Don’t misunderstand when plan recordkeepers tell you that the plan transfer will be “seamless”. This is often misinterpreted by the plan sponsor as “you don’t need to do anything, it will all just magically happen”. That is never the case. The plan sponsor must stay engaged during the entire transfer process with the new recordkeeper and the outside TPA. This means completing requested paperwork, being committed to attending weekly conference calls during the transition and providing needed plan reports, census information, etc. in a timely manner when asked.


Administering a company retirement plan is an important responsibility. Plan sponsors must carefully review the plan providers and must always make decisions that are in the best interest of the plan participants. If it is determined that a change in the plan recordkeeper is prudent, careful planning prior to the plan transfer and diligent monitoring during the transfer process can result in a much smoother transition. Having an outside TPA assist with overseeing the process, answer questions and provide guidance throughout the transition can ease the burden for the plan sponsor and help to ensure timely and accurate completion of the transfer.







6 ways the DOL says its fiduciary rule is new, improved

Introducing the best interest contract exemption

Apr 14, 2015 | By BenefitsPro staff

The fiduciary standard proposal released Tuesday is, according to the Labor department, an improvement upon a 2010 version in a number of ways. Here’s how, in the DOL’s own words, as detailed in an agency FAQ:

  1. Provides a new, broad, principles-based exemption that can accommodate and adapt to the broad range of evolving business practices. Industry commenters emphasized that the existing exemptions are too rigid and prescriptive, leading to a patchwork of exemptions narrowly tailored to meet specific business practices and unable to adapt to changing conditions. Drawing on these and other comments, the best interest contract exemption represents an unprecedented departure from the Department’s approach to PTEs over the past 40 years. Its broad and principles-based approach is intended to streamline compliance and give industry the flexibility to figure out how to serve their clients’ best interest.
  2. Includes other new, broad exemptions. For example, the new principal transactions exemption also adopts a principles-based approach. And DOL is asking for comments on whether the final regulatory package should include a new exemption for advice to invest in the lowest-fee products in a given product class, that is even more streamlined than the best interest contract exemption.
  3. Includes a carve-out from fiduciary status for providing investment education to IRA owners, and not just to plan sponsors and plan participants as under the 2010 proposal. It also updates the definition of education to include retirement planning and lifetime income information. In addition, the proposal strengthens consumer protections by classifying materials that reference specific products that the consumer should consider buying as advice.
  4. Determines who is a fiduciary based not on title, but rather the advice rendered. The 2010 rule proposed that anyone who was already a fiduciary under ERISA for other reasons or who was an investment adviser under federal securities laws would be an investment advice fiduciary. Consistent with the functional test for determining fiduciary status under ERISA, the proposal looks not at the title but rather whether the person is providing retirement investment advice.
  5. Limits the seller’s carve-out to sales pitches to large plan fiduciaries with financial expertise. This responds to comments that differentiating investment advice from sales pitches in the context of investment products is very difficult and, unless the advice recipient is a financial expert, the carve-out would create a loophole that would fail to protect investors.              
  6. Excludes valuations or appraisals of the stock held by employee stock ownership plans from the definition of fiduciary investment advice. The proposed rule clarifies that such appraisals do not constitute retirement investment advice subject to a fiduciary standard. DOL may put forth a separate regulatory proposal to clarify the applicable law for ESOP appraisals.


5 Misconceptions about Sponsoring a 401(k) Plan

As a business owner, you have likely considered sponsoring a 401(k) plan for you and your employees. Yet, there is something holding you back from doing so.

When we ask employers why they hesitate, we hear many reasons. Whatever the reason, it usually stems from a lack of understanding of 401(k) plans.

Let’s put the top five misconceptions about sponsoring a 401(k) plan to rest.


Misconception 1) The 401(k) plan would not benefit me, the business owner.

False; it may benefit you the most!

A well-designed 401(k) plan can offer the greatest benefits to the business owner(s) when demographics work in your favor. A good third-party administrator (TPA) will employ a creative plan design that may allow the owners to receive the larger percentage of plan contributions.

401(k) plans also benefit business owners by reducing their current income tax liability. Plan contributions, whether on behalf of themselves, other owners, or staff, are tax deductible up to a certain limit. Nothing like turning tax dollars into retirement benefits!


Misconception 2) I already save for my retirement in an IRA; why do I need a 401(k) plan?

Higher contributions!

It is great that you are funding an IRA because that means you understand the importance of saving for your retirement. Unfortunately, annual contributions to an IRA are capped at $5,500 in 2015 ($6,500 for those 50 and above).

401(k) plans permit far greater contributions. The maximum amount that any eligible participant can defer annually to a 401(k) plan in 2015 is $18,000 ($24,000 for those 50 and above).

401(k) plans can allow for profit sharing and/or matching features as well, meaning employer contributions can be made in addition to 401(k) deferrals. The maximum amount which can be allocated to any one participant, including the 401(k) deferrals, is the lesser of 100% of the participant’s compensation or $53,000 ($59,000 for those 50 and above) in 2015.


Misconception 3) A 401(k) plan is going to be too costly for me.

Costs are offset by income tax savings.

401(k) “costs” come from two general sources:

Employer contributions paid to eligible employees, and

Fees paid to service providers.

  1. Employer contributions paid to eligible employees

With a good plan design, a 401(k) plan may allocate a majority of the contributions to the owners while minimizing contributions to employees. However, don’t forget that offering a 401(k) plan helps attract and retain good employees. Keeping good employees far outweighs the costs of contributions made on their behalf to the 401(k) plan. Finally, remember, plan contributions are tax deductible.

  1. Fees paid to service providers

There are costs associated with sponsoring a retirement plan. It is very important to work with your team of advisors to find the right services and products that will provide for a successful plan and offer the greatest value for the cost. A business owner can deduct the expenses as a business expense, or the expenses can be passed through and paid for by the participants.


Misconception 4) I don’t know what my profits will look like in 2-3 years, so I shouldn’t offer a 401(k)/profit sharing plan.

Contributions can be optional!

For employers in a cyclical industry where it is hard to predict future profits, fear not! Contributions to a 401(k)/profit sharing plan can be easily budgeted, discretionary, and determined at the end of each plan year. So if you have a bad year, you are not obligated to make profit sharing contributions.


Misconception 5) My competitors don’t offer their employees a 401(k) plan; why should I?

That’s exactly why you should offer one!

A 401(k) plan is a fabulous tool for attracting and retaining quality employees. If your competitors do not offer a 401(k), but you do, your firm can become a magnet for top talent. And as we all know, top-notch employees fuel profitability.

401(k) plans are extremely flexible and can be designed to fit the needs of a wide variety of firms. To discover if your firm can benefit from a 401(k) plan, contact Retirement Solutions.





Rules for electronic disclosure of plan documents

Keith R. McMurdy

APR 30, 2015

4:47pm ET

It seems that everyone has a smart phone or a tablet and I can’t think of anyone I know who does not have internet access at home. Consequently, plan sponsors ask all the time if they can just e-mail plan documents to employees to satisfy the notice requirements, or maybe just post new plan documents on the company intranet. Well, the recent decision in Thomas v. CIGNA (E.D.N.Y.) serves as a reminder that the short answer to that question is no.

Factually, the case involves an on a claim for benefits. A plan participant had life insurance through her employer’s ERISA plan. She ultimately became disabled and stopped working or paying premiums. When she passed away, her beneficiaries made a claim for life insurance benefits which the insurer denied because, although the coverage allowed premium waivers for disability, the participant had not timely requested a premium waiver and thus was not covered when she died.

Of course the beneficiaries sued, claiming that the premium waiver requirements had not been appropriately communicated to the participant due to inadequate summary plan description (SPD) distribution. Guess what? The court held that there was no evidence that the plan administrator had provided the participant with an SPD. While the new SPD was available electronically, the company never sent notices out that the document was available. Plus, there was no evidence that new SPDs were furnished in any manner other than intranet posting.

There are actually rules that govern electronic disclosure of plan documents. If employees have work-related computer access, ERISA disclosures may be delivered electronically, or posted on the intranet, if the employees have the ability to effectively access documents furnished in electronic form at any location where the employee is reasonably expected to perform his duties, and are expected to have access to the employer’s electronic information as an integral part of those duties. It is not enough that they have access somewhere at work or have access at a common location (like a break room). Accessing the computer has to be an actual requirement for their job function.

Documents can still be sent to employees and beneficiaries without work-related access to a computer as long as additional requirements are met. The employer or plan administrator must first obtain a consent form signed by the employee or beneficiary that specifically states the following:

  • The names or types of documents to which the consent applies
  • A sentence stating that consent can be withdrawn at any time without charge
  • An e-mail address where the employee will be able to receive future announcements and/or documents if sent by e-mail
  • The procedures for updating the e-mail address used for receipt of electronically furnished documents
  • The procedures for withdrawing consent
  • The right to request and obtain a printed version of an electronically furnished document and, if there is a charge for the printed document, how much it will cost.
  • The computer hardware or software needed to access and download the electronically delivered documents.
  • If the plan administrator changes the hardware or software requirements, it must provide a new notice and obtain a new consent.

Without this consent, electronically providing documents is not sufficient. Hard copies have to be provided.

But don’t forget this case. Even if documents are provided electronically, notifications must be sent either in electronic or paper form to each employee or beneficiary at the time a document is provided electronically explaining the significance of the document and that the participant’s right to request a paper copy. You can’t just send an e-mail and say “here it is.” Likewise, you can’t just post a document on the intranet and not alert everyone. And unless you have consents, you can’t say that you satisfied the delivery obligation to employees who don’t have regular access to a computer at work.

So if you want to distribute plan documents electronically you can. But you have to follow the rules. Don’t assume intranet posting is enough because it is not.





Finding Lost Participants: Best practices from the new DOL guidance


by Whitney Coppinger


The Department of Labor (DOL) released guidance August 2014, Field Advisory Bulletin 2014-1 (FAB 2014-1), directing terminating defined contribution plan sponsors on how to find lost participants. While this guidance is focused on terminating plans, it can be useful for ongoing plans as well. FAB 2014-1 replaces the outdated FAB 2004-2, issued 10 years ago, with little difference other than to recognize the elimination of the Internal Revenue Service (IRS) and Social Security Administration’s (SSA) letter forwarding programs. According to the federal government, Internet search technologies have developed to the point where the IRS and SSA letter forwarding programs are no longer necessary. In FAB 2014-1, the DOL details the minimum steps a fiduciary must take to find lost participants, and the additional steps a fiduciary must consider if the lost participants are not found in the previous steps. The guidance also provides options for resolving the participants’ accounts once the fiduciary has passed steps one and two.

A lesson in fiduciary responsibility

Under the requirement of the Employee Retirement Income Security Act (ERISA), a fiduciary must “act prudently and solely in the interest of the plan’s participants and beneficiaries.”1 Abiding by this obligation of prudence and loyalty, plan fiduciaries must make reasonable efforts to locate missing participants in order to receive directions on making plan distributions to the participants or beneficiaries.

Required search protocols

The following four steps are the minimum a fiduciary must do in every situation. The plan fiduciary cannot abandon efforts to find a missing participant until all activities have been completed. Failure to follow these steps is a breach of fiduciary duty.

  1. Send a notice by Certified Mail. Certified Mail, offered by the United States Postal Service and other mail services, allows the sender proof of mailing via a mailing receipt and, upon request, electronic verification that an article was delivered.
  2. Check related plan and employer records. Checking with related plan or employer records, such as a group health plan, may present some privacy or HIPPA violation fears; to avoid this, the plan fiduciary can request that the employer or the fiduciary of the related plan contact or forward a letter to the missing participant. This letter would request the missing participant contact the terminating plan’s fiduciary.
  3. Check with the participant’s named beneficiary. If the participant has a named beneficiary on file, the fiduciary should contact him or her. If the beneficiary has a concern about the missing participant’s privacy, the same principle as above is applied. The plan fiduciary may request the beneficiary forward a letter requesting the missing participant contact the plan.
  4. Use free Internet search tools. These tools include search engines, public record databases, obituaries, and social media sites.


Best Practice Tip: To minimize litigation risk and maximize procedural due diligence, document all attempts to reach the participant.


Additional search protocols

If the fiduciary does not find the missing participant during the required search steps, the fiduciary must consider additional search methods that may involve fees, such as the following:

  • Fee based Internet search services
  • Commercial locator services
  • Credit reporting agencies
  • Information brokers
  • Investigative services

The fiduciary is required to consider these steps using a cost benefit analysis. This means keeping adequate records demonstrating that a cost benefit analysis was performed and it was the basis for the decision to pursue or not pursue a particular approach. The costs associated with some of these methods, such as hiring a private investigator, would only be reasonable for large account balances, while the costs for others, such as fee based internet search services, are relatively low. The additional costs associated with these search methods (as well as the minimum required methods) can be charged to the lost participant’s account.

Best Practice Tip: Establish, in advance, a written administrative policy for dealing with lost participants with various account sizes.

Distribution options

If the sponsor of a terminated plan cannot locate a missing participant, the fiduciary must select an appropriate distribution option. The DOL’s preferred method is to rollover the benefit into an individual retirement account (IRA). It is preferred because it preserves the balance, allows the balance to continue to grow tax-free, and income taxes are not paid until funds are withdrawn. The choice of an IRA requires good fiduciary judgment; a fiduciary must choose a trustee as well as the initial investment. To protect fiduciaries, automatic rollover safe harbor rules apply. If a willing or suitable IRA provider cannot be located, one of the following two options should be considered:

  1. establishing a federally insured interest bearing bank account in the participant’s name;
  2. transferring the benefit to a state unclaimed property fund.2

The bank account and unclaimed property fund options are secondary because they subject the missing participant’s account balance to income taxes, mandatory withholding taxes, and possible early distribution taxes. Before making a decision, the fiduciary should weigh the impact of interest rates and bank fees as well as the possible taxation. The fiduciary should document that all of the negative consequences, including both the tax consequences and fees, were taken into account as part of the distribution decision.

Once the fiduciary properly distributes the entire benefit to which the missing participant is entitled, the individual is no longer a participant of the plan and the distributed assets are no longer covered by ERISA. However, if the distributed benefit is reduced due to a fiduciary breach, the participant would still have standing to sue the breaching fiduciary under ERISA.

In perspective

The best practice for lost participants is to avoid having them. Plan sponsors and fiduciaries can help lessen the burden of finding lost participants by following these tips:

  • Periodically scrub the data to identify potential terminations, update the database, and send out a distribution kit.
  • Do searches immediately when mail is returned. The longer a participant is missing, the harder he or she will be to find.
  • Maintain alternate points of contact, such as a home address, a business address, and an email address.
  • Institute programs to encourage participants to update address information regularly.

For more information, contact your consultant.