How a Texas Fund Scrambled for a Recordkeeper

October 11, 2001 ( - For every news story about yet another provider exiting the recordkeeping business, there are dozens of plan sponsor clients nervously guessing the future of their services.

In one case, the recordkeeping consolidation led to a mad scramble by the Employee’s Retirement System of Texas (ERS) to find a new administrator in record time. What takes most plans at least six months if not a year, the Texas ERS accomplished in less than three months.


ERS launched its search three weeks after receiving notice that its recordkeeper, Security First Group (SFG) Benefits, a division of MetLife, was exiting the recordkeeping business. Leslie Kjellstrand, ERS communications manager, says SFG told ERS back in February that a reorganization of MetLife’s resources made its exit necessary. SFG discontinued its operations altogether within three months.

Texas’ $579 million 401(k) plan covers 52,000 participants and its new $56.3 million 457 plan covers about 4500 participants. The old 457 which is still managed by ERS, has $244.8 million in assets and covers about 9000 participants.

Since 1992 SFG had been performing recordkeeping services for ERS’s 401(k) plan called Texa$aver. ERS began overseeing the administrator in 1993; formerly the Comptroller conducted this duty. In 2000, SFG took over administration of the ERS’ new 457 program and ERS provided new investment choices for both plans at that time.

Participants can choose from 13 investment options: a stable value account, a self-directed brokerage account through Charles Schwab and 11 mutual funds ranging from low to high risk which include a money market fund, two bond funds, a domestic hybrid, five domestic equity funds and two foreign equity funds.

RFI for Speed

Kjellstrand says that to expedite the search process, ERS issued a RFI instead of a RFP. “The RFP process is lengthy,” she added.

Joe Golson, director of benefit contracts for ERS, headed the search process. He says the most challenging part of the task was the time frame ERS was working with.

“We were notified that SFG would be leaving the recordkeeping business as of June 30, 2001,” he says. “This meant we had to get a new TPA in place, go through the selection process, start the review and get into transition. We wanted to have the new recordkeeper in place with some leeway before SFG’s offices closed.”
Besides this, Golson says ERS’s strenuous minimum requirements eliminated some of the likely players.

“We wanted a [recordkeeper] who had experience with large governmental plans and with 457 plans,” continued Golson. “Also, in Texas the law will not allow a recordkeeper to provide services to a plan if they have core options offered through it. The purpose of this is to eliminate anyone from steering participants towards their own proprietary products. And, we didn’t want anyone to have the perception that who we chose would try to do this.”

Because of these prerequisites, Golson says ERS received three responses from CitiStreet, Great-West and Nationwide.

Focus on Transition

Kjellstrand continued that a few types of services were important to ERS, namely member education, good access to funds and services, good customer relations, accurate recordkeeping and faster processing of loans, not to mention a good relationship with the company.

“The transition of all the records and cleanup of member records, the new focus on electronic enrollment and transfers etc., and the need for new beneficiary forms for most participants, [were all challenges]” she says.

Ultimately, CitiStreet won the business because Kjellstrand says, “ERS believed CitiStreet could provide the best services and could make the transition best to continue the two plans for Texas.”

Yet, Golson says that the entire process was “heavy”. Bids were due by March 31, 2001 and ERS’ board made a decision on April 4. However, after CitiStreet was chosen, the pace of the process picked up. While the live date was set for June 18, Citistreet’s call center was open to participants on May 15. Additionally, CitiStreet’s call center and Web site were accessible to ERS’ participants.

Good Advice

Today, some areas of the two plans are still in transition, but Kjellstrand says the response from ERS’ participants has been positive.

“Most participants feel they have easier access through the web and IVR to their funds,” says Kjellstrand. “The market has not been kind to anyone during this program transition, so that people are worried about their fund accounts, not because of CitiStreet, but because of the market. Some participants still have money in SFG products, but these accounts are being transferred to the new products in stages.”

Golson adds that sponsors who embark on a similar situation should begin their task knowing what is important to them.

“We wanted someone capable of performing the job,” he says. “We didn’t want to find someone who was capable but couldn’t deal with the size of our plan either. You may have to go through the process in a hurry but you have to cover all the bases. Make sure your contracts are in place and make sure the vendor is doing what they say they can do.”

– Nicole Halsey        

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