By Jeff Chang
Many public agencies have come to sponsor and maintain multiple 457(b) plans, which can unnecessarily increase the compliance burden as well the fees paid by participants. Although the human resource and finance managers who typically oversee these plans know that it makes sense to simplify and consolidate these plans, many don’t know how to start or accomplish this task. If you are in this situation here are a few suggestions for breaking down and addressing the tasks:
- Start by getting some help and advice. Most experienced public sector investment advisers are familiar with the “multiple 457(b) plan” problem, and would be more than happy to assist you in consolidating several, redundant and confusing arrangements into a single comprehensive program.
- Take stock of what you have. Before you, or anyone trying to help you, can analyze your situation and develop a strategy for consolidation, you need to have a clear understanding of “what” you have in terms of plan documents, recordkeeping agreements, investment options, and investment/annuity contracts. By collecting and reviewing all of these documents, you will quickly appreciate the various impediments or obstacles you may have to deal with as part of any consolidation. For example, typical recordkeeping service agreements require several months’ advance notice to be terminated. If your plans offer investment options such as stable value funds, you need to review the applicable annuity contract provisions to see what restrictions, penalties, or issuer rights might be triggered by an attempted migration of funds to another provider.
- Don’t rush. The process of “migrating” from one recordkeeper (and investment platform) to another can typically take anywhere from 120 to 180 days, assuming that the new recordkeeper has already been retained and is under contract, and assuming that the “incumbent” provider/recordkeeper has now exercised a 12-month “put” on stable value fund investments – something that could easily extend the overall process to over 12 months.
- Create “reasonable” expectations for yourself and others affected by the change. You likely will have to “meet and confer” over your proposed consolidation. It is important to be able to explain to your union bargaining partners how and why you are making these changes. If you have planned well, you should be able to win-over any affected unions by explaining: (1) that you plan to maintain all, or practically all, of the currently available investment options (or types) in the new arrangement; and (2) the arrangement will cost them less in participant fees. If you are not sufficiently satisfied with at least one of your current recordkeeper/investment providers (i.e., you know which one of your current providers you will be consolidating into), you will need to add additional time to your timeline for the selection and onboarding of a new recordkeeper. This process can add anywhere from 90 to 150 days to your normal migration process.
To some, the 457(b) plan consolidation process may seem a bit challenging. However, if you start out by enlisting the help of someone who has already been through the process multiple times, you should be able to more easily assess your current situation as well as likely glitches or obstacles you may have to face. Understand that this process is not new or unique and, that in the end, you will have created a more stream-line, compliant and cost-effective 457(b) arrangement for you employees.
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 firstname.lastname@example.org or (916) 329-3685.