How employers can transition to a new 401(k) service provider

Welcome to Ask an Adviser, EBN's weekly column in which benefit brokers and advisers answer (anonymous) queries sent in by our readers. Looking for some expert advice? Please submit questions to askanadviser@arizent.com. This week, we asked Amy Ouellette, VP of product at Vestwell, to weigh in on the following: How do we prep for a smooth transition to a new 401(k) service provider?

Moving your 401(k) plan between providers can seem daunting, but let's break down the services you might be switching, and how you can prepare for the transition of each one. 

Let's start with non-discrimination testing and government reporting. These services typically go together, whether serviced in-house, by a recordkeeper, third party administrator or accounting firm. If you are transitioning the services to a new provider, timing is everything. So it's important to determine the final plan year of testing and reporting by the current party and when those services will be completed. Also find out what the incoming vendor needs from you, and by when, to meet those obligations. 

Read more: Preparing for the SECURE Act's impact on 401(k) eligibility

There are two other areas involving these issues to keep in mind. One is billing. You'll need to know how billing is coordinated so you pay for only the services needed and not more. Keep in mind that you may be paying throughout the year, so switching mid-year might mean double-paying for services by the prior and new providers.

The other involves documentation. Be sure to determine whether you have copies of the past two to three years of compliance testing packages. If not, now is the time to make that request to pass them along to the new provider. It's also a great time to ensure your own files are in order by plan year so they're easy to pull in case of an audit.

Another issue that will require careful preparation is recordkeeping. Changing recordkeepers is the most apparent or visible switch for your employees, so getting clear on timelines, responsibilities and expectations is going to be of utmost importance for a smooth experience. 

Timing once again is paramount. Find out if the new provider will accept payrolls before the money is transferred from the previous recordkeeper or the transfer needs to occur before new money can flow in. It's also important to learn how long the transfer might take. Be sure you understand the timeline and where money will be at each stage. Also craft communication for your employees, and visuals of the timeline often help to ensure folks feel comfortable with where their retirement savings are throughout the process.

Read more: Why good retirement planning is about much more than money

Another key issue is pinning down pre-transfer documentation. Find out what reports you can pull now that would be helpful for your own audit-ready records or assist the new recordkeeper with setup. They might include investment and deferral elections of your employees, employee service history, year-to-date and full plan inception-to-date history of withdrawals, and ideally, last year and current year-to-date asset activity (if not all years). Your current recordkeeper will supply certain information to the new provider at conversion, but pulling your own reports will provide added backup and often more details than are furnished at conversion.

You'll want to do the same type of preparation for post-transfer documentation. Determine what reporting will be needed after the transition to ensure government reporting is complete. For example, you may need to request at year-end (or sooner if available) certain insurance and fee reports after the transition. Ask in advance how and when you can obtain the final reports required for your Form 5500. 

Your adviser can support you throughout this process, and taking the time to track down records before you lose access to current providers can go a long way if questions come up down the line!