1/12/2016. The Three Cs of Successful 401(k) Takeovers:

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1 Workshop 15 Establishing Timelines & Expectations for Smooth 401(k) Take Over Virginia K. Sutton, QKA, QPFC Johnson & Dugan; VKS Consulting Virginia K. Sutton, QKA Consultant; 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 ( ). 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 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 1

2 Task Who Time-table 1/12/2016 Coordination Who Does What? 401(k) Structure & Concept ABC, INC. Plan Sponsor ABC, INC. 401(k) PLAN $ ADMINISTRATION INVESTMENTS Mutual Funds Separate Accounts Pooled Account Stable Value/GIC ASSET CUSTODIAN Holds assets May or may not include institutional trustee services RECORDKEEPING Account balances Remittance & distributions 800#/web/statements Trust reconciliation COMPLIANCE Plan documents IRS LOD or term. Filing Discrimination testing Loans & distributions Vendor Plan Design Selection & Plan Document Drafting RFP Vendor evaluation Consultant with HR/plan fiduciaries ( PF ) 1-6 weeks: 2-3 week prep & meeting to decide Review current plan design & draft Plan Docs; (make changes) Process Overview Investment Selection & Mapping Determine Plan Funds/ QDIA & Mapping Strategy TPA/Complian Consultant/V ce endor-hr Team/Consulta nt with HR/PF 2-3 weeks: 1-3 hr. meeting with HR/PF + drafting time: Execute prior to Eff. date. 1-3 hr. meeting with HR/PF Plan Operations & Training Employee Communication & Presentations Assets & Records Transition ( Blackout ) Payroll remittance/ad min training Vendor-HR (Consultant) 1-3 meetings: 1-3 hrs each In person or phone/webe x Communicate plan to eligible participants; SOX notice & plan disclosures Consultant- Vendor/TPA Written Notices: days In Person Meetings-depends on client Asset Transfer & Trust Report Reconciliation & Allocation to Participant Accts Former Custodian & Recordkeeper/TP A with you! Prior RK determines: 3-10 days prior to effective date days post GO LIVE On-going Admin Participant Web access; EE meetings if none held prior to black-out Loan Repayments & Participant contributions are remitted & invested Ongoing Plan Oversight Plan Conversion is generally a day process from date of vendor selection 2

3 Determine how to leverage technology 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 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 timeline 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 TPA/Compliance Team Advisor/Consultant/RK TPA/RK/Advisor/HR 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 3

4 Checklists Please 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 s 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 4

5 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 Timeline TASK 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 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 5

6 Document Execution Services Agreements What can be done via Your services contract electronic authorization and what requires Plan Documents: hardcopy signature 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 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. 6

7 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 7

8 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 Map MORNINGSTAR CATEGORY PRIOR PLAN FUND TICKER EXPENSE RATIO NEW PLAN FUND EXPENSE ACTION TICKER RATIO Money Market ABC Money Market A n/a Map to Stable Value Fund N/A Intermediate Term Bond PIMCO Total Return Instl Large Value MFS Value R2 MVRRX 1.21% Large Blend- Index Small Cap Blend Foreign Large Blend-Index World Stock Loomis Sayles Small LSCRX 1.31% Cap Val Retail PTTRX 0.46% In Kind Transfer PIMCO Total Return Instl PTTRX 0.46% New Fund Map to less Exp Fund New Fund Map to less Exp Fund New Fund Vanguard Total Bond Market Index Signal VTBSX 0.10% MFS Value R5 MEIKX 0.60% Vanguard 500 Index Signal T. Rowe Price Small-Cap Stock Vanguard Total International Stock Idx Signal VIFSX 0.05% OTCFX 0.92% VTSGX 0.16% American Funds New RNPCX 1.12% Map to Oakmark Global Select I OAKWX 1.23% Perspective 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 payback amount will need to be changed? 8

9 Complex or Non-Liquid Assets Does the 401(k) have any assets that require special instructions or can not transfer with the rest of the plan s assets? ASSET Self-Directed Brokerage Account Life Insurance Policies Employer Stock Group Annuity Contract or Stable Value Fund Real Estate (or other nonliquid asset, art, gold etc.) ACTION Requires retitling of the account or in-kind transfer of assets held to new SDBA custodian Does new custodian (or institutional trustee if applicable) require re-title or other information? (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? Is there a Market Value Adjustment or contract put that requires 12 months or more before assets transfer? 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? 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 9

10 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 10

11 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 reenrollment 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 11

12 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 DO Understand your role in the process your capabilities, your systems and your limitations DO Determine who will be the project manager Have a conversion meeting with all stakeholders to set expectations DO & get buy-in for the process and timetable DO Get & be organized; use and share checklists; update them distribute to parties; have regular check-in calls DO Take the time to train key HR and Finance (payroll) contacts on Plan administration DO Encourage & Facilitate communication on the change With HR & Employees 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 12

13 Questions? Workshop 15 Establishing Timelines & Expectations for Smooth 401(k) Take Overs 13