Magazine article Workforce

401(k) Conversion: It's as Easy as Riding a Bike

Magazine article Workforce

401(k) Conversion: It's as Easy as Riding a Bike

Article excerpt

Changing 401 (k) plans may save money and provide more employee options. But HR will have to transfer data, reconcile accounts and keep employees informed along the bumpy road, according to one pension expert.

n late 1995, Atlanta-based Vinings Industries was divested from a manufacturing group owned by a British firm. As a consequence, the manufacturer of specialty chemicals for the pulp and paper and water-treatment industries had to reconfigure its benefits and establish a new 401(k) plan to replace the one sponsored by the previous owner.

"There's a big learning process involved in putting in a new plan," says Debbie Parkes, human resources manager for Vinings Industries. "I didn't have these responsibilities before, and I had to add them to my role."

Parkes is right. If you decide to go with a new provider of office supplies or longdistance telephone service, it's a simple matter of closing your account with the old provider and starting to do business with the new one. Changing 401(k) providers, however, isn't quite that straightforward. It involves more than HR simply selecting a provider that might give one's employees more or better services at a better price. The conversion process is cumbersome, requiring transfers of data from one record keeper to another, reconciliation of individual employee accounts and effective communication with employees to let them know what's happening during the process-which can last up to six months. What really happens when you change 401(k) plan providers? Here are some HR benefits issues to be aware of before making that move.

Why change vendors? Changing 401(k) providers is a grueling venture, so be clear about your reasons before you take the plunge. Vinings Industries didn't have an option. Its old plan was going away, and the company needed a new one. Other companies change 401(k) providers for other reasons. And in today's competitive 401(k) industry, it's a buyers' market. "[Company benefits specialists] are reviewing their plans at least every four years and looking at investments even more frequently," says Maureen Phillips, managing director of Putnam Investments' 401(k) Group. "Among large plans, about 95 percent of new business is takeover business"-an existing plan converting to a new provider, rather than the start-up of a new plan.

The 401(k) industry has evolved dramatically in the last 10 years. Features that once were unusual, such as daily valuation, now are considered standard. If your provider hasn't kept up with this evolution, that may be one reason to change. Two other common reasons to convert are to broaden the investment selection and to obtain a higher level of support in employee education and communication. Cost comes into play, too, but it's usually lower down on the list of reasons. "What we find is that employers getting into a 401(k) plan for the first time usually are price buyers," says Jane Stalnaker, director of implementation for Fidelity Investments in Covington, Kentucky. Then [after the plan has been in place awhile,] they start looking at the service component. That's when they start thinking about making a change, she says.

"Companies aren't always dissatisfied with their current providers," adds Mary Corbett, director of special projects for Moosic, Pennsylvania-based Prudential Retirement Services. "The desire to enhance services to participants is the most common reason to change. Or perhaps their current 401(k) plan isn't packaged to be user-friendly to participants."

That was the case for Sales Mark, a merchandising wholesaler based in Little Rock, Arkansas. "We had a local plan administrator and were relying on quarter-end and month-end valuations," says senior accountant Kathy Meadows. "We decided we wanted daily valuation and other features."

Think ahead. Assume that you've considered the options and have decided to change providers. Before selecting the new provider, HR needs to determine what employees want in the new plan. …

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