401(k) custodian cut off new participants from participation

[GrammieMame]

We have about a dozen small 401(k)'s. Recently the holder of the assets (life insurance company) issued a statement that we could no longer enroll new plan participants in their products. This leaves us in an impossible position since it is very difficult to find a company that would take only a couple of new 401(k) participants. The current participants can still put their money into the existing products and aren't interested in making a changing, since they are still getting a decent return on a fixed product. We are at a loss as to what to do with new participants; I'm wondering if anyone has run across a similar situation or has any suggestions.

[Lou S.]

Raise their fees until they agree to move the assets to a new vendor?

Explain the impracticality to the trustees and let them decide?

[Bill Presson]

Wouldn't allow them to contribute to ALL the investment choices or just a fixed investment product? I think the answer to the problem is dramatically different depending on the answer to this question.

[GrammieMame]

What they are not allowing is any new participant to be enrolled to use their product. Existing participants can invest in either variable or fixed. To make it even worse, they cut off paying commissions on any deposits.

[MoJo]

What they are not allowing is any new participant to be enrolled to use their product. Existing participants can invest in either variable or fixed. To make it even worse, they cut off paying commissions on any deposits.

I guess they aren't going to be in the business much longer. To me, this is a no-brainer. The PLAN says certain employees become eligible under certain conditions, and the plan sponsor must adhere to the terms of the plan. In addition, the plan sponsor must, as a fiduciary, select service providers who ALSO will adhere to the plan provisions. If not, I would suggest a fiduciary obligation to fire them and move the plan elsewhere - lest you risk the qualified status of the plan.

I understand some participants may take issue with that, but the plan sponsor's fiduciary obligations extend to ALL participants (including the new ones) and to adhere to the terms of the plan.

[Bill Presson]

What they are not allowing is any new participant to be enrolled to use their product. Existing participants can invest in either variable or fixed. To make it even worse, they cut off paying commissions on any deposits.

As MoJo said, the employer and the trustee are obligated to provide appropriate options. Now, it doesn't have to be employee directed, etc., but they can't just throw up their hands and give up.

Looks like you're going to need to find a new provider. Your best bet will probably be to find a provider that will take them all so you can work with them at the same time.

[david rigby]

To make it even worse, they cut off paying commissions on any deposits.

"Commissions"? I hope this is just a poor choice or words.

[Bird]

And I'll bet there are surrender charges too.

Your options are 1) to muddle along and maybe allow new people to own brokerage accounts. It sounds like you are the agent/broker and not the TPA, and the TPA is not going to like this, or at least is going to have to charge more. You are going to have a hard time finding individual annuity contracts that will work.

2) Bite the bullet and surrender all of the contracts and pay the surrender charges and move the money to a platform that works for small plans, like the American Funds.