PSNC 2015: Plan Transitions

What are the best practices when your plan starts the process of transitioning to a new recordkeeper?

For his firm, which has a high concentration of 403(b) plan clients, plan transitions to a new recordkeeper follow from a request for proposals (RFP), said Michael Sanders, principal, of Cammack Retirement Group, at the 2015 PLANSPONSOR National Conference in Chicago. Relevant information has to be communicated effectively—and according to the plan’s specific goals—from the start of that process. What will the change mean for participants and the plan—is it a big deal, a non-event, an upgrade? Establish that early, he said, and design from the outset what it will look like.

There are a few ways to implement plan change. According to Jason Chepenik, managing partner, Chepenik Financial, a plan transition follows from the decision to “blow things up and start all over again.” To explain what that means for participants, he suggests hosting mandatory meetings, but only after the plan goes live. The “blackout” period is the most stressful time for participants, he said. It usually lasts less than two weeks, he said, but plan sponsors are required to give a 30-day notice. Plan sponsors should wait until after participants have had a chance to see the changes and interact with the plan before hosting a Q-and-A.

For these meetings, find out who the population’s “champion” is. If everyone is going to turn to that person for his input, get him or her on your side to be an advocate, Chepenik said. Also have plan leaders speak about why they enrolled and what their plans are, he suggested, Give your participants something new to focus on, and keep their attention on the positive changes, such as the addition of a Roth option, for example. This is not the time to stretch your match, he warned, but putting in automatic features should go over well. Make the most of this opportunity to “right the ship,” he said, and don’t over-communicate how to opt out.

In general, he pointed out, most people don’t know a lot about the plan, but sponsors can still protect themselves by hosting meetings to discuss active vs. passive and “to” vs. “through” investment decisions, and show how those decisions were made. Avoiding or going through with a plan transition is “not about upsetting people,” Chepenik said, but getting as many people as possible on the path to success. Less than 5% will want to opt out, he predicted, but those that do can make that decision for themselves, while the majority of your population ends up in a stronger retirement plan. “You see a lot more thank-yous than negatives.”

Participants likely do not know what they’re paying, Sanders added. Show people that you’re saving them money, and include projections over time, to direct the tone of the conversation. And make sure to use your own branding, not your vendor’s.

NEXT: Potential pitfalls. 

Almost every time his firm has the plan transition conversation, Sanders said, it starts with the client saying “this is not for us.” Ultimately, though, they will come around. “You have to treat these things as projects,” he said, and set up meetings and establish a commitment to the process from the outset.

Also, you have to plan for things going wrong. “Discuss the major risks associated with not making decisions” when obstacles come up, he continued. A lack of upfront planning and not having a project plan in place can lead to major setbacks along the way.

Timing is also a factor, Chepenik said. The most common time to do a transition is January 1, which can make that the worst time for a smaller plan. Vendors are far better than they used to be, he said, but an August date may be better for someone who needs top-talent attention that might otherwise be directed to larger projects.