What can mean the difference between a poorly or well-managed plan? Often, it is the level of service provided by third-party service providers. Plan administrators should evaluate their service providers on a regular basis. This includes weighing factors such as fees, performance, and responsiveness to inquiries. Is the service provider meeting the needs of the participants and the plan? Ongoing monitoring is one of the key fiduciary duties of a plan administrator.

What if you determine it is best to switch service providers? There are some helpful steps to follow in order to facilitate the transition. Fortunately, both service providers should have experience with such a transition.  They should be able to guide you through the process. Here are some additional tips to help you achieve a successful transition.

Understand the services of the third-party service providers

There are often small differences which are important to be aware of. Custodian and recordkeepers provide different services.  Be sure to understand each providers' responsibilities as outlined in your service agreement. For example, a custodian typically holds the plan’s assets and executes trades.  A recordkeeper generally tracks contributions, earnings, and investments on a participant-level.  They also may perform annual compliance testing.

Communicate with your employees

Work with your service providers to ensure employees receive adequate communication.  Recommended notices include the nature of the transition, accessing their accounts, blackout periods, etc.

Reconcile the transfer of assets

Arguably the most important step. Ensure total plan assets per the predecessor agree to total plan assets per the successor. Perform this reconciliation immediately after the transfer. It is also important to agree the total of participant accounts, as well as individual participant balances before and after the transfer. If the plan changes both recordkeepers and custodians, agree or reconcile the total of all participant accounts per the recordkeeper to the custodian prior to and after the transfer.

Obtain and review the SOC-1 Type 2 Report

The SOC-1 Report (System and Organization Controls Report) is a report on the service organization's internal controls.   These controls are relevant to your own internal controls at the plan sponsor. By reviewing the SOC-1 report you will understand the relevant internal controls at the service provider.  You can evaluate if your own internal controls (i.e. user entity controls) complement the third-party’s internal controls.  You can also identify if there is a weakness in your own internal control environment.

Request and retain the year-end “audit packages” from the service providers

These reports ensure you have everything you need from your service providers for your year-end audit. Ensure you receive the following items from both predecessor and successor providers (as applicable):

  • 29 CFR 2520.103-5 certification letter (DOL Limited-Scope Letter)
  • Various trust reports including remittance schedules, distributions schedules, participant loans, etc.
  • Participant account reports

Hopefully, the issues identified help you better understand the route to switching custodians. Our team at Delap has extensive experience with a variety of employee benefit plans. We would love to help you through any questions you might have regarding your plan. Please email or call us today at 503-697-4118!

Talk with our team of experts

Editors note: This post was originally published March 2018 and has been revamped and updated for accuracy and comprehensiveness.