If you’ve been reading our retirement plan sponsor articles for any length of time—and even if you haven’t—you know how important it is to make sure your 401(k) is doing all it can for you, your company, and your employees. In fact, you have a fiduciary responsibility to make sure your plan offers competitive fees, appropriate investment choices, and quality educational and support services for plan participants. You’ll also want to make sure your plan is offering all the other features that together help your plan offer significant value to all parties.

So, let’s say you’ve been reading, thinking, and taking all this to heart, and you’ve concluded, after doing the necessary research and comparison, that it’s time to make a change in your plan provider. First of all: Congratulations! To paraphrase Obi-Wan’s comment to Luke, you’ve taken your first step into a better future – for your company and your employees.

But let’s also recognize that switching 401(k) providers isn’t the same as deciding to shop at a different grocery store. For one thing, your plan and its provisions are subject to federal law—especially ERISA—and that alone guarantees a fair number of i’s that must be dotted and t’s that must be crossed. Changing your provider, although a manageable process, will require a certain amount of pre-planning and attention from you. The good news is that if your new provider is on the ball, much of the work will likely be done for you. Let’s walk through an overview of the process and then look at a few potential pitfalls you can avoid to make the transition as smooth as possible for everyone concerned.

The main steps. Switching plan providers consists of four principal steps:

  1. Transferring assets—Moving the plan’s invested assets from the former provider to the new provider;
  2. Preparing new documents—Drafting a new plan document to govern the operation of the plan (typically very similar to your existing plan document, unless you want to change something) and also providing the necessary signed documents for both the new and the old provider related to the changeover;
  3. Selecting investments—Developing the “menu” of investment options for plan participants;
  4. Enrollment—Educating employees and enrolling them in the new plan, including desired salary deferrals and investment choices.

Normally, many of the “nuts and bolts” processes for accomplishing these steps will be handled by your new provider. Your main task will typically consist of gathering required information, both for your old provider and your new provider, in order to facilitate the changeover.

ERISA compliance transition. One of the most important things your 401(k) provider does for you is help you maintain compliance with ERISA requirements for your plan. Obviously, this aspect of transitioning plans is a lot like the baton handoff in a relay race; if someone drops it, there’s a problem. The entire four-step process described above will generally take 60-90 days from the time you sign a service agreement with your new provider. You will generally want to continue sending plan contributions to your old provider until the “blackout period”: the timeframe, usually about 10 days, when plan records and assets are being transferred to the new provider. This time period usually offers the cleanest breakpoint for handing off annual ERISA compliance duties from the old provider to the new provider. Keep in mind that the provider at plan year-end is typically responsible for completing ERISA compliance duties for that plan year.

Some common pitfalls you’ll want to avoid:

Changing plan deposits or contributions too soon. You should generally continue sending plan deposits and contributions to your old provider until the blackout period begins. This is important because you must be able to document salary deferrals and employee loan repayments with respect to applicable deadlines. This also explains why the blackout period is important for providing a clear demarcation of which provider is responsible for ensuring ERISA compliance.

Not adequately publicizing the blackout period. Because plan participants are unable to do certain things with their accounts during the blackout period—including changing investment options or accessing funds—it is vital (and required) to notify them in advance of the blackout period—typically at least 30 days but no more than 60 days ahead. Providing the required notification is your best defense against employee complaints or legal claims related to adverse market action or inability to access funds. Typically, your new provider can provide a template you can use to provide this required notification to your employees.

Awareness of fees. Before making the commitment to switch providers, be sure you understand all applicable fees. Some providers may charge a punitive termination fee. Generally, a termination fee equal to a few months of the provider’s normal fees is appropriate. To keep this fee to a minimum, you should provide written notice of termination to your old provider at least 90 days prior to termination; your new provider can often provide you with an appropriate template.

Savant Wealth Management has the experience to provide plan services and remove much of the fiduciary burden so companies can offer competitive retirement plans to their employees. We also have a dedicated conversion specialist who can work with you to help ensure your change in providers is as smooth and seamless as possible. To learn more, Visit our website or get in touch with us.

Savant Wealth Management (“Savant”) is an SEC registered investment adviser headquartered in Rockford, Illinois. Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. You should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment advice from Savant. A copy of our current written disclosure Brochure discussing our advisory services and fees is available upon request or at www.savantwealth.com. The scope of the services to be provided depends upon the needs of the client and the terms of the engagement.

Author Patricia L. Hutchinson Director of Retirement Plan Services

Patty has been involved in the financial services industry since 2006. She earned a bachelor of science degree in marketing and management from Northern State University in Aberdeen, SD, and an MBA from Colorado Technical University, Sioux Falls, SD.

About Savant Wealth Management

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Savant Wealth Management (“Savant”) is an SEC registered investment adviser headquartered in Rockford, Illinois. Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments and/or investment strategies recommended and/or undertaken by Savant, or any non-investment related services, will be profitable, equal any historical performance levels, be suitable for your portfolio or individual situation, or prove successful. Please see our Important Disclosures.