Chapter 32: How “Not” To Transition To A New Record-Keeper

by | Jan 31, 2017 | Record Keeping

By Jeff Chang

Time and time again plan sponsors seriously disadvantage themselves and their plan participants by announcing the migration of their plan from one record-keeper to a new record-keeper before all the conditions for a smooth transition have been fulfilled.  Record-keepers know this and take full advantage of this all the time.  Usually, the plan sponsor is so happy to have “completed” its RFP process that it treats the selection of a record-keeper as the end of the plan migration process – rather than its beginning.  Unfortunately, once the identity of the new record-keeper has been announced to the employees and participants, the sponsor is pretty much committed and has begun to box itself in.  As the “arbitrarily–determined” cutover date approaches, the plan sponsor and the plan’s retirement committee or fiduciaries are forced to either concede or compromise on some or all of the following issues (ones that were not nailed down as part of the selection process):

  1. The exact basis upon which and the exact amount the record-keeper is being paid. Oftentimes a potential record-keeper will “win” a client’s business with an apparently low fee quote.  Frequently, however, the low fees (in terms of basis points) come with an “understanding” that the record-keeper’s stable value fund (and/or other of the record-keeper’s proprietary funds) will be offered as part of the new investment lineup.  If a stable value fund will be part of the mix, the provider’s related annuity contract must be reviewed and accepted.  Unless you can identify all of the types of revenue that the new record-keeper will receive in connection with your plan, you won’t know if you really got a good deal – one that is fair and proper for all of your participants.  Fully analyzing, negotiating and documenting all fees and revenues should be an essential pre-condition to the formal announcement of a new provider.
  2. The terms and conditions of the administrative services agreement (ASA). Most ASAs are prepared by the record-keeper’s attorneys and understandably are designed to minimize the legal liability and legal costs of the record-keeper and its affiliates.  Here are a few “hot spots” in most ASAs that must be examined, negotiated and properly documented: choice of law, venue for resolving disputes, whether there will be mandatory arbitration/mediation, limitations of the provider’s liability, indemnification, non-solicitation of participants.  It goes without saying that the overall “scope” of contracted services needs to be carefully analyzed and understood by the parties. Oftentimes, providers will refer to an “administration manual,” which they will create and use to record-keep the plan.  Because this document will become the go-to reference for the record-keeper’s staff (not the actual plan documents), it is critical for the plan sponsor to carefully review and edit this document.

Jeff Chang is a partner at Best Best & Krieger LLP. He has four decades of experience skillfully evaluating benefit and retirement plan compliance to achieve maximum outcomes for public agency clients throughout California. He can be reached at or (916) 329-3685.

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