new investment provider/deposits

[pmacduff]

ok folks...we are running into a strange situation for the first time in our many years in business and want to know if others are having the same experience.

Let me start by saying we are a "nonselling TPA". A broker recently sold a plan with a vendor we had not worked with before. The vendor stated that it will not take ANY current deposits until the assets of the plan have transferred from the former investment provider to them. We thought this was odd since our experience has always been that the new enrollments are completed and, once the participants and investment elections are set up on the new platform, the client can begin to put current deposits into the plan and not have a period of lapse in deposits (which we all know is a good thing because of the 401(k) deposit timing rules).

Now we have another new plan with a different investment vendor (that we DO work with on other plans). This vendor is also saying that it will not take current deposits until the funds have transferred from the prior provider - but they did in the past. I understand blackout rules on the side of the vendor the assets are leaving...but why on the new platform?

What's up with this?!? We have vendors that have taken months to transfer the assets to the new provider...who would have the client hold up deposits for that?!?! This is SO contrary to the whole DOL/IRS deposit timing rules that I can't even express it!

Anyone else running into this issue?

[ETA Consulting LLC]

Not sure about the fact pattern. A trust account is a trust account is a trust account. It is possible for a plan to maintain several accounts that are part of the same "trust"; especially in instances where current deposits are invested pursuant to investment elections on deposits into one trust account while there is another account that maintains another balance. The key is to flowchart a smooth operation that provides for the transfer of the assets while continuing to meet all other regulatory requirements (e.g. blackout rules and separation 'from employer assets' of amounts withheld from employee pay).

Whenever someone makes a statement of "what they are NOT going to do", they should at least be able to articulate the applicable rules and provide a detailed understanding of how they intend to assist the plan in meeting those rules. Not saying, right or wrong, but there is something to be said when organizations provide hard-line approaches without communicating a fundamental understanding of the rules.

I've never seen this.

Good Luck!

[Jim Chad]

I wonder if the fees quoted are based on the large rollover amount and they do not want to do the work for the low fee on small amounts. They may have had the experience of months going by before the assets came over. This sounds like good business practice, to me, from the accounting department point of view.

It is also a sales prevention item in the real world.

[ETA Consulting LLC]

It is also a sales prevention item in the real world.

"Like"! Good perspective.

[K2retire]

I've run into it also. In one case it was explained to me that because the participant information was also coming from the prior provider no participant account could be established until the assets transferred.

[Bill Presson]

This is a good example of why we try really hard to not work with any platform providers and offer our own daily platform. We get to set the rules instead of living with others' rules.

(self serving comment: we're also working with TPA's that don't like those kind of restrictions and are providing recordkeeping services for them)

I wish you the best.

[four01kman]

Wow! This sounds like the dollars are driving human resource and participant recordkeeping issues.

Quoting fees based on asset transfers, and then holding up doing any work until the transfers occur is anything but good business practice.

[EBDI]

I also ran into this issue recently. It took months to get the funds transferred and no one would take deposits during that time. It wasn't a good situation.

[BG5150]

If there can be no contributions to the new place, can there at least be contributions to the old place in the meantime?

If not, is the trustee acting in the best interests of the participants by having this gap?

[pmacduff]

BG5150 that is my point precisely in reference to the timing gap - why would the new vendor expect the Trustee to do something so blatantly in opposition to the rules?

No, the old vendor will not take the contributions after the blackout goes into effect.

That is why we have the plan set up with the new provider, get the enrollments in and start sending in current contributions. No lag whatsoever in contribution deposits.

As I mentioned in the OP, this is the first time we have had a vendor tell the client that they won't take current contributions until the old funds transfer over.

[ESOP Guy]

pmacduff:

Not trying to state the obvious and not saying this is a good answer but.....

If push comes to shove remember the rule is the assets merely have to be segregated not invested per the participant's investment elections. So the trustee could open a checking account in the trust's name and put the funds there until they can be deposited. Although if the gap between deposit and allocation to accounts gets long enough one could have someone raise the issue if the fiduciary is doing their duty right/well.

Also, the 7 day safe harbor rule is just that a safe harbor. I forget the exact language in those rules but it does say something to the effect that the deposit has to be done in a reasonable time. The language to me at least opens the possibility one could go beyond the 7 day period and not have to put lost earnings in and not be in violation of the rule if there is a good cause. My fear back when I worked on 401(k)s was getting in a fight with the government over was what we thought was a good cause and if it was a good cause in their mind.

Once again I am not saying anything about the new provider or saying these idea are great just offering ideas how to solve your client's practical problem of what do do with the 401(k) money until they can deposit it.

[MoJo]

If push comes to shove remember the rule is the assets merely have to be segregated not invested per the participant's investment elections. So the trustee could open a checking account in the trust's name and put the funds there until they can be deposited. Although if the gap between deposit and allocation to accounts gets long enough one could have someone raise the issue if the fiduciary is doing their duty right/well.

"Like"

Also, the 7 day safe harbor rule is just that a safe harbor. I forget the exact language in those rules but it does say something to the effect that the deposit has to be done in a reasonable time. The language to me at least opens the possibility one could go beyond the 7 day period and not have to put lost earnings in and not be in violation of the rule if there is a good cause. My fear back when I worked on 401(k)s was getting in a fight with the government over was what we thought was a good cause and if it was a good cause in their mind.

"Like again"

In our experience, if a complete "re-enrollment" takes place, the new provider takes current contributions from that point in time (which may preceed the asset transfer date). If a mapping occurs, typically the contributions don't go to the new provider until after the asset transfer date, and *if* the prior provider can't take contributions once the blackout commences (which seems archaic to me in this day and age), the lag is typically about an extra week (i.e. two weeks from the salary deferal date to deposit date). We have the conversation with the plan sponsor, the providers, and if a glitch is anticipated, we give them the "set up a segregated account in the name of the trust" speech, but typically that doesn't happen, nor does the lag extend beyond that whicharguable is "as soon as practicable" as a result of the conversion.