As the saying goes, change is the only constant in life. We have to adapt, over time, in order to survive. In the world of retirement plans, preparing for change is, by itself, a Herculean task. Organizations consider plan conversion to stay ahead of the market.

In this two-part article, we will look at some of the features, benefits and challenges of the plan conversion process.

Conversion could refer to the process of moving from: one plan sponsor or employer to another (for e.g., in the case of mergers and acquisitions), the existing investment manager to another, the Third Party Administrator (TPA) handling recordkeeping to another TPA; or from one type of retirement plan (such as Defined Benefit or DB) to another (such as DC).

There are many facets to conversions, in the world of retirement plans. Here, we will be looking at plan conversions in the context of Defined Contribution (DC) plans.

In DC plans, there are two types of recordkeeping: Balance Forward (based on specific timelines) and Daily Valuation (here the participants’ earnings and losses can be calculated on a daily basis).

Recordkeeping conversions could be of several types such as Balance forward to Balance Forward, Balance Forward to Daily or Daily to Daily.

Conversion involves the collection of valid plan document, census data, participant’s plan-based prior year records such as contribution, vesting, loans, distribution, participant statement, testing, annual valuation and return reports, conversion timelines and so on.

There are various financial and non-financial courses of action in the conversion process. Hence, there is a requirement to document the process in order to have the appropriate audit trail, during conversion from one TPA to another.

A successful conversion process has various stages. The Plan Administrator has to have a good tracking system in place to ensure that the conversion process takes place in a smooth manner.

Actions that need to be tracked include:

1.  Plan implementation setup

2.  Blackout period (start and end)

3.  Estimated asset value

4.  Notice for fee disclosure, Qualified Default Investment Alternative (QDIA)

5.  Enrollment meeting and kits

6.  Asset transfer and first payroll date post implementation with new TPA

7.  Fund management – fund mapping and fund setup

8.  Linking Registered Investment Consultant and Registered Investment Advisor (RIA)

9.  Business Process As a Service (BPaaS) in recordkeeping and trading environment

10. Trade reconciliation and live notification.

This is the first of a two-part article on Plan Conversion. Read Part 2Plan Conversion – Investment Strategy, Advantages and Challenges

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