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Moving to Single Vendor

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A 403(b) plan currently has 3 vendors and would like to move to a single vendor arrangement. However, they are hesitant to make any drastic changes from a participant perspective. Are there any clear issues with them doing a phased approach and moving to a single vendor going forward for new employees only? And is that something that could be amended in their plan document? Any insights would be appreciated. 

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I am a TPA and not an investment advisor but the plan sponsor should review with a licensed and experienced investment advisor the fiduciary issues raised by having different groups of employees in different investment packages.

From an administration point of view, I recommend (and, in fact, would insist) that this plan sponsor choose a provider with a good service package and quality investments and that all future contributions from X date go to that provider and make sure that intra-plan transfers to the new provider are permitted.  I also urge such  clients to not permit loans, etc from the old vendors in order to consolidate administration and encourage transfers to the new vendor.   My firm would decline this plan for administrative and pricing reasons if this client would not agree to at least cease active contributions to the 3 "former" vendors  (unless one of them is selected as the new vendor).

 I assume this is an ERISA plan.  And following on that assumption, there will be a sufficient number of challenges keeping track of the 3 sets of "legacy" accounts or contracts for every recordkeeping purpose (benefits, SAR, 5500, etc).   I cannot imagine charging enough to compensate a TPA for dealing with individuals with different hire dates being in different recordkeeping packages.

The bottom line as I see it is that this plan sponsor is probably not used to being responsible for and operating an ERISA plan.  The Plan Sponsor is responsible for choosing and continuing to work with vendors.  This responsibility cannot be delegated to Participants who might be "unhappy" if their first choice as a vendor is not the new package.  The fact is that the very Participant who demanded that he or she be able to continue to use a vendor who does not meet the selection criterion could sue the plan sponsor later if he or she experiences performance or execution problems compared to another Participant who, hired later, turns out to have been offered a superior package. 

I always believe that one of the things clients hire me/us for is to give them advice on how to create and maintain a quality, well run plan which will not have compliance or administrative problems.  My suggestion would be to try to help this client see that the idea initially proposed is not a good one.  An ERISA plan needs to have one vendor and a plan which starts out with 3 vendors needs to have a strategy that results in a minimal number of vendors as soon as possible.

All questions welcome!


Patricia Neal Jensen, JD

Vice President and Nonprofit Practice Leader

|Future Plan, an Ascensus Company

21031 Ventura Blvd., 12th Floor

Woodland Hills, CA 91364

E patricia.jensen@futureplan.com

P 949-325-6727

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