Administration February 14, 2019

Ensuring a Clean Recordkeeper Conversion

There are steps retirement plan sponsors can take before converting to a new recordkeeper to minimize any “clean up” afterwards; however, there is always follow up to do.
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Art by Melinda Beck

When converting from one retirement plan recordkeeper to another, having the right team in place and adequately preparing beforehand can minimize the amount of “clean up” to do afterwards.

Chad Parks, chief executive officer of Ubiquity Retirement + Savings in San Francisco, says it is a good idea for plan sponsor to conduct “a mini audit of the plan before the conversion. The sponsor needs to supply the new recordkeeper with all of the plan documents, including the financial statement, prior compliance testing and annual reports. This is a good time to ensure all of these are in compliance” with Department of Labor (DOL) and IRS requirements.

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Ensuring data from the old service provider is accurate is also key, says Rick Irace, chief operating officer at Ascensus in Dresher, Pennsylvania. “The part that gets everything going and rolling is the census data,” Irace says. “That really is the most critical aspect, to ensure we have accurate, indicative information on participants—name, address, date of hire, etc.”

One of the most common glitches Irace has witnessed is with moving assets from the old recordkeeper to the new one. “Assets should be moved as efficiently as possible,” he says. “The quicker this can be done, the shorter the blackout period in which participants will not have access to their funds.”

Amy Ouellette, director of retirement services at Betterment for Business in New York, suggests, “See if there is a notice period required before assets can be moved out of funds. Some funds have a 12-month put or other contractual timeline requiring advanced notice before moving out of them.”

A plan sponsor’s experience

PolyQuest of Wilmington, North Carolina, switched from unbundled recordkeeping services from American Funds, along with a third-party administrator, to MassMutual in January 2017, says Kim Mueller, human resources manager at the manufacturer of resin products and the 2018 Plan Sponsor of the Year winner in the corporate 401(K) < $10 Million category. PolyQuest relied on a Merrill Lynch adviser from a sister company to oversee the process.

“They were a big help for us in handling the contracts, setting a timeline and creating a checklist of all of the things we needed to think about when switching over,” Mueller says. Certainly, one of the most critical aspects to the process is “mapping the funds, making sure the new recordkeeper had equivalent options and that this was communicated to the participants.”

As well, PolyQuest’s new recordkeeper, MassMutual, assigned a very competent conversion team, Mueller says. “The adviser and MassMutual handled communication with the old recordkeeper and third-party administrator, making sure [MassMutual] got all of the legal documentation needed, such as adoption agreements and transfer notices,” she says.

MassMutual assigns three key people to handle a conversion, says Ella Bevilacqua, director of client management at the firm, headquartered in Enfield, Connecticut. This includes a transition manager, a plan design consultant and a technical consultant.

“The transition manager keeps the sponsor up-to-date with a detailed timeline and conducts weekly calls with the plan sponsor to ensure they are aware of all of the moving parts and who is handling day-to-day activities,” she says. “The plan design consultant reviews current plan documents and does a deep dive into these documents to ensure all of the pieces that need to be recordkept are being done so correctly. They may suggest enhancements or updates.”

Finally, the “technical consultant helps with the data transfer,” she says. “They coordinate all of the data coming from the prior carrier to ensure it is mapped to our system accurately. They discuss with the sponsor any data that needs clarification and then do a deep-dive training with the plan sponsor to ensure they are comfortable with our website and know where to find information.”

After the conversion

Because ensuring that data is accurate is one of the most important functions of a recordkeeper conversion, “the plan sponsor needs to verify that the data is correct on the new recordkeeper’s system,” says Terry Dunne, senior vice president and managing director of retirement plan services at Millennium Trust in Oak Brook, Illinois. “Tests should be run to check for errors [in participant census data].”

Likewise, vesting and beneficiary data should be checked to make sure it is accurate, Ouellette says.

Bevilacqua says she has witnessed new recordkeepers finding during conversions that there are discrepancies between the plan document and how a plan was actually administered while with the prior recordkeeper. Depending on what the discrepancy involved, the plan sponsor may have to go through a Voluntary Correction Program (VCP) filing with the IRS.

Yet another area in which MassMutual has seen mistakes is participant loans. Sometimes, plan sponsors fail to monitor them as closely as they should have. “Participants may have missed payments or are behind schedule, so it may be necessary to refinance them or seek out additional payments,” Bevilacqua says.

And, after assets are moved to the new recordkeeper, it is very important to ensure that account balances match, both in total and for each participant, Parks says.

Investing February 11, 2019

What Baby Boomers Can Do When Market Volatility Hits Near Retirement

Experts weigh in on how to balance a near retirement future with instability in the market.
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Art by Dalbert B. Vilarino

By now, Baby Boomers have likely surpassed all financially-burdening checkpoints: student loan debt, paying down a home mortgage, and polishing off a heightening credit card bill. Yet, one crisis-inducing obstacle still conjures emotional and financial anxiety—market volatility.

 

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Although Millennial and even Generation X participants can profit off this instability—literally—due to a mash of portfolio aggressiveness and flexible time control, a Boomers’ investments, typically more conservative, may not pay off as well during a market downturn. Factor in that this group will also be the first to largely rely on their defined contribution (DC) plans for retirement income, and enter panic mode.

 

However, Katherine Roy, chief retirement strategist at J.P. Morgan in New York City, pinpoints strategies plan sponsors, advisers and participants can apply to expand savings, whether it’s accumulating monies or time. The first? Introduce participants to an emergency reserve bucket, focused on funding years in retirement instead of months.

 

“Be proactive about the type of liquidity or cash you’re going to need to live, not just this year but multiple years out, and make sure you have that buffer against the volatility you might experience,” she says. “Put more of your equity exposure further out into your horizon, so you’re not dependent on your equities for food budget this year, you have a little bit of space and are using time to your advantage.”

 

Roy emphasizes that while reserving an emergency bucket strategy is critical across all generations, it’s importance weighs heavier for individuals nearing retirement, especially as personal spending rises during those post-work years. For example, she says, a retiree’s utilities bill will rise as they transition into retirement, as these former employees tend to stay home more and utilize and buy additional household products. Blending this form of spending volatility to unpredictability in the market is dangerous, therefore Boomers must sustain a larger budget to suit their needs.

 

“You’re going into a completely new life stage, shifting from a work lifestyle to a leisure lifestyle, and so our bucket recommendation is not just this one to three-year income gap, but continuing to maintain a cushion so that as you transition and opportunities present themselves, you’ll be able to adjust and account for those types of unexpected increases in expenses,” Roy says.

 

Tina Wilson, head of investment solutions at MassMutual in Enfield, Connecticut, stresses the importance for plan sponsors of having a refined financial wellness strategy beginning 10 to 15 years before retirement.  She explains how financial wellness features, such as pre-retirement seminars and sessions, can help Boomers understand and personalize their financial situation, whether it’s how their assets are invested, creating sustainable nonguaranteed income streams or managing market volatility.  

 

“Baby Boomers need to understand their overall financial wellness, and as they approach retirement, how do they best look at things like maximizing Social Security, creating a sustainable income stream, and what are the strategies they need to deploy?” she says.

 

Wilson credits the Great Recession, when many Baby Boomers looking to retire were greatly impacted by investment risk, with providing lessons for plan sponsors and advisers about how to shape the intricacies of retirement planning.

 

“That really was a pivotal moment in the industry to allow us and everyone to focus on making sure that we’re having those conversations ahead of time, making sure we’re talking about and factoring things like the impact of Social Security into financial wellness, because your outcome has a number of components in it—it’s how much you’re going to get from your DC plan, how much you’re going to get from Social Security, the assets that you have outside of your plan, how you invest—all of those things need to be looked at in conjunction with one another,” she says.

 

Additionally, implementing a tailored retirement readiness score can show Baby Boomers any gaps they have in retirement income and help them create a personalized action plan. “You actually have to show that all in conjunction and in a way that helps that individual drive a better outcome based on their own personal circumstances and family circumstances,” Wilson says.

 

According to Roy, Baby Boomers also need to consider a strategy for required minimum distributions (RMDs). When they reach age 70 ½, they are required to withdraw from their DC plans, whether they need the payments or not. Roy says DC plan participants should map out when to take RMD disbursements, and to avoid holding it off for the end of the year, offering a reminder that the recent wave of market volatility occurred during the last days of 2018.

 

DC plan participants want to be proactive and look for market situations or market opportunities to make sure they are getting the most from their RMDs, she adds.

 

Additionally, stable value funds have seen extreme popularity over the years with Gen Xers and Boomers, as they deliver higher returns with lower risk. “That’s certainly one investing mechanism that’s been incredibly powerful, and has really demonstrated that it does protect on the downside while allowing people to participate when the market is rising,” says Wilson.

 

As participants progress through life stages, they will be affected by market volatility, but education, awareness and the right action can influence the impact. In 2008, when the Great Recession hit, for example, those who remained in their investments now hold portfolios worth 50% more than those who pulled their money out immediately. Additionally, a recent MassMutual Retirement Savings Risk study reported that while 80% of pre-retirees believe their cost of living will lower in retirement, only 50% of retirees found that to be the case. Anxiety about the market and retirement will occur, but it’s up to plan sponsors and advisers to diminish the apprehension.

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