By most industry estimates, approximately 10% of plans change providers every year. Of course, far more consider making a change without actually acting on it, and many changes are thrust upon plan sponsors, a consequence of poor service, or provider consolidation.
Regardless of the motivation for undertaking the change, here are three things that in my experience every advisor and provider wishes plan sponsors understood about recordkeeping conversions, before setting them in motion.
Your provider search will take longer than you think.
Human beings are, generally speaking, poor judges of time requirements, particularly with things with which they don’t have a lot experience, like provider searches, and that require the involvement and input of committees, like provider searches.
We tend to assume that we’ll have more time available for such things than actually winds up being the case, and we tend to assume that such things will take less time than they actually do. We also tend to make those types of assumptions about the participation of other members of the team. It’s not just that those assumptions tend to be optimistic, it’s that, all too frequently, they are wildly optimistic.
Your provider and/or advisor will likely make a good faith effort to provide a timetable of events, and will likely take pains to emphasize to you the amount of time it will take to actually conduct this process. Doubtless they will remind you, and remind you more than once, just how important it is that you make the time commitment, and deadlines, noted in that timetable.
My advice: Take whatever timetable they give you and double it.
A big part of the reason your provider search will take longer than you think… is you.
A change of providers inevitably brings with it additional work, greater time commitments, and what sometimes feels like an incessant series of questions about things to which you never previously gave much thought. Moreover, you’ll have to think about how to communicate this change to your participants, and deal with the inevitable flurry of questions from them about how to do things to which they never previously gave much thought.
However, these realities are generally not top of mind when we enter into discussions about making a provider change. So, while the search is generally set forth on a wave of optimism and hope, it can, before long, find itself bogged down in the inevitable administrative minutia that consumes so much of a plan sponsor’s time. And the longer it takes, the worse it can become.
Don’t forget to add the inevitable “Scope Creep” as it is affectionately called. Most plan sponsors have a difficult time defining the objectives of the search, which creates a learning as they go through the process scenario, which for many cannot be avoided. This leads to a changing the parameters of the search in the middle of it, like changing services required.
The bottom line is, at the outset you probably didn’t have 25% of your day just sitting there waiting for some big project to fill it. Even the most committed will, at some point, and likely at several some points, be tempted to push off that update call, to set aside responding to some integral data definition, to dither on making a determination that will hold up the entire project. A good project plan will account for some of these. But not an indefinite number.
Almost everybody wants to change providers on January 1... Everybody can’t.
If your plan year-end is Dec. 31, and it is, for the vast majority of plans, there are some real benefits to making a provider change at that point in time. Plan reporting, both participant and regulatory Form 5500, is quite simply neater when you finish the reporting year at the same time you conclude your arrangements with a provider. Anything else is going to require someone somewhere to “splice” together reports at some point. Doing so doesn’t have to be a big deal, but it can be “awkward.”
There are some reasons not to make those kinds of changes at year-end, of course. First off, there’s generally quite a queue wanting to do so. You may well be able to get in that queue, but your new provider will likely have their hands full with a lot of plans just like yours. More significantly, your soon-to-be-ex provider likely will as well, and guess who is likely to get the most/best attention?
Bear in mind also that a 1/1 change means that a lot of the preparation, review, and/or testing— not to mention participant communications, will happen during a time of the year when people are generally more inclined to be worrying about other things.
So, considering those issues, what should a plan sponsor thinking about making a provider change do?
Well, I would suggest you start early, allow plenty of time for slippage in schedule, and be open to the possibility of making a mid-year change instead.