(b)lines Ask the Experts – Plan Administration after Consolidating Vendors

Michael A. Webb, Vice President, Retirement Services, Cammack LaRhette Consulting, answered:    

Yes, the Experts are guilty as charged in emphasizing the coordination of vendor data for loan and distribution purposes, since this is one of greatest challenges that multiple-vendor plan sponsors face! But you are quite correct that there are other significant issues that should be addressed in a situation where inactive vendors are present in a plan.   

One such issue would be the continued migration of assets from inactive to active vendors, to be addressed by examining contract provisions to indicate which inactive contracts contain termination provisions, and exercising these provisions where prudent to do so. Though older contracts often do not permit a plan sponsor to transfer all contract assets to a new vendor without participant consent, contract termination might trigger provisions that might persuade individual participants to transfer funds on their own. Such provisions include formal notification to participants that a contract has been terminated or suspension of certain contractual provisions, such as the ability to borrow under the contract.   

Minimizing assets that exists in inactive vendor contracts will minimized the complicated administrative and fiduciary issues associated with such contracts.   

As a related issue, we indicated that such plan sponsors should also look to eliminate provisions from inactive contracts, such as loans, that require coordination. Finally, all contracts should be reviewed to determine if they are eligible for grandfathering from inclusion as plan assets for either IRS and/or DoL purposes, as administration is greatly facilitated for contracts that are not part of the plan for IRS purposes or not part of plan assets for purposes of certain DoL reporting requirements.