From time-to-time employers deem it necessary to change administrators for their employee benefit plan. This may affect the election choices of the employees.
A Third-Party Administrator (TPA) is hired by an employer to deal with the behind the scenes events that occur while handling the retirement plan. They assist with the plan design and are in charge of the day to day maintenance of it.
Every year, plan sponsors should be evaluating their current administrator and determining if it is the best fit for their company. There are a few reasons employers will feel it is necessary to change administrators. Some examples are high fees, low investment performance, the availability and timeliness for providing support and guidance, and selling or merging of a company or companies. It is a good idea to be educated on what to expect and watch out for during this process.
The blackout period takes place in the time frame where the assets and records are transferred between the old and new administrators. Employers are legally required to give employees notice of the period in which a blackout will occur. During this time employees will not have access to alter their plans. This is significant because changes like adjusting contribution percentages, applying for loans, switching investment funds, making withdrawals (including rollovers), and similar functions will not be available. The blackout period can be anywhere from days to months. It is important that all employees are aware of when the period begins and how long it will last so that they can adjust their plans accordingly.
Transfer of funds and plan information
When switching between advisors, investment options generally change. A list of old funds should be obtained as well as a list of the new funds available. Historical rates of return, expense information, and risk factors should be valued when selecting from the new funds. Depending on the plan, an investment election form will need to be filled out either on paper or electronically, to avoid assets being rolled into a general retirement fund.
It is also important to verify any changes in the plan design. While the exact same plan can be transferred, it is not required. A few common changes that could occur include a matching or profit-sharing calculation, vesting schedule changes, and auto-enrollment features. When the new plan is up and running, employees should make sure that the funds were rolled over correctly, and that the investment funds and deferral rates elected are accurate.
A change in plan administrators can be beneficial to employees. Communication is very important from the top down for this process to run smoothly. Employees should understand why this change is happening and how it will affect them. This change can also be a good reminder for employees to check in on their plans and adjust them to current life situations.
For more information on Plan Administrators, head over to this article explaining their Do’s and Don’ts.
Do you still have any questions? Feel free to reach out to a Henry+Horne professional, who is eager to assist you.