Prior record keeper refuses to do final valuation

[Guest paradigm]

We are a 401k administration firm taking over a 401(k) plan from another administration firm. The previous firm is refusing to do a valuation at the time of transfer, saying that they only do valuations at the end of the year.

I have never run into another admin. firm that flat out refuses to do the valuation. Any insights on where to go? Would the DOL have a problem with this?

[david rigby]

Is there a need for a valuation at date of "transfer"? Does the plan (and/or administrative procedures) specify the timing of valuaitons?

[BFree]

Most people reserve the right to do the things they want to do and to not do the things they don't want to do. Contracts are used to enforce agreements - does the client have a contract with the old TPA saying that they will do this particular valuation or any old thing the client requests? If not, why do you pose your question?

Turn the question around - you have a new client. Why don't you step up and offer to do the valuation?

[Archimage]

If the plan is balance forward with the prior recordkeeper you should have no problems doing a YTD valuation. The problem would be if it wascoming from a daily environment but I am guessing that is not the case. You should look at this as a way to make more revenue.

[Guest paradigm]

What doesn't make sense to me is the prior recordkeeper has all the information, since they have the assets as of now. We could use the 2001 year end report, get a listing of contributions and distributions from the plan sponsor and them allocate the gains. From the tone of other responses, this sounds like this would be a fairly standard practice to some of you who are acting as record keepers (?)

[Archimage]

That is correct. I have dealt with recordkeepers on numerous occasions that would not do peform a terminating valuation. Even if they did agree to do it, it is my experience that you can get it done 500% faster than the amount of time it would take them to complete it.

[Guest SPOT]

There could be some valid reasons for the prior TPA refusal to perform the valuation. Maybe the client isn't willing to pay for it. I have had to do interim valuations on a balance foward plans converting to our daily system for this very reason.

[BFree]

Yeah - it's standard practice to reconcile accounts before switching recordkeepers. You still need to come to an agreement on who will do it, though. Taking business away from someone doesn't make them want to do any favors. And neither does making a federal case out of it, as the original post suggested.

[Guest DUKE C]

This is from a prior TB recordkeeper perspective. I was just posed this question by one of our administrators. We will normally perform a final allocation before transfer, if the ER is willing to pay the additional allocation fee. In our case, the last annual evaluation will be 6-30-02 and we have been asked to perform this function again as of 7-31-02. My response is we will charge an additional fee. The ER has balked at this, so I feel like the new recordkeeper can perform this function just as well as we can and should since they will be getting all future fees for this account.

[Guest consultant]

People don't have the right to do what they want when it comes to participant's money.

You might want to have the client offer to pay for the service and remind them of the potential damage this has caused to the participants, especially if there is a jump in the market.

You might also throw in fiduciary liability issues and although they may not be a fiduciary by definition, (you didn't mention if they had discretion over the account) that several recent court cases have provided penalties and fines for NON fiduciaries as well. If this doesn't work, refer it to counsel.

[MoJo]

I would think that a prior recordkeeper would want to do a final val - if for no other reason than to prove the records and assets are in balance, thereby making any future inbalance conditions not their responsibility....

[Guest SPOT]

Why would they want to if they aren't being paid for it? The last valuation the prior TPA did was in balance (if they did it correctly). They probably have had nothing to do with the activity in the trust since the last valuation if it is a balance forward plan. The problem seems to be an employer who thinks services should be provided for free. The ultimate responsibility is the employers not the prior TPA's. I would guess the prior TPA IS willing to provide the SERVICE. The TPA is in business to provide a SERVICE for a FEE. Is it just me or do people think the prior TPA should volunteer their services?

[Guest consultant]

I agree with you SPOT, we sell time and if you are doing it for free, you don't get paid. I think the problem is that most current or exclients haven't a clue as to what we really do. We push a button and the reports appear. If only it was that easy. We have made a point to try and bring many of our clients inhouse which provides some insight, but how quickly the forget when they leave.

The other issue is that with GUST and EGTRRA and effective dates of provisions, you had better make sure have everything you need to complete docs etc. before severing ties with the former TPA or it could put you and your client in a bad situation down the road.

[MoJo]

I never suggested that they do it for free. I merely suggested that they should be eager to do so (and I've ran into some who simply refuse at any cost). Perhaps the issue should be addressed in a service agreement up front....

[Guest mjrave232]

I agree with the previous posting. I think that when it comes to conversions and participant related plan data in this "post Enron" enviroment, it would ludicrous to not provide the new recordkeeper with the proper conversion data. While I would agree that it is not the first priority for the provider who is losing the business, however it is the right & prudent thing to do when a plan moves to a new provider.

I feel that TPA's and providers who act in this manner need to wake up to the changes occuring in our industry, and realize that situations like the one described above only make a great case for the politicians in DC to reform the retirement industry.

Just my two cents.

[Guest SPOT]

I completely disagree. If the prior TPA was running the plan in a daily environment, then yes of course they need to provide conversion date data, BUT when converting from a balance forward environment, the prior TPA hasn't done any work on the plan since the last valuation. They were engaged to provide annual, semi-annual or quarterly valuations in a balance forward environment. If the last valuation they were hired to do was 12/31/2001, then anything that happened in the plan since 12/31/2001 really has nothing to do with them unless they were ENGAGED to do the valuation for that period. I wonder if the employer would be willing to provide the information to the prior TPA to do the interim valuation? This all comes back to the ER. They are changing retirement plan providers as well as the method plan accounting. THEY are responsible for the conversion. They have the last valuation that the prior TPA did. Anyone can do the interim valuation, including the prior TPA. Unless, the ermployer does it in house, they should expect to pay for it. The new TPA should just step up to the plate and do it. They should also be very clear in their service agreement regarding the services their fees include and the additional fees that will be charged for "Other" services.

O admit, I am inclined to give the prior TPA the benefit of the doubt because I have had too many experiences with unreasonable employers.

[Guest MaryMac]

MoJo makes a great point. I have seen final valuation and transfer of data fees on the service contract and explained to the client up front.