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Looking to change your retirement plan recordkeeper in time for the new year? Be sure to give yourself enough time to work through the kinks to allow for a smooth switchover.

Employer strategies

The Keys to Changing Retirement Recordkeepers

  • John Stiglich
  • 9/24/2019

October is the time of year when plan sponsors who aren’t happy with their current retirement recordkeeper need to decide if they’re going to make a switch. While changing plan recordkeepers is often viewed as long and arduous, it doesn’t have to be. A little planning and a thorough understanding of the process can help create a smooth conversion.

What to know before converting

First, it’s important to understand that a large number of retirement plans convert to a new recordkeeper at the beginning of the year. Most plan sponsors with a calendar plan year request a January 1 conversion date, meaning the volume of activity in December and January is at its peak.

Because recordkeepers have a limited number of resources on their conversion teams, they often allocate more resources to new plans coming onto their platform than to those that are leaving. It’s important to understand that the retirement plan’s current recordkeeper selects the de-conversion or conversion date, so the plan sponsor must follow the timeline determined by the recordkeeper they are leaving. That said, most recordkeepers, especially the large ones, set reasonable conversion timelines. And in the later part of the year, that usually means that the conversion request needs to be in the queue by October 1 for a January 1 conversion.

Factors impacting the conversion timeline

There are a lot of factors that affect the amount of time it takes to complete a full conversion. Here are some of the most common things you’ll want to be aware of.

Retirement plan size

Depending on the size of the retirement plan, the conversion process can take from eight weeks to nine months.

  • Small plans with assets up to $50 million: 8 – 12 weeks
  • Mid-sized plans with assets between $50 million and $200 million: 14 – 20 weeks
  • Large plans with assets in excess of $200 million: 5 – 9 months

It is imperative that the plan sponsor understands what a reasonable timeframe looks like up front. There are no real shortcuts or ways to drastically reduce these timelines.

Payroll integration

One of the key factors to consider when determining the appropriate timeline for a retirement plan conversion is payroll integration. Many of the advanced retirement planning and financial wellness tools implemented by recordkeepers are dependent on getting accurate payroll and census data on employees for each pay period.

The most efficient means of transmitting this data is either through a 180 or 360 degree payroll integration. However, not all payroll providers offer partial or full integration with recordkeeping platforms. So, often a decision needs to be made by the plan sponsor about whether a payroll staff member will manually transmit the payroll data to the recordkeeper, or if they will engage a new payroll vendor with the full integration capabilities. This decision should be made before steps are taken to switch recordkeepers.

Number of locations

The number of physical locations occupied by the plan sponsor can also complicate a recordkeeping conversion. Plan sponsors should ask themselves the following questions and plan accordingly: Does each location submit payroll data on its own payroll cycle? Will the funding source be a local bank or the plan sponsor’s master account?

Brokerage window

Another plan feature we’ve seen cause a lot of trouble for plan sponsors during a conversion is the option for participants to have a brokerage window. This feature allows plan participants to transfer their account balance to a brokerage account within the plan and purchase a variety of investments other than those in the plan’s core lineup.

Conversions involving a brokerage window option are especially difficult if the plan uses multiple custodians. In these cases, plan sponsors need to make sure the assets will transfer in kind and that the new custodian can hold the assets. It is also important to know if the new recordkeeper will place any limitations on these accounts. Some will require a certain percentage of the participant’s accounts to be invested in the core lineup.

In many cases, getting money into and out of the brokerage window is a two-step process. During the conversion process, the contributions will flow to the participant’s core account. Then the participant will have to log on to the recordkeeper’s website and process a transfer to the brokerage window. The same process works in reverse when a participant wants to transfer money into the core account or take a distribution.

How we can help

All in all, the best way for a plan sponsor to mitigate any issues when changing recordkeepers is to identify and resolve the peculiarities in their plan’s features, make sure their payroll system integrates with the new recordkeeper, and allow ample time for the conversion to take place.

CLA can analyze your retirement plan and recommend recordkeepers that will meet the needs of your plan and manage the conversion process for you. And our employee benefit professionals can review your plan, identify areas where you may be at risk, and provide recommendations for improvement along with suggestions to help your employees reach their goals.

  • John Stiglich
  • Principal
  • CLA Joliet
  • CliftonLarsonAllen Wealth Advisors, LLC