Documenting a Provider Change: A Committee’s Playbook

James Lukezic

A provider change is one of the few moments when a retirement plan committee’s process is on full display. The search, the finalist presentations and the fee negotiation tend to get the attention. The months that follow are where good decisions most often go undocumented.

ERISA judges fiduciaries largely on process. If a participant, an auditor or the Department of Labor later asks why the committee moved, how it protected participants during the move, and whether it confirmed that every dollar arrived, the answer has to come from the file. A committee that made a sound decision but cannot show its work is in a weaker position than it should be.

What follows is the framework my firm, Old Slip Capital, uses with committees to document a recordkeeper or provider transition from approval through the first post-conversion review. It covers four areas: who is responsible for what, the questions the committee should ask and record in minutes, how participants are told, and which records to keep.

Start With a Written Map of Responsibilities

The most common gap we see is not a missed step. It is a step everyone assumed someone else owned. Before the first conversion call, the committee should adopt a short responsibility matrix and attach it to the minutes.

Two points deserve emphasis. First, delegation does not end fiduciary responsibility. A committee can hand the work to a provider or adviser, but it remains responsible for prudently selecting and monitoring them, and the minutes should show that monitoring happening. Second, name a single internal project lead with authority to escalate. Conversions stall most often at handoffs between payroll and the new provider, and someone needs to own that seam.

Ask Transition Questions Out Loud and Document the Answers

A committee demonstrates prudence by asking hard questions and recording what it heard. My firm encourages committees to work through the questions below at the approval meeting and again at each checkpoint. The answers, and any follow-ups assigned, belong in the minutes.

Why are we moving?

1. What specific shortcomings in service, fees, technology or participant outcomes led to the search?
2. How did the finalists compare on total cost and was the comparison made on a like-for-like basis?
3. Did anyone involved in the decision have a relationship with the winning provider and how was that addressed?

How will assets and data move?

1. Will assets be liquidated and moved in cash or transferred in kind? How long will assets be out of the market, if at all?
2. How will each current investment map to the new lineup and is the mapping based on comparable risk and return characteristics?
3. What happens to outstanding loans, pending distributionsand qualified domestic relations orders in process and installment payments?
4. How will vesting, service history and balances by money source (pre-tax, Roth, after-tax, employer) be validated?
5. Who reconciles the outgoing provider’s final balances to the incoming provider’s opening balances, and to what tolerance?

How will participants be affected?

1. How long is the blackout period and which rights are suspended (investment changes, loans, distributions)?
2. What is the contingency if the blackout runs long or the data does not reconcile?
3. Will beneficiary designations, deferral elections and automatic features carry over, or must participants act?
4. Are participants near retirement, on leave or with pending hardship needs being handled individually?

What does the new arrangement cost and promise?

1. Have updated service provider fee disclosures been received and reviewed for reasonableness?
2. What service standards, data security commitments and remedies are in the contract?
3. Are there any surrender charges, termination fees or revenue-sharing credits owed on the way out?

When are we done?

1. What does the committee need to see before it signs off on the conversion?
2. When is the first post-conversion review and what will it measure?

Communicate Early, Plainly and on the Record

Participants judge a conversion by whether they were surprised. Some communications are legally required; the rest are what separate a smooth transition from a flood of calls to HR.

The blackout notice. When participants’ ability to direct investments, take loans or receive distributions will be suspended for more than three consecutive business days, ERISA Section 101(i) and the Department of Labor’s regulation at 29 CFR 2520.101-3 require advance written notice. The notice generally must arrive at least 30 days, and no more than 60 days, before the last date participants can exercise the affected rights. It must explain the reason for the blackout, identify the affected investments and rights, give the expected start and end dates and name a contact for questions. If the blackout’s length changes after the notice goes out, participants must receive an updated notice explaining what changed and why. Failure to provide the notice carries a per-participant, per-day civil penalty, so the committee should see the final notice and its delivery date before it is mailed.

Investment and fee changes. If the lineup changes, participants need to know how their balances will be mapped and what the new options cost. Updated participant fee and investment disclosures should be provided as required, and any qualified default investment alternative changes may trigger their own notice obligations. Counsel should confirm which notices apply and their timing.

Plan document and summary plan description updates. If the change affects plan administration, provisions, or contact information, the plan document and summary plan description may need amendment, followed by a summary of material modifications.

The practical sequence. We typically recommend a cadence like this:

1. Announcement (60 to 90 days out): what is changing, why and what participants need to do, if anything.
2. Blackout notice (30 to 60 days before the blackout): the required legal notice, delivered by a method that satisfies the disclosure rules.
3. Action reminders (two to three weeks out): last day for loans, distributions and trades; how to review beneficiaries.
4. Go-live (when the blackout lifts): new website, registration steps, call center number and how to confirm balances.
5. Follow-up (30 to 60 days after): reminders to register, update beneficiaries and review mapped investments.

Keep a copy of every version sent, the distribution list and proof of delivery. A notice that cannot be shown to have been delivered offers little protection.

Build a File That Could Be Handed to an Auditor

ERISA Section 107 generally requires records supporting a plan’s annual Form 5500 filing to be kept for at least six years after the filing date. Section 209 separately requires records sufficient to determine each participant’s benefits, which in practice means keeping them as long as they may be needed. Because a conversion touches both, we advise committees to treat the transition file as a permanent plan record and to confirm retention periods with counsel.

Store the file where it will survive staff turnover and the next provider change. A shared drive folder named for the project manager is not a retention policy.

Close the Loop

The conversion is not finished when the blackout lifts. It is finished when the committee has reviewed the reconciliation, confirmed open items are resolved and recorded its sign-off. We recommend a formal post-conversion review within 90 days, and a first-year service review against the standards in the new contract.

A provider change is a significant fiduciary act. Committees that treat documentation as part of the work—not an afterthought—protect participants during the move and protect themselves long after it.

James J. Lukezic is managing principal of Old Slip Capital Management Inc.