Retirement Plan Custodian & TPA Switching Guide
4 Phases to Seamlessly Transition Recordkeepers and Asset Custodians While Minimizing Blackout Risk
Unlike an auditor change, switching your retirement plan’s Custodian (the asset holder) or Third-Party Administrator (TPA/Recordkeeper) involves moving millions in assets and critical participant data. Successfully navigating this transition requires rigorous project management, extensive data validation, and careful communication to maintain compliance, ensure data accuracy, and minimize disruption to participants.
Key Takeaways
Why should a plan sponsor consider changing their retirement plan provider?
Plan sponsors often switch providers to reduce costs, improve service quality, access better technology, or address compliance deficiencies.
What is the highest-risk step when changing a plan custodian or TPA?
The highest-risk step is the data preparation and mapping phase, which requires meticulous accuracy when transferring all historical participant data.
How can a plan sponsor minimize fiduciary risk during a provider transition?
Fiduciary risk is minimized by thoroughly documenting the entire due diligence process and engaging independent counsel to oversee the transition.
Why Plan Sponsors Make the Switch
The decision to change custodians or TPAs is rarely impulsive. Often, the impetus stems from a long-term build-up of dissatisfaction or a major shift in the plan sponsor’s needs. Cost-effectiveness is a perpetual driver; if a competitor offers comparable or better services at a lower price point, the business case for switching becomes compelling. However, service quality frequently outweighs cost. Poor communication, slow response times, repeated errors in recordkeeping, or a lack of proactive guidance on complex regulations like ERISA or the Internal Revenue Code can push a sponsor to seek a new partner.
Another major factor is technological capability. Modern employee benefit plans demand user-friendly, robust online portals for participants to manage their accounts, easy-to-use administrative dashboards for the sponsor, and seamless integration with payroll systems. If the current provider’s technology is outdated or lacks necessary features, it impairs the participant experience and increases the administrative burden on the plan sponsor’s team. Furthermore, a switch might be necessary if the current provider exhibits compliance weaknesses or receives consistently poor audit reviews, posing a fiduciary risk to the plan sponsor.
Phase 1: Strategic Planning and Due Diligence
A successful conversion begins with a robust, documented decision-making process.
Define Clear Objectives
Before issuing an RFP, plan sponsors must clearly articulate the “why” behind the switch. Are you seeking improved technology, lower per-participant costs, enhanced fiduciary support, or better participant engagement tools? Defining these success metrics will guide your selection and transition strategy.
Establish a Project Timeline (12–18 Months)
Due to complex data mapping and potential blackout periods, a timeline of at least 12 months is standard. The project plan must include key milestones for data readiness, contract negotiation, final testing, and the post-conversion reconciliation window.
Rigor in the RFP
The Request for Proposal must demand detailed information on the prospective provider’s data security protocols, conversion team experience, and, crucially, a sample conversion plan. Prioritize providers with verifiable experience in plans of your size and complexity.
“Successfully executing a change of retirement plan Custodian or TPA is a demanding but necessary process that ultimately serves the best interests of plan participants.”
Phase 2: Mastering Data and Asset Conversion
This phase carries the highest risk and requires the most scrutiny from the plan sponsor’s team.
Data Mapping and Integrity
The biggest risk lies in reconciling participant-level data between the outgoing and incoming TPA systems. Designate a dedicated internal team (or external consultant) to oversee the “data map”—ensuring every field, from contribution type to loan balance, transfers accurately. Require the new TPA to confirm they can receive and correctly interpret all historical plan data.
Managing the Blackout Period
The blackout period, when participants cannot direct or transact their assets, must be minimized and managed strictly according to DOL requirements. This includes providing participants with a mandatory notice outlining the reasons, activities, and duration of the blackout well in advance. Work closely with both the old and new Custodians to ensure assets transfer securely and correctly.
Phase 3: Legal, Fiduciary, and Documentation Control
Ensure all legal and governance documentation supports the transition.
Amend Plan Documents
Review and execute new service agreements and trust agreements well before the transition date. If the switch involves changes to the plan’s structure or investment menu, ensure the necessary plan amendments are drafted and adopted by the fiduciaries in a timely manner.
Document Fiduciary Diligence
The process of selecting and monitoring service providers is a core fiduciary duty. Maintain meticulous records of the RFP process, provider scorecards, fee analysis comparisons, and all fiduciary committee approvals related to the change. This documentation is critical if the DOL ever questions the prudence of the provider selection.
Phase 4: Post-Conversion Validation and Review
The project is not over when the first payroll runs on the new system—it is only halfway complete.
Initial Reconciliation and Payroll Integration
Immediately after conversion, perform a final, comprehensive reconciliation of all converted assets and participant balances. Verify that your internal payroll system is correctly integrated and successfully transmitting contributions and deferral changes to the new TPA system.
Post-Implementation Review
Schedule a formal review session 60 to 90 days after the conversion to gather feedback from HR, finance staff, and participants. This review should address system performance, service delivery, and any unresolved data issues to ensure the desired outcomes (the “why” from Phase 1) were achieved.
Successfully switching custodians and TPAs is a journey, not a task. By applying structured project management, prioritizing data integrity, and adhering to strict fiduciary standards throughout these four phases, plan sponsors can successfully leverage the change to enhance plan security, efficiency, and participant experience.
Fulfilling Fiduciary Duty Through Structured Transition
Successfully executing a change of retirement plan Custodian or Third-Party Administrator (TPA) is a demanding but necessary process that ultimately serves the best interests of plan participants. This transition is less about simply signing a new contract and more about rigorous project management, meticulous data integrity, and strict adherence to fiduciary standards across the four key phases. By conducting thorough due diligence, prioritizing accurate data mapping to minimize blackout risk, documenting all fiduciary decisions, and completing a comprehensive post-conversion reconciliation, plan sponsors can successfully leverage a provider change. The reward for this diligence is a more efficient, technologically advanced, and compliant retirement plan that enhances security and improves the overall participant experience.
Disclaimer: This article provides general information and should not be considered professional financial or tax advice. Please consult with a qualified CPA or financial advisor for guidance specific to your individual business needs.
Questions?
Jackie leverages her experience in audit, review, and compilation services across multiple industries to serve clients, including those requiring specialized employee benefit plan audits. She applies her audit skills to a variety of engagements, encompassing many of the firm’s client engagements since joining the firm in 2019, ensuring compliance and financial accuracy across diverse sectors, including employee benefit plans.