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Workshop 15 Establishing Timelines & Expectations for Smooth 401(k) Take Over

Virginia K. Sutton, QKA, QPFCJohnson & Dugan; VKS Consulting

Virginia K. Sutton, QKAConsultant; Account Executive, VKS Consulting; Johnson & Dugan

Virginia K. Sutton specializes in 401(k) defined contribution plans, helping clients regarding all phases of their qualified retirement programs, including plan design, investment selection and review, compliance, vendor assessment, plan conversions, employee education, and mergers and acquisitions. Virginia is a member of ASPPA’s government affairs DOL subcommittee and ASPPA’s affiliate NAPA, the National Association of Plan Advisors. She is past chair of ASPPA’s participant communications and chaired the 401(k) Plans Subcommittee (2003-2007).

Virginia is a Investment advisory representative of Global Retirement Partners, LLC, a registered investment advisor. Global Retirement Partners, LLC, VKS Consulting and Johnson & Dugan Insurance Services Corporation are separate and non-affiliated companies. Johnson & Dugan CA Insurance License 0649686

The Three Cs of Successful 401(k) Takeovers:

• Coordination:

– Who does what?– Timing

• Checklists:

– Process Documentation– Plan Documentation

• Plan Documents• Internal (Plan Sponsor) Governance/Oversight

– Investment Selection & Mapping – Asset & Records Transfer

• Communication

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Coordination

Who Does What?

401(k) Structure & Concept

5

ABC, INC.

Plan Sponsor

$ ADMINISTRATION

ABC, INC. 401(k) PLAN

RECORDKEEPING

• Account balances

• Remittance &

distributions

• 800#/web/statements

• Trust reconciliation

COMPLIANCE

• Plan documents

• IRS LOD or term. Filing

• Discrimination testing

• Loans & distributions

• 5500

INVESTMENTS

• Mutual Funds

• Separate Accounts

• Pooled Account

• Stable Value/GIC

ASSET CUSTODIAN

• Holds assets

• May or may not include

institutional trustee

services

Process OverviewVendor

Selection

Plan Design

& Plan

Document

Drafting

Investment

Selection

& Mapping

Plan

Operations

& Training

Employee

Communication

& Presentations

Assets &

Records

Transition

(“Blackout”)

“GO LIVE”

On-going

Admin

“RFP”

Vendor

evaluation

Review current

plan design &

draft Plan

Docs; (make

changes)

Determine

Plan Funds/

QDIA &

Mapping

Strategy

Payroll

remittance/ad

min training

Communicate plan

to eligible

participants; SOX

notice & plan

disclosures

Asset Transfer &

Trust Report

Reconciliation &

Allocation to

Participant Accts

Participant

Web access;

EE meetings

if none held

prior to

black-out

Loan

Repayments

& Participant

contributions

are remitted

& invested

Ongoing Plan

Oversight

Consultant

with

HR/plan

fiduciaries

(“PF”)

TPA/Complian

ce

Team/Consulta

nt with HR/PF

Consultant/V

endor-HR

Vendor-HR

(Consultant)

Consultant-

Vendor/TPA

Former

Custodian &

Recordkeeper/TP

A with you!

1-6 weeks:

2-3 week

prep &

meeting

to decide

2-3 weeks:

1-3 hr. meeting

with HR/PF +

drafting time:

Execute prior

to Eff. date.

1-3 hr.

meeting with

HR/PF

1-3 meetings:

1-3 hrs each

In person or

phone/WebE

x

Written Notices: 30-

60 days

In Person

Meetings-depends

on client

Prior RK

determines: 3-10

days prior to

effective date + 5-

20 days post

Plan Conversion is generally a 90-120 day process from date of vendor selection

Task

Wh

oTi

me

-tab

le

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Conversion Process

• The conversion process will be complex or more simple depending upon size of the plan

– Conversion of a small plan is less complex than a change of service-provider for a large plan

– Exceptions:

• Large proportion of terminated participant accounts will make plan communication/conversion more complex

• An employer with no internal processes/manual payroll

• Large Plans that have strong data management and are “Rebooting” and automating participant decisions

Determine

how to

leverage

technology

Role of Plan Advisor/Consultant

• If an Advisor has been involved during the RFP/Selection process, they will want to continue to be involved in the conversion process:– If you have a strong conversion project leader, most advisors

will want you to direct the process– In the absence of a strong conversion project leader, or

concern that there is no leadership for the takeover, the advisor may assume that role• This in turn, may complicate your process

• The advisor will/should want to work with you regarding the investment review and selection/mapping & employee communications

Plan Takeover/Conversion Planning• Once a service provider is selected, the next step is a meeting with the

service provider (and TPA partner) to determine the implementation time-line and who will be accountable for each part of the process:– Plan Design & Plan Docs

– Investment Review & Mapping

– Employee Communication & Enrollment

– Initial and on-going administrative processes

• Plan design • Drafting of the plan

documents & participant notices

• Execution of the plan documents, including board resolution to adopt the plan and trust

• 408(b)(2) Disclosures

• Investment Selection & Transition Mapping Strategy• Determine Funds• Special Documentation • e.g. SVF participation agmt

• QDIA• Mapping

• Fund set-up with trading platform & custodian

• Execute trust documents

• Employee Communication/ Enrollment

• Online or via paper• Face to face meetings

• Participant Fund/Inv Info:• 404(a)(5)

• Beneficiary designation• Clarify who is drafting & who

distributes

TPA/Compliance Team Advisor/Consultant/RK TPA/RK/Advisor/HR

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ChecklistsPlease refer to Supplemental Handouts

Sample On-Boarding Record

Sample 401(k) Conversion Checklist

Sample Conversion Timeline

Get Organized• Checklists are your friend!

• A conference call with all parties to establish roles and timetable will facilitate this detailed process

– Look at a calendar and back into key/deadline dates

• Realize that required notice periods mean implementation is at least 60 days; most set ups are 3-4 months depending upon the complexity of the data/size of plan.

– Who will act as the lead project coordinator?• Advisor• Recordkeeper• TPA• Plan Sponsor

– Ongoing (e.g. weekly) conference calls or emails are a good idea to keep the process on track

– Help the plan sponsor to understand and manage on-going responsibilities by setting proper expectations as part of the set up process

Garbage Out is Garbage In!

• Data Management is KEY to a successful conversion

• Help the Plan Sponsor (or have the Advisor help you!) clean up the plan records PRIOR to take over

• Spending more time on the operations/payroll processes

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On-Boarding Record

• Ideally this is a comprehensive document that is integrated with your client management software and/or plan design software

• Alternatively, you can create and use it to populate your internal systems.

• Checklists can be more or less complex depending upon plan size and your role

Sample Conversion TimelineTASK WHO DEADLINE DATE

COMPLETE

Conversion Meeting all 10/1 10/1

Contact Prior RK ER/NSP 10/15 10/13

Plan Doc/Fund Mapping NSP/AD 10/30 10/20

SOX Notice ER (NSP) 11/19 11/15

Test Files/payroll upload ER/NSP Nov

Blackout ER 12/20-1/20

Asset Transfer PRK/NSP 12/31-1/4

Record Transfer/Allocation PRK/NSP 1/8

Plan is Live!/First Contribution ER/NSP Jan 15-20

EE Training AD/NSP Feb

ER=Plan Sponsor; NRK=New Service Provider; PRK=Prior RK; AD=Advisor

Plan Design Considerations

• Review of Current Plan Design & Plan Documents– Will you continue to use the existing plan documents

or restate to a plan document that you have more comfort/better aligns with the recordkeeper?

• Add “Auto” features (ACA, EACA and/or QACA?)– Is this the time to “reboot” the 401(k) by re-enrolling

all participants or putting participants into QDIA fund(s)?

• Distribution options: trim or add– Most 401(k) plans remove J&S or installment options

because 401(k) investment options can provide

• Safe harbor plan design

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Document Execution

• Services Agreements– Your services contract

• Plan Documents:– Adoption Agreement

– Trust Agreement• Resolution to Change Plan Trustee/Asset Custodian

• Other– Unique documents for your operations & Plan operations

• Ex: Recordkeeping Capabilities

• Authorized Signer cards

What can be done via electronic authorization

and what requires “hardcopy” signature

Plan Operations-Data Management

• Set Time to have conference call with key persons dealing with payroll uploads– Conversion is the IDEAL time to work with the plan sponsor to

build a payroll file feed that includes all employees

• Payroll processing– Accurate and complete (“full”) participant information being

electronically remitted to the recordkeeper is key for a high performing plan• Include all employees with indicative data: (e.g. name, address, date of

hire, date of termination, compensation, hours worked)• Recordkeeping systems can track eligibility, vesting, etc with proper data

feeds• Year-End Compliance testing is easier• Plan Performance metrics are more accurate and can be determined

through out the year, not just at year-end

Plan Operation-Data Management

– Work with payroll vendor and recordkeeper for file specs/format

• Spend the time to determine proper pay-codes for plan compensation

– Determine how information will flow from the recordkeeping system to payroll system

• Some large employees will require dual files: – Payroll is a financial only file

– Indicative/participant information will come more frequently

• Some payroll providers have capability to have an outbound and Inbound file feeds.

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Plan Operations-Establish Administrative Processes & Training

• The Plan Sponsor will appreciate you taking the time to train their team/key personnel on payroll uploads and other key administration items: – Enrollment, Loans, Distributions

• You may need to manage internal Plan Sponsor politics & communication because HR and Finance departments will split 401(k) administrative duties– Employee interactions = HR

– Payroll functions = Finance

Operations Training of HR is a Must

• Handle the routine and non-routine

• Employee lifecycle events:– How will you provide plan information to new hires

– How will service providers get participant information

– How will loans be administered

– How will hardships/QDROs be administered

– Participant Terminations

• Payroll Remittance– Data management and payroll contributions

• Annual Compliance

Plan Asset Transfer

• How will the assets transition between service providers?

– Mutual Fund assets can transfer in kind or be liquidated and reinvested

– GVA asset will liquidate and be reinvested in the new funds

– What investment changes will take place in coordination with the service provider change

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Asset Transfer Strategies

• “Mapping”

– Asset transfer into like funds

• “Re-enrollment”

– Cash assets are invested directly into participant accounts based on their

• “Re-boot”

– Cash assets are invested into QDIA/managed accounts for each participant

Sample Asset MapMORNINGSTAR

CATEGORYPRIOR PLAN FUND TICKER

EXPENSE

RATIOACTION NEW PLAN FUND TICKER

EXPENSE

RATIO

Money Market ABC Money Market A n/a Map to Stable Value Fund N/A

Intermediate

Term Bond

PIMCO Total Return

InstlPTTRX 0.46% In Kind Transfer PIMCO Total Return Instl PTTRX 0.46%

New FundVanguard Total Bond

Market Index SignalVTBSX 0.10%

Large Value MFS Value R2 MVRRX 1.21%Map to less Exp

FundMFS Value R5 MEIKX 0.60%

Large Blend-

IndexNew Fund

Vanguard 500 Index

SignalVIFSX 0.05%

Small Cap

Blend

Loomis Sayles Small

Cap Val RetailLSCRX 1.31%

Map to less Exp

Fund

T. Rowe Price Small-Cap

StockOTCFX 0.92%

Foreign Large

Blend-IndexNew Fund

Vanguard Total

International Stock Idx

Signal

VTSGX 0.16%

World StockAmerican Funds New

PerspectiveRNPCX 1.12% Map to Oakmark Global Select I OAKWX 1.23%

Loans

• Are you taking over a plan with loans?

– How many?

– Do participants have multiple loans?

– Can the prior recordkeeper/TPA provide you with reports & loan documentation?

– Is there any reason why the loans will need to be re-amortized and/or the plan participants’ pay-back amount will need to be changed?

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Complex or Non-Liquid Assets

ASSET ACTION

Self-Directed Brokerage Account

Requires retitling of the account or in-kind transfer of assets held to new SDBA custodian

Life Insurance Policies Does new custodian (or institutional trustee if applicable) require re-title or other information?

Employer Stock (Can you get this out of the plan?) In-kind transfer and custodial paperwork to manage securities and additional ERISA requirements. If held in a unitized separate account can you re-register or is liquidation, transfer and & new separate account set up required at the new custodian?

Group Annuity Contract or Stable Value Fund

Is there a Market Value Adjustment or contract “put” that requires 12 months or more before assets transfer?

Real Estate (or other non-liquid asset, art, gold etc.)

Is an independent appraisal required? Will new asset custodian require any retitle of the asset? If in a separate account, is the fund liquid or will there be a contract put?

Does the 401(k) have any assets that require special instructions or can not transfer with the rest of the plan’s assets?

Communication

What is required

What is appreciated

Investment Notices & Disclosure

• Once investments are determined, required notices for the plan sponsor and participants must be drafted and distributed

• Determine who will draft, or if only a template is provided, will plan sponsor be able to execute

• Note for your services: – Your services agreement & the 408(b)(2) may be

impacted by investment selection if any revenue sharing is collected by the service provider from the plan’s investments and used to pay for plan expenses

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Investment Notices & Disclosure-Participants

• Investment Disclosures:• 404(a)(5): Fund information & fee disclosure

• QDIA Notice

• Plan Design Required Notices/Disclosures– Will the plan design require new/updated:

• SPD

• Safe Harbor Notice

• Automatic Enrollment

• Forms, including beneficiary designation

• Sarbanes Oxley Black Out Conversion Notice

Sarbanes Oxley Black Out Notice

• Plan sponsors must issue a notice to participants and beneficiaries in a defined contribution plan at least 30 days before a blackout period.

• A “blackout” is defined as a period of more than three consecutive business days during which participants or beneficiaries are temporarily suspended or restricted from directing investments or obtaining loans or distributions from the plan, to the extent these transactions would otherwise be available under the terms of the plan

Sarbanes Oxley Notice Must Contain

• The reasons for the blackout period.• An explanation of the investments and other rights affected.• The expected beginning date and the length of the blackout period.• A statement informing the participants and beneficiaries that they

should evaluate their current investment selections in light of their inability to direct or diversify their investment choices during the blackout period.

• The name, address and telephone number of the plan administrator or other person responsible for answering questions about the blackout period.

• Such other matters the DOL may require by regulation.

A Model SOX Black Out Notice is Available on the DOL/EBSA website and most Plan Document/Recordkeeping systems will have a module that provides this template

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Asset Transfer Strategy Will Determine Employee Communication Plan

• Participants will be concerned about the transfer of their account

• Communication before and after the process is ideal

– Written communications at minimum

– Will there be face–to-face meetings

– How can technology be leveraged?

Key Questions: Participant Education & Communication

• Will participants enroll electronically or via paper

• Will employee website training be available

• Will education/communication happen face to face or via technology or written memo

• Who will answer participant questions

• Who will draft participant communications

• Who will distribute notices & disclosure

Work with the Plan’s Advisor to determine/draft a communication Plan

Face to Face EE Meetings

• Is there time to do meetings prior to the start of the black-out period as well as after?

– Prior to the black-out when key message is re-enrollment and employees need to take action in their new accounts to set them up.

– After the black-out is becoming more common to inform employees about their account/on-line tools because employees have full web access once the plan is live

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Employee Communications is a Consulting Opportunity

• You can create a lot of client good will by working with the plan sponsor and Advisor to create quality and relevant 401(k) employee communications– Work with the plan sponsor to tailor to their

workforce

– There is increasing third party resources for employee materials

– Employee engagement is changing, especially with acceptance of automatic plan features

401(k) Conversions: Dos

• Understand your role in the process—your capabilities, your systems and your limitations

• Determine who will be the project manager

• Have a conversion meeting with all stakeholders to set expectations & get buy-in for the process and timetable

• Get & be organized; – use and share checklists;

– update them distribute to parties;

– have regular check-in calls

• Take the time to train key HR and Finance (payroll) contacts on Plan administration

• Encourage & Facilitate communication on the change– With HR & Employees

DO

DO

DO

DO

DO

DO

401(k) Conversion Don’ts

• Don’t try to do everything for everyone or be dictatorial; the most successful 401(k) conversions are collaborative

• Don’t assume the plan sponsor and prior recordkeeping know what they are doing– However, be respectful and diplomatic; catch more flies

with honey…

• Don’t go silent during the process, even when there seems to be time between action items– Status updates are a great way to provide “friendly

reminders”

• Don’t ignore participants during the process

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Questions?

Workshop 15

Establishing Timelines & Expectations for Smooth 401(k) Take Overs