Recordkeeping Survey

State of the Industry

A Demanding Time

Sponsors can be cognizant of the pressures on their recordkeeper, while continuing to ensure their plan operates smoothly.

While recordkeepers are contending with various new issues related to the pandemic, they have also shown compassion for plan sponsors and participants, who feel the effects as well. From waiving fees to offering additional financial help, retirement plan recordkeepers, thirdparty administrators (TPAs) and financial wellness providers have all stepped up to assist plan sponsors and employees.
Still, operating during this time “places unfathomable strain” on recordkeepers’ business continuity plans (BCPs), say attorneys at The Wagner Law Group LLC in a blog post, “and creates new challenges for compliant operations.”

For one example, the Coronavirus Aid, Relief and Economic Security (CARES) Act created a new emergency retirement plan distribution option dubbed the coronavirus-related distribution, or CRD for short. A CRD may be drawn from a defined contribution (DC) plan or from an individual retirement account (IRA) in any amount up to $100,000. The law also doubled the size of the loan a participant may take: from $50,000 or 50% of one’s account balance, whichever is lower, to $100,000 or 100% of one’s account balance.

Recordkeepers offering volume submitter or master prototype plan documents will have to amend these plans and distribute a summary of material modifications to allow for CRD withdrawals, note the authors of the post, Stephen Wilkes, Kimberly Shaw Elliot and Seth Gaudreau. “Given the challenges to document execution and obtain signatures, the negative election process should be considered where available.”

Nathan Voris, senior managing director of business strategy for Schwab Retirement Plan Services in Cleveland, says 90% of Schwab plan sponsor clients have adopted CARES Act provisions, and of loans taken by participants since the act passed, approximately 10% of those loans were CARES Act loans. He confirms that a plan amendment is required, though points out that the act gives recordkeepers and plan sponsors until December 31, 2022, to add it.

“Some recordkeepers have used negative election and provided an extremely narrow window to make the necessary modifications for the CRD provisions,” says Paul Neuner, managing director and founding partner of Concurrent Advisors in San Diego; he observes that a negative election process is common among recordkeepers. “The narrow window to opt out [in this case] is largely due to timing and number of plans recordkeepers serve. If a sponsor desires to sign [the revised plan document], then it would be prudent for it to be in a conversation with the vendor.”

However, if sponsors run an individually designed plan, it is more prudent for them to get the signature, and it should be actual, vs. electronic, says Marcia Wagner, owner of The Wagner Law Group, in Boston. “With respect to the signature requirement, there’s a distinction between individually designed plans and standardized and nonstandardized plans. Only in very limited circumstances has the absence of a written signature been excused by the IRS in connection with an individually designed plan,” she observes. “Standardized and nonstandardized plans operate on a different basis. They will frequently provide a default version of a plan amendment, and, if the plan sponsor has no objections to the amendment, no further action is required.” 

Good recordkeepers will have trained their call center representatives to discuss loans, in-service withdrawals, COVID-19-related withdrawals and the consequences of each. They will also have the supervision in place to ensure their representatives provide education only, not advice, Wagner says. “The recordkeeper is in a better position to make the determination about adequate training than the plan sponsor,” she points out.

According to the writers of the blog post, some recordkeepers have had to deal with the closing of offshore call centers due to employees being ill or under quarantine. To handle the increased call volume, some recordkeepers have turned to a broker/dealer (B/D) firm that provides such services. Others may have redeployed staff from other departments.

Wherever such representatives are found, training is key. Newport has trained its call center representatives in how to answer participants’ questions about the current market volatility. “That training has enabled the reps to answer those questions efficiently and, thereby, lower call times,” says Laura Ramanis, chief  operating officer (COO) at Newport retirement services in San Francisco.

Neuner says asking recordkeepers about adequate staffing—particularly as call volumes have been spiking—is important for sponsors to do. “Plan sponsors should never have a ‘set it and forget it’ mindset as it relates to running a retirement plan, especially if the vendor is serving as a directed trustee,” he says.
“The sponsor should have regular checks and balances for various types of vendor activities.”

Like some other recordkeepers, The Standard has been able to handle the increase in call volume with its existing staff, says Joel Mee, senior director of retirement plan sales. However, for a short time, from the end of March through the beginning of April, the company temporarily brought on more workers.

Besides ensuring that their call centers operate smoothly, “[recordkeepers] should also confirm that all of their operations—e.g., investing, trading, investor relations, compliance, required recordkeeping—are functioning as anticipated under their business continuity plan, even if such functions are occurring remotely,” says the Wagner Law Group post.

Plan sponsors of course will wonder about the status of these operations. “While the existing agreement with the recordkeeper may not reference business continuity plans, it may contain a force majeure provision,” Wagner says. “That provision, in all likelihood, will not cover pandemics but may address generally how the recordkeeper is to respond in an emergency situation. The plan sponsor could inquire how the business continuity plan has been working and if there have been any glitches, but if it is informed that everything is working well, it probably has no further duty of inquiry.”

Recordkeepers whose BCP lacks procedures for a pandemic should add them, the Wagner Law Group’s attorneys wrote. Sponsors might be reassured to know, for instance, that their recordkeeper’s BCP calls for having emergency contact information for all of its staff and that cloud-based systems protect security if a sponsor had to communicate with workers digitally. 

Mee says, as far as a BCP is concerned, “The Standard has a robust business continuity plan that includes business impact analysis, risk management, crisis management, crisis communications, employee awareness and training, supplier management and emergency operations that exercise response plans to assess situations and act based on informed decisions. Our business continuity and disaster recovery plans and response options are constructed in such a way as to provide flexibility to respond to almost any scenario in a prompt and efficient manner.”

“The pressure on recordkeepers is tremendous,” Neuner says. “Call centers are receiving increasing call volumes and huge swings in activity, with many of the conversations being with concerned-topanicked participants.” It is important for sponsors to help their participants weather the current market volatility by focusing on the long term, he says.

—Lee Barney